Mariano Browne
There are key objectives that any government should aim to achieve: first law and order, second an adequate supply of water, third food security, fourth energy security, fifth a sound education system and sixth, adequate health care. Achieving objectives require organisation and money. Without organisation, there will never be enough money. Governments' financial resources come from taxation which requires a strong economy. A strong economy requires a growing population, a vibrant private sector and a responsible government that formulates and implements sensible policies.
Currently, energy prices are high allowing the finance minister to boast that the economy is growing whilst ignoring the underlying weaknesses. A Finance Ministry press release on December 2 indicated that the country achieved a $1 billion (TT) surplus for the first time in 14 years. In addition, the finance minister has often reassured citizens that T&T’s financial buffers (the foreign exchange reserves, the Heritage and Stabilisation Fund, National Insurance Fund) are all well-funded, even though the last 13 government budgets were in an unsustainable deficit cycle.
The HSF quarterly reports to June 30, 2022, reveal that its asset value fell by $.878 billion USD (TT$6 billion) in the last nine months because international markets were depressed, thus reducing the value of its assets. When the NIB publishes its financial results for its 2022-year ending, we can expect that NIB investment portfolio will be similarly affected. These buffers are not enough.
Actuaries and demographers have warned for many years that the population would stop growing and begin to age because of its declining birth rate. The population is now entering the decline stage as the birth rate is below what is required to maintain the population. An ageing population will strain the country’s ability to generate tax revenue to meet the increased costs (health care, social assistance, pensions) associated with an ageing population. Fewer working people means there are fewer people to pay the higher taxes required to fund higher expenses and the Government cannot spend more than it raises in taxation forever. The period 2014-21 ought to have reinforced the lesson that we cannot depend on the energy sector to provide most of our tax revenue and foreign exchange.
It takes a lifetime to save for one’s retirement if there are no crises and often those savings are not enough. The negative financial effects are already affecting the national budget even if it is not publicly acknowledged. A growing hardcore of subsidies and transfers is spent on senior citizens' grants, pensions for public servants and other social expenditures. The liability for public servants’ pensions was $35 billion (TT) in 2008. Even with the unrealistic assumption that the public service has not aged since 2008, that liability is now over $100 billion, the equivalent to the country’s entire budget for two years and is unfunded.
It is assumed that future tax revenues will be sufficient to meet these expenses. This means that as public servants retire, their pension entitlements will increase and must be paid from current tax revenue, in addition to the increased expenditure on health care and other social services. The effect of inflation must also be considered. We can expect energy prices to fall again reducing national income. Therefore, if the current trend is not reversed, the burden of increasing social expenditures will fall on a declining working population which may neither want to nor be able to afford the higher taxes.
This makes a clear case for a structured immigration policy to counteract the population imbalance. The World Bank migration statistics confirm that since Independence there has been net outward migration; more people have been leaving than those coming. Between 1960-97, the statistical data shows a net emigration of 323,000 people, mainly to metropolitan countries whose immigration policies only accept people with the requisite education qualifications (ie, skilled people). This means that 30 per cent of the best and the brightest are left to become citizens in other countries. This is an astounding number with many economic and socio-cultural implications which requires comment in another article!
To restore or maintain the ratio of working people to retirees at four to one the economically sustainable rate, requires controlled immigration in accordance with a manpower plan which is more than 40 years overdue, just like property tax reform, or improving WASA’s distribution network or adjusting the country’s retirement age. Rather than work permit rules which deny entry on the pretext of saving jobs for locals, the necessary skill sets in short supply must be identified, and a Visa system implemented to allow controlled numbers of foreign nationals with the requisite skills to work, live and settle here.
These are difficult issues to communicate and implement. But they are necessary if the country is to maintain a decent standard of living. This is about economic survival. Politicians are elected to be responsible and solve real problems, not to prevaricate, kicking the can down the road to get re-elected. This explains why the finance minister is always giving short-term assurances in the full knowledge that the delay will only make the problem worse. But Cabinet is collectively responsible for errors of omission and commission.