Tomorrow is budget day—the first opportunity for Finance Minister Davendranath Tancoo to give the country a clear statement on the path this administration will follow to address the nation’s deep-seated structural and financial problems.
In preparing the budget, the minister and his advisers would have reviewed the available resources and listed the priorities in order of merit. They would have considered the economy’s taxation capacity and calculated additional sources of revenue and the financing required to satisfy campaign promises and election manifesto pledges. No doubt, the emphasis would have been placed on articulating a strategy for its term of office.
As stated in its manifesto, this administration’s vision is “centred on creating sustainable jobs, supporting small businesses, and driving entrepreneurship across the country”. It is also committed to addressing the challenge of inflation and the rising cost of living by “providing relief for working families”. Given these objectives, the manifesto pledged to stimulate growth and build a resilient economy that would benefit everyone by investing in “key industries and empowering local businesses”. It promised that no one would be left behind in the process of building “a prosperous future for Trinidad and Tobago”.
These are lofty ambitions and the objective of any government. Every government promises to do better than its predecessor. But there is a limit to what can be achieved in the relatively short five years allotted by the Constitution. The manifesto contained no specific directions, making it unclear what measures will be deployed. Since everything cannot be a priority, any administration would be well advised to focus on a handful of objectives that could act as a dynamo to energise other sectors.
From a political perspective, Mr Tancoo will need to be cautious in how he handles the public’s expectations. Last week’s newspapers reflected the public yearning for increased pensions, higher salaries, lower utility and gas prices, and better public goods. These demands reflect the pressure to increase expenditure and do not recognise that the state’s fiscal space is limited. Recurrent expenditure is notoriously difficult to reduce.
The deficit for the 2025 financial year is projected to be near $10 billion, and the Prime Minister has already telegraphed a budget deficit for 2026—the only issue is the size of the deficit. Taking on additional expenditures without matching revenue translates into more borrowing, thereby increasing the debt-to-GDP ratio, which is already at 75 per cent. The legislative changes to introduce new transfer-pricing rules proposed in the mid-year budget review were highlighted seven years ago during the “Spotlight on Energy” in 2018. If these were simple changes, they would have already been implemented. When and if these changes are implemented, they will be resisted.
The energy sector and petrochemical manufacturers are still the largest foreign exchange generators (80 per cent) and account for a significant share of GDP (35 per cent), but energy prices are softening. Increasing import duties would have a limited revenue impact and would be inflationary. The business sector cannot grow or plan for growth without foreign exchange availability. Systemic changes should be made to the foreign exchange system, but this would have inflationary consequences.
The looming National Insurance Board crisis means that contribution rates must be increased. Implementing this measure would reduce disposable income and generate negative trade union responses.
This is a precarious situation that requires a delicate balancing act to avoid the negative consequences of a “wrong” move. All eyes and ears will be focused on Minister Tancoo tomorrow to evaluate how well he and this government will address these challenges.
