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FM AMEMBASSY PORT OF SPAIN
TO RUEHC/SECSTATE WASHDC 0035
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
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RUCNCOM/EC CARICOM COLLECTIVE
RHMCSUU/DEPT OF ENERGY WASHDC
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UNCLAS SECTION 01 OF 02 PORT OF SPAIN 000370 
 
SIPDIS 
 
SANTO DOMINGO ALSO FOR REGIONAL COMMERCIAL OFFICE 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EPET ETRD EWWT BEXP PGOV TD
 
SUBJECT: FY2010 BUDGET - IN THE RED 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY 
 
¶1. (SBU) SUMMARY: The FY 2010 GOTT budget totals $7.03 billion with 
a projected deficit of $1.2 billion, about 5.3 percent of GDP, based 
on average annual oil prices of $55/barrel and natural gas at 
$2.75/million cubic feet.  This would be the second year in a row of 
budget deficits after a string of high commodity price aided 
surpluses -- in the current fiscal year concluding September 30, the 
budget deficit will be 6.3 percent with real GDP declining by 1 
percent (the first decline after 15 years of growth).  Trinidad's 
foreign reserves remain healthy at $8.6 billion, representing 11 
months of import cover.  The proposed budget provides incentives for 
the construction and manufacturing sectors, a significant overhaul 
of the property tax system, promises incentives for energy 
exploration and development, additional tax exemptions for mortgage 
interest payments, and an unpopular increase in alcohol and tobacco 
duties.  Opposition parties, which do not have the Parliamentary 
votes to stop the budget, labeled it a step toward national 
bankruptcy and devaluation.  END SUMMARY 
 
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DEFICIT BUDGET 
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¶2. (U) Finance Minister Karen Nunez-Tesheira presented the GOTT's 
proposed FY 2010 (October 1-September 30) budget to Parliament 
September 7 in a three-hour nationally televised speech.  The $7.03 
billion budget features a deficit of $1.2 billion (approximately 5.3 
percent of GDP) based on expected average oil prices of $55/barrel 
and natural gas at $2.75/million cubic feet; the bulk of government 
revenues come from energy exports.  The FY2011 budget also is 
expected to be in the red, she forecast, with black ink only 
returning in FY2012.  The deficit in FY2009 is now projected at 
$1,342 million, or 6.3 percent of GDP.  FY2009 also had the 
"distinction" of featuring the first decline in real GDP -- one 
percent -- since 1993.  Similar to earlier statements by Prime 
Minister Manning, the Finance Minister denied that the country's 
Heritage and Stabilization Fund would be used finance the budget 
deficit.  Instead, domestic bonds will be sold, with the possibility 
that external markets might also be tapped. 
 
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NEW CONSTRUCTION SECTOR DEDUCTIONS 
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¶3. (SBU) To stimulate the construction sector, a major employer, the 
proposed budget includes a reintroduction of an allowance permitting 
the deduction of 15 percent of all capital expenditures incurred in 
the construction of commercial or industrial buildings begun on or 
after October 1, 2009.  In a September 8 post-budget discussion, 
Executive Director of PricewaterhouseCoopers Peter Inglefield 
questioned whether the allowance would have the desired effect, 
arguing incentives should focus on existing, not new projects. 
 
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TAX CREDIT FOR EQUIPMENT BUT NOT RESEARCH 
----------------------------------------- 
 
¶4. (U) In a further stimulative measure, the budget increases the 
amount manufacturers may claim against their taxes of expenditures 
to purchase machinery from 75% to 90% and includes an additional 25% 
annual machinery "wear and tear allowance."  Therefore, if the 
machinery is acquired and put into use in the same year, the company 
may claim 115% of the cost incurred.  Critics point out that the 
budget offers no incentives for research and development. 
 
