The 2020/2021 National Budget and You

The 2020/2021 National Budget, due to be delivered on October 5, is perhaps the most anticipated fiscal package in recent memory. It comes at a time of unprecedented economic challenges for both the domestic and global economies as a result of the COVID-19 pandemic, which intensified Trinidad and Tobago’s pre-existing troubles. During the fiscal year ending September 30, 2020, government was faced with a significant fall in revenue, causing its fiscal deficit (the shortfall of revenue relative to expenditure) to rise to $14.5 billion from $3.9 billion in the previous year. This means that government spent $14.5 billion more than it earned during the year. With 2021 also expected to be another very difficult year, many believe that government will be forced to use the opportunity of the upcoming budget to significantly reduce the gap between revenue and expenditure. Broadly speaking, they expect more taxes and reduced government spending on subsidies (e.g. fuel, electricity, water etc.). Naturally, this expectation has generated considerable anxiety and has resulted in substantial speculation regarding the likely key components of the upcoming fiscal package. In this regard, we at Republic Bank thought it would be useful to offer our best guess on some of what Budget 2020/2021 is likely to contain, based on the country’s needs, recent statements by public officials and the key concerns and questions of the average citizen.

Will I have to pay more taxes?

Income Tax
Unlikely. Government is conscious of the significant hardships currently faced by citizens and would not want to exacerbate these pressures by increasing taxes on household incomes.

Corporate Tax
With the business environment as difficult as it is, government is also expected to hold off on increasing taxes on profits at this time. When corporate tax increases, it results in an increase in the cost of operations for the liable businesses. Because government wants to preserve as many jobs as possible, taxes on businesses are likely to remain unchanged. Given government’s tight finances, we don’t expect a reduction in corporate tax rates either.

Property Taxes
The introduction of the new property tax system is probable, given the urgent need to boost public revenue. The state has also been doing a lot of the required background work (including property value assessments) to implement this system. Even if the government is not ready for a full implementation of the system, we may see a situation where the tax is first levied on particular segments of the population and then expanded on an incremental basis.

Are the prices of motor fuels and cooking gas going to be increased?

Motor Vehicle fuels
For many years, the prices we paid for gasoline and diesel were well below the market price. Government would set low national prices and then pay the difference between the fixed price and the market price. In essence, for every litre of petrol we consumed, government paid a portion of the costs. This is called a subsidy. In recent times the fuel subsidy was substantially reduced to the point where gasoline is now virtually unsubsidised (depending on international prices). By comparison the subsidy on diesel remains substantial. While further cuts in this area could help to reduce government’s fiscal burdens, it is likely that little or no adjustment will be made at this time, given the desire to cushion the impact of the pandemic on the vulnerable. It should also be noted that when international oil prices are low, government’s fuel subsidy is smaller. With oil prices expected to remain low in 2021 (US$45 per barrel) if government decides to reduce or eliminate the subsidy on diesel, it may not have to increase the price by much.

Cooking Gas
Cooking gas remains heavily subsidised. Nevertheless, for much of the reasons already highlighted, this is not expected to change any time soon.

Will the domestic currency be devalued?
The Honorable Finance Minister indicated that the government has no intention of devaluing the TT dollar at this time.

Should we expect a reduction in the state’s social programmes?
We do not expect any reductions in the established, long-running, state-funded social programmes. With regard to the initiatives introduced to soften the financial effects of the COVID-19 virus, we anticipate that there will be a need to continue some of these measures heading into 2021. However, because of limited financial resources, government will have to prioritise and as such some of these recent measures may have to be discontinued.

What about GATE (Government Assisted Tuition Expense Programme)?
To conserve resources, in 2017, government changed how the GATE programme is administered by introducing means testing. This adjustment meant that full funding was still available for students from households with income below a specified level, while those at higher income levels were required to pay either 25 percent or 50 percent of the tuition. It will be no surprise if further adjustments are catered for in the budget to pass on more of the costs to households in the middle and high income bracket.

I’ve been hearing a lot of talk about WASA and T&TEC lately. Is the government moving to increase utility rates?
Not necessarily. At this juncture, the government may choose to focus on eliminating unnecessary costs in these organisations. Although it is widely known that this country’s electricity and water rates are among the lowest in the world, the government may deem this an inappropriate time to increase charges.