The 2021 Budget and You

Now that the budget has been read in Parliament, most of us are trying to assess how the announced measures will affect us as individuals, our households and our businesses. For some, there may be anxiety regarding certain initiatives, because they require a sacrifice on our part or represent a drastic change in policies, to which we have grown accustomed. This note will briefly discuss the likely impact of what seems to be the more attention-grabbing measures.

The domestic fuel market is to be liberalised, with the subsidy on all liquid fuels to be removed; all state-owned gas stations to be privatised and the fuel retailers allowed to set their own margins.
Under this new arrangement, the price consumers pay for gasoline and diesel will be determined by international fuel prices and as such, there are likely to be regular changes to prices at the pump. When global fuel prices rise or fall, domestic petrol prices will generally move in the same direction. With retailers able to set their own mark-ups, uniformed nationwide prices are likely to be a thing of the past. Therefore, consumers will be able to choose service stations based on price.

This new policy has stirred two main fears, namely, the potential for inflation to increase and the prospect of price gouging. As part of transportation costs, fuel costs feature in the final prices of goods and services. Consequently, the concern that the increase in fuel prices can stoke inflation pressures is not unfounded. However, because of the previous cuts in the subsidy, gasoline is currently unsubsidised at prevailing international prices, while there may only be need for a minor adjustment in diesel prices when the measure comes into effect in January 2021. A major uptick in inflation because of this measure is therefore not expected in January. In fact, no major increase in international fuel prices is expected for all of 2021. It should also be noted, that there will be times when domestic pump prices will fall when international fuel prices decrease. With regard to price gouging, the ability of consumers to shop around is expected to limit such practices.

From January 1st, 2021 the personal income tax exemption limit will be increased from $72,000 to $84,000. Consequently, people earning $7,000 a month or less, will be exempt from paying income tax.
This will increase the disposable income of the affected individuals by $250 per month, thereby enhancing their ability to spend and save. Nevertheless, it should be noted that there is the potential for some of the other measures (e.g. higher vehicle prices) to reduce the impact of this initiative.

The stamp duty threshold for residential properties for first-time homeowners will be increased from $1.5 million to $2 million.
As a result of this adjustment, first-time home owners will get to keep more money in their pockets. The government indicated that this measure will save first-time homeowners up to $28,000 in stamp duty.

All tax concessions on the importation of private vehicles will be removed. Hybrid cars, electric cars, CNG cars, and small engine cars below 1,500cc will attract the lowest rates of duty and tax, while tax concessions will remain in place for commercial vehicles.
This will cause the price of all new and foreign used private vehicles to rise and is likely to impact the price of local used private automobiles as well.

The permissible age of imported foreign used cars will be reduced to three (3) years and the quotas for the importation of used cars reduced by 30 percent. A quota system will also be introduced for the importation of new cars in January 2021.
The 3-year age limit and the reduced quota for foreign used vehicles will exert further upward pressure on the price and extend the customer wait-time for these types of vehicles. When the quota system is introduced for new cars, the customers in this segment are expected to face similar challenges.

The full VAT of 12.5 percent will now be applied to a wide range of imported luxury food items.
This measure will be introduced in January and is intended to encourage citizens to consume more locally grown fruits and vegetables and manufactured food. Households that continue to purchase these luxury items after the tax is imposed, may likely experience an increase in their food bill.

The operations of the Port Authority of Trinidad and Tobago is to be rationalised by the end of this fiscal year (September 2021) and engage a private sector operator to carry out port-handling operations.
Over the medium to long-term, the privatisation of the country’s ports is expected to boost their operational efficiency. This will result in fewer delays and reduced costs to businesses and households and will contribute to a greater level of economic activity.