Reduce food prices?
LAST week, Express journalists asked people throughout the country to identify the element of change that they would like to see in the 2020 national budget, which Minister of Finance Colm Imbert is due to present in Parliament from 1.30 this afternoon.
A surprising number of the respondents answered that they would like to see Mr Imbert reduce the prices of food items.
Although the current rate of inflation is just 1.2 per cent, the popular perception that food prices have increased substantially in the last four years persists.
As recently as last Wednesday, the Express Business published a supermarket survey in which the price of a basket of 24 basic grocery items in 2015 was compared to the price of the same basket of goods in August 2019.
That survey indicated that in 2015 the food basket—comprising basic items such as rice, flour, potatoes, milk, cooking oil, toilet paper and detergent--would have cost shoppers $366.40.
In August 2019, the same basket of 24 goods cost shoppers $405.85.
This indicates that the cost of the goods in the shopping basket had increased by close to 11 per cent in four years.
The survey found that five of the 24 items in the food basket had declined in price between 2015 and August 2019--all-purpose flour, eggs, corned beef, macaroni and garlic.
But in that four-year period, the price of most of the goods in the basket increased, including Demerara Brown Sugar (+18.5 per cent); Fine Choice frozen chicken (+8.6 per cent); Irish potatoes (54.4 per cent); Eve Soya Oil (+21.2 per cent); Breeze Multi-Active Soap Powder (+30.3 per cent) and Diary Diary Full Cream Powdered Milk (+10.3 per cent).
In the last four years, the current administration implemented a number of measures that directly impacted the prices of the items in the basket:
• Lowered VAT rates to 12.5 per cent from 15 per cent, but increased the number of items that attracted VAT;
• Increased Corporation Tax on groceries and supermarkets to 30 per cent from 25 per cent;
• Increased Business Levy to 0.6 per cent per quarter in the 2016 budget from 0.2 per cent per quarter. Increased the Green Fund levy to 0.3 per cent per quarter from 0.1 per cent;
• Increased the cost of internal truck transportation by more than doubling the cost of diesel, which is currently $3.41 per litre, up from $1.50 per litre before the 2016 budget;
• Forced many retailers of grocery items to access some of their foreign exchange on the grey market, at a price up to 20 per cent higher than the official exchange rates.
While he may be tempted to increase the number of goods that are zero-rated for VAT, that measure is not guaranteed to have an immediate impact on prices, given the huge VAT arrears owed to groceries and supermarkets, among other businesses.
How much to spend?
With exactly 11 months to go before the fifth anniversary of the ruling People’s National Movement’s (PNM) September 7, 2015 victory in the last general election, Minister Imbert may find the choices he has to make in today’s 2020 budget presentation to be the toughest so far.
Facing a general election within a year, as the chairman of the PNM and the person chosen to be acting prime minister on every occasion that Prime Minister Dr Keith Rowley has been out of the country, his inclination would be obvious: push total expenditure from the revised budgetary allocation of $52 billion for 2019 closer to $60 billion, which was what the previous administration spent in 2015.
But he faces a great deal of uncertainty with the country’s revenue, which is largely driven by the price and production of natural gas.
That uncertainty should be directing him to exhibit greater caution in ramping up expenditure too quickly, in case there are price and production shocks, which would rubbish his expenditure forecast.
Still, Minister Imbert takes pride in the fact he managed to reduce T&T’s total expenditure by exactly 20 per cent, bringing it down to $47.6 billion in the 2018 fiscal year from the about $60 billion that the previous administration spent in 2015.
And he is aware that even though the People’s Partnership spent close to $60 billion in 2015—with public servants, teachers and others being granted double-digit wage increases, which became his headache—that expenditure had little impact on the coalition grouping’s electoral fortunes at the September 2015 general election.
Given the choice between the political realities and burnishing his reputation as being somewhat fiscally prudent, Mr Imbert is likely to choose the path of least (political) resistance, indicating expenditure around $58 billion.
Where will he spend?
Of the $202.3 billion that the current administration has spent in four budgets, only $15.45 billion has gone to capital expenditure and net debt repayment. That’s 7.6 per cent of the total expenditure in the last four years going to fix roads, construct highways and build bridges
On the other hand, the Government has spent $107 billion on transfers and subsidies in the last four years, meaning 53 cents in every dollar has gone to pay the senior citizens’ grant, maintain electricity and water rates at low levels, and ensure that getting from Tobago to Trinidad whether by ferry or aircraft remains “affordable”.
In order to spur economic growth and get more people working, logic dictates that more money should be spent in the area of capital expenditure. But because the minister is in his final countdown for the current parliamentary term, he needs to spend more money on visible social safety net areas.