Delivering
on budget promises
By
Raffique Shah
Trinidad
Express
Port
Spain
Petroleumworld.com
08 27 06
PRIME
Minister and Minister of Finance Patrick Manning
will boast of an impressive record of achievements
when he delivers the 2006-2007 Budget in a few weeks.
These are partly because of extra-ordinarily
high oil and gas prices, as well as other commodities'
prices, meaning healthier revenues to Government.
But Mr Manning will, however, take blows on inflation,
especially in food and construction, which have
impacted negatively on the mass of the population.
The opposition is sure to lean on statements by
Central Bank Governor, Ewart Williams, that Government's
mega-construction-frenzy is partly responsible for
inflation. Mr Manning will be able to boast of some
decreases in segments of crime: but robberies and
murders will haunt both his presentation and the
debate that follows. And while many of his ministers
were able to deliver on promises made in the Prime
Minister's last budget presentation, albeit late
in many cases, others have not.
Total revenue for the fiscal year
2006 was projected by the Finance Minister to be
$34.129 billion. With crude oil price pegged at
US$45 a barrel for budgetary purposes, the minister
projected revenue of $18.1 billion. The new Supplementary
Profits Tax (SPT) that kicked in during the year
saw tax computed on gross crude oil income with
no allowances except for royalty, at slightly lower
rates than previously held. The "trigger price"
at which SPT became payable also was increased.
The Petroleum Profits Tax regime was also amended
to yield more revenue to the country. The Government
was also banking on increased revenue of $2 billion
from its new gas tax regime, which is based on the
concept of fair market value. During the course
of the year, crude oil peaked at US$76 a barrel,
while gas moved from under US$6 per mmBtu to around
US$7.50 per mmBtu.
While Government does not release
detailed numbers as to what it actually receives
from oil and gas sales, it can be safely assumed
these exceeded expectations when the last budget
was presented. What is known is that $1.862 billion
was allocated to the Revenue Stabilisation Fund,
all of which usually comes from excess earnings
in the energy sector. It can be assumed that this
fund, too, benefited from all-time high gas and
oil prices.
Non-oil revenue was projected to
be $16.1 billion, down from $17.1 billion in the
previous year. The Prime Minister also will reveal
in his budget speech how the non-oil sector performed.
Of particular interest will be the performance of
the manufacturing sector which was in the growth
mode for several years, but which will have faced
stiff competition from manufacturers in the emerging
economies in the Far East and in South America.
Also, with the new income tax structure that virtually
excludes 300,000 workers from the tax net, and the
across-the-board 25 per cent rate on chargeable
income, it is expected that revenue from income
taxes will decline. It is known, too, that the VAT
authorities have tightened their net to ensure greater
compliance, while Inland Revenue also has been auditing
businesses and self-employed persons to ensure a
better collection ratio.
The main downside to the economy
during the year has been inflation. In his last
presentation, the Prime Minister said: "Inflation,
which has been subdued for several years, has risen
slightly in 2005. For the most part, this has reflected
in high food prices due to the impact on inclement
weather on domestic agricultural production and
to the increase in import prices related to the
rise in the international price of oil." Over
fiscal 2006, inflation virtually has galloped, with
food and the construction sectors being hardest
hit. In the case of the former, while the weather
has thus far been much better than last year, domestic
production has not kept pace with demand for a number
of reasons. The prices on imported food, which forms
the bulk of what is consumed (especially our staples),
also have climbed by more than 25 per cent over
the past year.
In construction, prices of some
critical materials have doubled or tripled. It is
believed that inflation in this sector runs as high
as 40 per cent over the fiscal year. Most economists,
among them Central Bank Governor Ewart Williams,
have cautioned Government that its fast-lane mega-projects
have caused this. For the first time in decades,
this country has had to import a basic material
such as aggregate-some 80,000 tonnes, at more than
double the local price. Demand also has pushed up
the prices of concrete and clay blocks, while the
price of steel worldwide has risen significantly.