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OIL/GAS FISCAL REGIME CHANGES PROMISED 
-------------------------------------- 
 
¶5. (SBU) The budget presentation promised a revision of the oil and 
gas fiscal regime to stimulate exploration and development, but only 
offered a glimpse of the coming details. Nunez-Tesheira said the 
government may move toward a single-regime Supplemental Petroleum 
Tax (SPT) calculated on a field-by-field basis as well as adjusting 
in unspecified ways the current Production Sharing Contract regime. 
Industry and government sources agree there is a strong need for 
additional incentives, but many question whether the proposals will 
go far enough.  More than one gas industry contact has told us that 
future bidding on new deep-water blocks may be non-existent absent 
major changes in the fiscal regime. 
 
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PROPERTY TAX OVERHAUL SPARKS PUBLIC OUTCRY 
 
PORT OF SP 00000370  002 OF 002 
 
 
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¶6. (SBU) In a major overhaul of what the Minister termed T&T's 
"anachronistic" property tax regime, the government intends to 
implement a system using GPS technology and a computerized property 
tax database.  Industry sources told EconOff the IT system connected 
to this effort is unnecessarily complex, raising the question of 
whether it will work. 
 
¶7. (SBU) According to Nunez-Tesheira, over 120,000 properties are 
being overlooked for taxation and most properties are currently 
taxed based on 1960s property values.  Under the new system, 
properties will be assessed at their present market value, based on 
the "rental value appraisal method."  Agricultural property will be 
taxed at 1 percent, residential property at 3 percent, commercial 
property at 5 percent, and industrial property at 6 percent.  This 
is projected to lead to a dramatic increase in property taxes and 
has become an issue of public debate, with the opposition saying 
this shows the GOTT cares little for the common man. 
 
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HOME OWNERSHIP INCENTIVE 
------------------------- 
 
¶8. (U) In an effort to promote lower and middle income home 
ownership, the GOTT plans to increase the number of home owners 
eligible for preferential mortgage rates.  Currently, homes valued 
up to $71,000 are eligible for 6-8 percent rates.  The newly 
announced plan will increase the limit to homes valued up to 
$135,000. 
 
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ALCOHOL/TOBACCO TAX INCREASE 
---------------------------- 
 
¶9. (U) The new budget targets alcohol and tobacco for unpopular 
excise duty increases of 15 percent on locally manufactured rum, 
beer and other alcoholic products, 15 percent on alcoholic products 
imported from the Caribbean Common Market, and 30 percent on rum, 
beer and other alcoholic products from extra-regional sources. 
Although this measure has prompted public disgruntlement, the 
general consensus is that it will have minimal effect on domestic 
consumption.  The measure took effect immediately, leading to 
September 8 alcohol price increases. 
 
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FEW CHANGES TO OTHER AREAS 
-------------------------- 
 
¶10. (SBU) The Finance Minister said that in the first six months of 
2009 international air arrivals to Tobago declined by 47%, and hotel 
and guest house occupancy rates declined by 75% and 65%, 
respectively, but offered few remedies.  Instead, the government 
will focus on encouraging development outside the tourism sector. 
On the health front, she mentioned efforts to finish construction of 
four hospitals and, speaking of education, she emphasized the 
country's free primary through tertiary education.  The budget 
identifies no significant environmental measures for the next fiscal 
year.  The budget also contains no hint that the gasoline subsidy 
will be reduced. 
 
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COMMENT: INTO THE UNKNOWN 
------------------------- 
 
¶11. (SBU) Comment: The GOTT put the best face possible on the FY2010 
budget, arguing Trinidad and Tobago is doing much better than most 
countries and enjoys a "resilient" economy.  Once its main markets 
rebound, along with natural gas prices, all will right itself.  In 
the meantime, the government will employ prudent stimulus measures 
and countercyclical financing to control unemployment and ameliorate 
effects of the worldwide recession.  Nonetheless, the somber message 
that the GOTT will run a budget deficit for the second straight year 
led the opposition to charge that Manning is leading T&T down the 
road of bankruptcy and devaluation.  For a nation used to surpluses 
and positive economic growth, the current situation is, in some 
ways, a leap into the unknown. 
 
KUSNITZ