Governments should consider the deferral of income taxes to help their citizens at this time, the Inter-American Development Bank (IDB) has stated.
And if their shoulders are big enough, they should even consider tax relief for companies, the IDB stated.
These suggestions were made in the IDB’s 2020 Latin American and Caribbean Macroeconomic Report which was published this week.
“The first line of attack should be containment and mitigation of the coronavirus by revamping health expenditure for effective prevention, detection, treatment, and containment,” the IDB stated.
“The main challenge is to avoid a health infrastructure collapse. The time for growth will come later. Given existing budget constraints, standard macroeconomic stimulus policies should not be prioritised, particularly because many of them may not be effective given the nature of the coronavirus crisis. If at all, infrastructure investment should be strictly targeted at the health sector,” it stated.
Earlier this week Prime Minister Dr Keith Rowley visited some of the facilities that have been earmarked as part of T&T’s national response to COVID-19.
Among the facilities visited by Rowley were the new Arima General hospital, the National Racquet Centre in Tacarigua which has been converted to a 50-bed step-down facility, and the National Academy for the Performing Arts which will be used to house medical staff.
“These preparations were not by accident. It was by careful advanced planning, driven by the professional assessment of our public health care officers who, very early in January, advised the government and our planning began since then,” the Office of the Prime Minister stated.
The Couva Hospital and the Caura Hospital are also already being utilised as a parallel health care system to deal with COVID-19.
“Additionally, many people will lose their income while under lockdown at home. This makes it imperative to design subsidy programmes that are well targeted to vulnerable groups, particularly the poor and informal workers. Given past experience, it is key that these programs be designed as temporary, with separate accounts from other structural transfer programs, including sunset clauses. Transparency in the administration of this policy is also essential,” the IDB stated.
Last week the government introduced the first phase of the Salary Relief Grant which will be accessible to citizens who either lose their jobs or are temporarily out of work because of COVID-19.
That grant is valued at $1,500 a month and is expected to last for three months.
The first phase of the grant is available to people who are registered with the National Insurance Board database.
The second phase is expected to target self-employed persons and others who are not registered with the NIB.
A start date for the second phase has so far not been announced.
But while T&T has ticked off the boxes when it comes to these fiscal measures one aspect has not been implemented as yet.
And that is the possibility of tax deferrals.
“Other possible measures for governments with big enough shoulders include tax relief policies for regions, people, and firms more fiercely struck by the shock.
“Deferral of labour taxes and social security contributions should also be considered. Social security systems that have provided loans to pensioners could temporarily defer payments coming due,” the IDB stated.
“In all cases, it is key that these measures be implemented as deferrals rather than permanent subsidies so as not to jeopardise fiscal sustainability.
“These policies should be considered as liquidity alleviation measures, but they should not turn into a liability for governments. Making policies as sustainable as possible is key if governments want to have a strong recovery once the worst part of the coronavirus crisis is over. The more sustainable they emerge, the better their chances of obtaining financing for growth later on,” it stated.
Asked about the possibility of tax deferrals two Mondays ago, Finance Minister Colm Imbert said the country would be cutting off its nose to spoil its face if this was done since we are in a bad way financially because of the dramatic collapse in oil prices internationally coupled with reduced income from natural gas.
Imbert said this country is expected to have a shortfall in budgeted revenue of around $7 billion this fiscal year.
“If we were to say yes we will defer collection of taxes, we will allow people not to pay taxes then where is the money coming from to produce the Salary Relief Grant and all the assistance to businesses, so at this time no we cannot defer it. It is unfortunate but that’s just how it is we need every single cent,” Imbert said.
For the first quarter of this calender year, the country recorded a shortfall in revenue of $700 million, Imbert said.
The revenue collected this quarter from taxes and customs and excise amounted to $3.6 billion, Imbert said.
The government originally estimated collecting $4.3 billion.
In addition to this, the government is now also faced with $2 billion in unanticipated expenditure as it assists citizens financially affected by COVID-19, as well as pay off outstanding bills to help companies access funds during this difficult economic time.
This country’s main business chambers have called on the government to help them save jobs in T&T by establishing a tax credit on salaries for companies that do not make any profit over the next three months.
This was just one of five items the chambers deemed critical in the immediate term.
The chambers also called on the government to defer the payment of corporation tax and Value Added Tax (VAT) for the next three months.
Latin America and the Caribbean will see sharp growth reductions of between -1.8 per cent and -5.5 per cent of GDP in 2020 due to the impact of the coronavirus pandemic, the IDB has estimated.
The economic damage will carry into 2021 and 2022 unless governments implement well-focused programmes to offset the impacts, according to the IDB.
“Our region will suffer an economic shock of historic proportions,” said IDB Chief Economist Eric Parrado.
“We need to preserve the core of our economies to improve the chances of a quick rebound,” Parrado added. “Providing relief to those more vulnerable households that have lost their sources of income, helping and giving incentives to firms to reduce liquidations and avoid separation of employees, and extending liquidity to banks so they are part of the solution, can all work in that direction.”
The IDB suggested that T&T should brace for a recession.
Two weeks ago Finance Minister Colm Imbert announced that T&T had been offered and applied for assistance from international multilateral in the amount of US$450 million, including US$100 million from the IDB.
He said the IDB will also allow T&T to reallocate unutilised resources from other loans and this will provide us with US$30 million of additional wiggle room.
“Outlining an economic and fiscal recovery plan for the post-pandemic period will, therefore, be an important step going forward,” it stated.