Is the much touted T&T Revenue Authority (TTRA) in Tobago’s best interest, viewed from the perspective of economic development?
Economist Dr Vanus James said to construct a reasonable answer, it is necessary to gauge properly both the economic and constitutional situation of Tobago, set in the national context.
He explained to the Business Guardian that after 44 years of internal self-government, the Tobago economy is still in desperate need of development.
“Government in Tobago dominates the economy, accounting for nearly half of all economic activity and most jobs. This makes wages, not profits, by far the largest share of claims on all Tobago income, and Government spending, consumption and imports, not investment and exports, the main forms of aggregate demand driving the economy. Government is the employer of large numbers of underemployed workers, and Government productivity is well below 80 per cent of productivity in the Tobago economy,” James said, noting that Tobago usually collects around $214 million in tax revenue.
He added that Tobago’s resource-based tourism exports, for their part, account for a very minimal six per cent or so of GDP, noting that this is the kind of import-dependent and modest income-elasticity tourism services produced in places like Jamaica that yield low GDP per capita.
That kind of tourism, he said, contrasts sharply with the high income-elasticity industrialised tourism services exported by places such as Britain, France, the USA, Cayman and Bermuda.
James further noted that the significance of the high income-elasticity is that people spend a growing share of their income and wealth on such services as their income and wealth grow.
“When an import-dependent economy finds itself in a position where its exports are modest to low income-elasticity products, it usually needs substantial unrequited transfers from outsiders to finance its imports. In the case of Jamaica, remittances from its diaspora do that job. In the case of Tobago, those unrequited transfers are provided by Trinidad through the Government,” James said.
He added that Government spends annually about $3.4 billion in Tobago, with about $2.4 billion spent by the THA and the other $1 billion spent by the Government and the agencies it controls.
According to James, Tobago’s economy now can yield about $500 million of taxes, as he explained, “This is because the economy now produces about $1.66 billion, if we are to go by the figures recently published by Chief Secretary Farley in his latest budget statement. At a general tax rate of 29 per cent, that gives taxable capacity of just under $500 million.
“It should be noted that about $214 million of those taxes are currently collected in Tobago. So, about $286 million is collected by the agencies of the Government in Trinidad.”
These figures, James added, indicated that near 80 per cent of the money spent by the THA in Tobago is a transfer from Trinidad.
“When you add in the nearly $1 billion spent on other Government services by the Government, the level of dependence of Tobago on Trinidad increases to about 86 per cent of Government spending,” James said.
He advised that this situation can only be addressed by a sound programme of economic development in Tobago, complemented by a national diversification programme that includes an upgraded design of the institutions of Government for joint decision-making.
“The configuration of that development programme is now well understood. At some chosen pace, steps must be taken to grow GDP per capita, underpinned by economy-wide productivity growth. For that, Tobago must grow its exports per worker and capital per worker, and therefore its validating savings rate and underlying rate of profit from investment,” James said as he further recommended that crucially, productivity in, and exports by, the sector that can produce capital (services) must therefore grow to support the process.
James added that a major byproduct of all these changes will tend to be a reduced inflation rate, or even a falling price level.
Additionally, he said for an undercapitalised economy like Tobago, and T&T for that matter, none of this can happen without sound Government policy and therefore, appropriately upgraded policy-making institutions, including Government itself, viewed as part of the economy.
“It is not cost-free when politicians make the wrong policies or make them the wrong way. Poor policy-making arrangements, typically dictatorial, also lead typically to poor development outcomes.
“Both national and Tobago development depend heavily on the domestic capacity to fund development spending by government complemented by foreign capital inflows,” James said, adding that Government revenues that flow from a developing economy to reward sound policy-making is by far the more important of the two flows. “If it is possible to set up a revenue-collecting instrument that is properly overseen by an effective legislature, that would constitute progress,” James said, as he stressed this is the context in which the TTRA must be viewed.
Just as important, he noted the TTRA also advises the Minister of Finance as it relates to all forms of taxation, customs and excise duties, revenue collection and border controls.
How does Tobago fit into all this as it too pursues development through a process of sound decision-making?
James cited that under the fifth schedule of the current THA Act, the THA is assigned responsibility for “Finance, that is to say the collection of revenue and the meeting of expenditure incurred in the carrying out of the functions of the assembly.”
Section 26(2) of the Act provides that “The Government or any statutory authority or state enterprise may, by way of Memorandum of Understanding, authorise the assembly to act as agent of the Government, statutory authority or state enterprise, as the case may be, in respect of any of its responsibilities in Tobago.”
Section 29(4) indicates that “A Bill adopted by the Assembly shall not seek to abrogate, suspend, repeal, alter, override or be contrary to any written law of the Republic of T&T or impose any direct or indirect taxation whatsoever.”
James noted that given its broad terms of reference one must surely ponder whether adequate provisions have been made for the oversight of its operations to ensure sound policy-making.
“Given the laws governing Tobago, the TTRA could be in Tobago’s best interest, even assisting with its revenue collection on the island and with calibration of revenue policy as part of the wider national agenda. However, for this it would have to come with proper provisions for popular oversight in both Tobago and Trinidad, and significant concurrence by Tobago when it comes to lawmaking,” James said.
He added that even if it is reasonable to believe that the TTRA could manage revenue collection and border controls, under its current governance arrangement, the TTRA cannot be expected to adequately guide “all forms of taxation, customs and excise duties” if the intent is sound policy.
“In an economy pursuing economic diversification and development, sound guidance must come from a process in which the TTRA itself can be held to account by the people through the functions assigned to their elected non-executive representatives in both the House of Representatives and the Senate.
“The problem with the TTRA, as currently legislated, is that there is no way for the existing legislature, and therefore the people of the country, to oversee its activities,” James maintained, adding that it would simply be run by the executive and accordingly be a conduit for limited information and thus ineffective executive dictatorship.
This, he said, is the underlying reason people are nervous about it and it is also a major reason the current push for constitution reform is so important for both Tobago and Trinidad.
Meanwhile, former Head of the Tobago Division of the Chamber of Industry and Commerce and businesswoman Diane Hadad said there needs to be some “proper linkage” in terms of Tobago being able to collect taxes.
“For the properties in Tobago, we shouldn’t have to go to Trinidad to pay any of those taxes...but we are one country and we always need to remember that,” she advised.
From a general perspective, she said she did not believe that enough consultation was done on the TTRA.
“I don’t know the timing is right for the business community in terms of what has happened from the pandemic. I do not know whether the approach was done in terms of consultations...I think people were just on their drive and ‘we going and implement it like it or not’ because unfortunately the people who make those decisions are protected by salaries so they are not interested in how the world is really functioning from an economic standpoint,” Hadad added.