Review of the 2010/2011 National Budget

1. Review of the 2010/2011 National Budget Kyren Greigg Department of Economics UWI, St. Augustine Demas/ Rampersad Series September 9, 2010

2. Presentation Outline • The present economic environment • Budget assumptions & Arithmetic • What should be Government’s response in the context of a 3D (3rd Deficit) Budget. • Attaining short-term economic stability • Medium term aspirations • Has the Budget met these objectives: An assessment of Budget measures • Concluding remarks

3. The Present Economic Environment Source: Ministry of Finance- Review of the Economy 2010

4. The Present Economic Environment Source: Ministry of Finance- Review of the Economy 2010

5. The Present Economic Environment Source: Ministry of Finance- Review of the Economy 2010

6. The Present Economic Environment

7. Budget Assumptions & Arithmetic • GDP growth of 2 percent • Average inflation rate of 7 percent • Oil price of US$65 per barrel • Gas price of US$ 2.75 per mmbtu. • Total revenue $41.3 billion • of which: energy sector revenue = $15.2 billion non-energy sector revenue = $26.1 billion • Total Expenditure $49 billion • Fiscal Deficit $7.7 billion (5.48 %of GDP)

8. What should be Government’s response! • Put in place measures that would stimulate the economy and instill confidence on the part of investors and citizens in general. • Give a clear picture of the medium term policy framework, in terms of its diversification and development policy. • Have some continuity of development projects and programmes that are of merit.

9. Government’s Response: Short term stability Fiscal Incentives: Energy Tax regime • PPT(Deep water) 50% 35% • Mature & small marine fields SPT 20% • Investment tax credit of 20% on qualifying CAPEX. • Return to conventional PSCs with flexible bidding

10. Government’s Response: Short term stability Fiscal Incentives: Increase in minimum wear and tear allowance to manufacturing companies from 10% to 25% Tax amnesty: Amnesty for tax penalities for late filing of returns and late payment of income , corporation and VAT, business levy, environmental levy and lands & buildings taxes.

11. Government’s Response: Short term stability Income distribution: • Senior Citizens’ Pension $3000 per mth. • Increase in min. pension of retired public officers to $3000 per mth.

12. Government’s Response: Medium term aspirations • Expand the energy sector • Realign the economy • Revitalize the Agriculture sector • Expand Tourism • Standardize our Environmental regulations

13. Government’s Response: Medium term aspirations- Expanding Energy Sector • Signing of Unitization Agreement with Venezuela will allow access to approx. 2.7 tcf of gas to be monetized in the Loran-Manatee field. • Exploring the development of alternative energy sources such as wind and solar. • The export of energy advisory services. • Further diversification within the energy sector.

14. Has the Budget met these objectives: An assessment of Budget measures • Some measures have been taken to bring stability and turn around government finances. The question are these enough? • The medium to long term measures needs to be distilled to allow a better analysis of their viability with respect to economic diversification and development

15. Concluding remarks • Continuity of development programmes that are of merit. • Put measures in place to have a grip on inflation. • Getting back to a surplus budget position. • Minimum wage implications. • Implications of measures for employment • Public sector wage negotiations