The Prime Minister has indicated that his government
will not "ease the gas" on its many construction
projects. As a result, most of its housing projects
have experienced cost overruns, as can be expected
of its other mega-projects. While the construction
boom has led to a lowering of unemployment, it has
also created a severe shortage of skilled and unskilled
labour, with rising costs here, too. And it has
stymied private building of homes because of the
high costs of materials as well as unreliable labour
supply.
The other national problem that
the last budget sought to address was crime. In
fact, it was item number one in Mr Manning's presentation.
He alluded to a "criminal elite" created
by the illicit drug trade which had considerable
financial resources to "corrupt public officials
and recruit our sons and daughters for all forms
of criminal activities." He continued: "The
proceeds from this trade are also used to finance
the procurement of illegal arms and as a result
sophisticated arsenals end up in the hands of competing
gangs which in turn fuel the murder rate."
The Prime Minister announced a number of initiatives
intended to rein in the crime spiral. While there
were successes in some areas-mainly kidnapping for
ransom-the murder rate has been going at more than
one-a-day, and other crimes (robberies, rapes) have
reached almost epidemic proportions.
But there were some positives coming
from the Finance Minister's budget promises, maybe
more than we have seen in past years. Let's examine
what were promised, what were delivered, and what
remain unaccounted for.
Education:
In education, which was referred
to as priority number two, the Prime Minister established
a goal of 600 Early Childhood Care Centres to cater
for 30,000 three-to-four year-olds. Of these, he
said 50 "will be completed and established
during this fiscal year." According to communications
coordinator Mervyn Critchlow at the Education Ministry,
these centres now fall under the recently formed
Education Facilities Company. Each one will take
about six months for construction to be completed.
Work has begun on 10 centres and by year-end another
64 will enter the construction phase.
The Prime Minister also said his
government will rebuild 150 primary schools to replace
50 year-old structures. Twenty of these were to
have been in the construction phase over the past
year. The actual number on which work has started
is two-Icacos and La Seiva. According to Critchlow,
tenders are now being awarded for another three,
while 22 government and 21 government-assisted schools
have been identified for Phase One of the project,
with a start-up date of January 2007. With respect
to the de-shifting of 10 secondary schools, designs
for 15 junior secondary schools have been completed.
Construction will begin shortly at the Marabella
Junior Secondary. Tenders have been evaluated for
another four-Five Rivers, Carapichaima, St Augustine
and Aranguez.
Manning spoke of four new secondary
schools being constructed at Malabar, Mt Hope, Barataria
and Curepe. Final designs have only just been completed
for these. According to the ministry's construction
consultant, Kenrick Burgess, there are two main
reasons for the delay. The first is the shortage
of contractors, and heavily escalating costs, projected
at 40 per cent. But, he added, much of this is because
of the new designs for these structures. "These
new schools will be unlike anything we have seen
thus far. Besides the structures being built to
cater for new departments like music and expanded
science blocks, they will be fully equipped to accommodate
computers. The playfields will be fully upgraded,
something that attention was not paid to in previous
designs." He said sections of the new secondary
schools also will serve as disaster shelters, complete
with stand-by generators, and meeting OSHA standards
in construction. "These can best be dubbed
'green schools', incorporating their maintenance
facilities, new 'daylight' lighting systems, etc.
We have had to change designs, and we expect not
only to encounter problems securing contractors
at this time, but also to face increased costs based
on inflation in construction. When they are completed,
though, these will be futuristic schools."
Tertiary level education has benefited
from an expansion of the student-base at the UWI,
while the UTT is gradually getting off the ground.
A degree course in entrepreneurship at this institution,
promised by the Prime Minister, has not yet begun.
The dollar-for-dollar programme at this level that
was started by the UNC government has continued,
with the Prime Minister boasting of free tertiary
education being imminent, and universal free tertiary
education a goal of Vision 2020.
Trinidad Express
Thursday,
August 24th 2006
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©2006 Trinidad Express . All Rights Reserved.
