Budget 2019/2020: An Opportunity to Address Disquiet and Tout Accomplishments

In the lead-up to this, the fifth budget presentation of the current administration, many expected the government to deliver a “goodies” laden fiscal package. Afterall, this is a government that will be facing a local government election in the next few months and a general election in 2020. Nevertheless, given the country’s ongoing fiscal challenges, government still does not have the latitude to significantly ramp up its expenditure. Accordingly, this latest fiscal package has sought to bring relief to key groups in society, but still control expenditure. In addition, government took the opportunity to highlight what it considers to be its major accomplishments over the last four years and expected achievements in the year ahead. This was likely a forerunner to its transition to full election mode. While the optimism expressed by the Finance Minister is understandable, the continued weak performance of the domestic economy will remain a source of major concern for the average citizen. Revised data from the Central Statistical Office reveal that the economy posted a small contraction of 0.2 percent in 2018, a far cry from its initial projection of 1.9 percent growth. However, provisional data indicates that economic activity expanded by 1.7 percent in the first quarter of 2019.

The 2019/2020 fiscal package is based on an oil price of US$60 per barrel and a gas price of US$3 per million British thermal units (MMBTU). On the day the budget was read, the U.S. Energy Information Administration forecasted oil and gas prices to average US$56.50 and US$2.55 MMBtu in 2020, respectively, after averaging US$56.31 and US$2.56 in 2019. If these forecasts materialise, government may incur a larger fiscal deficit than the $5.3 billion (3.1 percent of GDP) it anticipates for 2020. However, it would be able to make the necessary adjustments in the Mid-year Review should the need arise. The projected $53 billion expenditure for the 2019/2020 fiscal year is $2.5 billion higher than the actual outturn for the previous year. Of this amount, $5.3 billion is earmarked for capital expenditure. Similarly, revenue is expected to rise by $1.2 billion to $47.7 billion, with oil revenue projected to reach $11 billion. With government expected to raise only $950 million in capital revenue in this fiscal year, one-off revenue measures are now set to play a much smaller role in attaining budgeted outcomes than in recent years. In delivering the Mid-year Review in May 2019, the Finance Minister, indicated that his government did not intend to further burden the population with any new taxes or reduction in the fuel subsidy. It was therefore unsurprising that no such measures were introduced in this budget, especially considering that this is the final package before 2020.

One of the groups this budget is seeking to bring relief to is the business community, which is owed arrears of VAT refunds, totalling at least $4.5 billion. Affected businesses will be offered $3 billion in interest bearing government bonds in the first instance. The bonds will have a tenor of 5 years and pay interest of 1.5 percent per annum. Although the move by government to begin to eradicate these arrears is indeed positive, it is not expected to ease the liquidity challenges of the smaller firms affected by delayed payments.

There are also some initiatives designed to aid low-income households in the fiscal package, including the increase in the minimum wage from $15 per hour to $17.50 per hour. The previous increase was in January 2015. The wages of CEPEP and URP workers are also to be increased by 15 percent. However, there was no word on any progress made regarding government’s previously expressed desire to return these programmes to their original moorings or to use the CEPEP programme to support the agriculture sector. As part of its gender policy, the PNM administration is proposing to provide free day care services for children under the age of 3 years for female-headed households meeting certain criteria. The aim is to establish day care centres throughout the country. No timeframe was given for this initiative though. Finally, a contributory pension plan will be established so that daily paid workers with a stipulated length of service, will now be eligible to receive the minimum public service pension of $3,500 upon retirement. When implemented, this initiative may add to the challenges already faced by the National Insurance Scheme, while the other measures will exert upward pressures on government’s recurrent expenditure and may help to frustrate its efforts to generate a budget surplus by 2022.

In the wake of a budget, the conversation usually revolves around if people feel the proposed initiatives will enhance their lives. Although it is rare to feel the impact of most fiscal programmes in a short space of time, the various stakeholders at the very least want to get the sense that elected officials are paying attention to their needs and in some cases, cries. The groups that benefitted from government’s focus in the 2019/2020 budget may be a bit more optimistic about the future, but it remains to be seen if that feeling reverberates throughout the society.