SUSTAINABLE MANAGEMENT OF ENVIRONMENTAL ASSETS

Mr. Speaker, maintaining a clean healthy environment is a key priority for this Government as we move decisively to enhance overall socio-economic growth and the well being of our citizens. The environment has great economic and cultural importance and is under threat by a number of factors including deforestation, indiscriminate land development, and the improper disposal of solid waste. These factors lead to massive flooding during the rainy season, a situation which is particularly acute in our inner cities and business districts.

National Environmental Policy

In this context, Mr. Speaker, we have revised the National Environmental Policy to include the application of economic instruments and market incentives to encourage sustainable use of resources and the reuse and recycling of waste.

This leads me, Mr. Speaker, to the issue of the improper disposal of beverage containers. In order to address this problem, the EMA has finalized a Draft Beverage Containers Bill, which is intended to encourage the reuse and/or recycling of container waste and to discourage the wasteful, unsanitary and environmentally degrading practice of disposing of empty beverage containers. We propose to establish a recycling industry, with incentives to be offered to manufacturers, vendors and consumers to reuse or recycle these containers.

Mr. Speaker, CEPEP has made an important contribution towards the enhancement of the environment while affording its 6,000 workers gainful employment and the opportunity to make a meaningful contribution to their families and their communities. The programme has also given its workers exposure to on-the-job training and educational opportunities that are geared towards skills enhancement, career advancement, and more importantly, improved self esteem.

Mr. Speaker, the time has come to re-organise the CEPEP Programme. Firstly, we will review the existing contracts to ensure that they are consistent with original objectives of giving workers shares in the company. The hours of work in the programme will now be from 6am to noon, and workers will be required to accept training from 4pm – 6pm as a pre-condition of employment with CEPEP.

The training will include adult literacy, life skills, conflict resolution, family life, personal management and for contractors, financial management. The intention is to partner with existing training programmes to give workers the requisite skills so that they can graduate out of the programme.

Mr. Speaker, permit me to reiterate the commitment of Government to the protection and the "greening" of the environment. Accordingly, the National Reforestation and Watershed Rehabilitation Programme will continue to undertake reforestation of State lands through the contracting of community groups.

Moreover, Mr. Speaker, community groups and organizations will be encouraged to access the resources of the Green Fund in fiscal 2006. We are now in the process of finalising the Regulations for submission to the Parliament and will launch a promotional campaign on the procedures for applying for grants from the Fund.

Public Sector Reform

Mr. Speaker, permit me to update this Honourable House about a number of public sector reforms that have been underway or are to be introduced in the context of the 2005/06 Budget. Specifically, I would like to treat with:

(i) The status of our financial sector reforms;
(ii) The introduction of additional special purpose state enterprises to manage certain capital projects on behalf of the central government; and
(iii) Procurement reform, which was foreshadowed in our last Budget.

Financial Sector Reform

Mr. Speaker, our comprehensive financial sector reform programme, based on the White Paper on the Reform of the Financial System which was laid in Parliament in June 2004, is proceeding well and is broadly on schedule. You would recall that in July 2004, the Insurance Act was amended to allow for the transfer of responsibility for the Insurance sector.

In March 2005, Electronic Trading commenced on the Stock Exchange, while two months later the office of the Financial Services Ombudsman – an upgrade from the Banking Service Ombudsman - was launched. Our Payments System has been upgraded in line with international standards: we now have a Credit Rating Agency and we have established a Financial Sector Regulatory Council to ensure co-ordination between the various regulatory bodies.

Several pieces of legislation governing the Financial Services Sector are in an advanced state of preparation. Amendments to the Financial Institutions Act and the Securities Industry Act are expected to be brought to Parliament by the end of 2006. Currently, work is advanced on a new Insurance Act and on legislation which would bring Credit Unions under the regulation of the Central Bank. These pieces of legislation are expected to be presented to Parliament before the end of 2006. Legislation governing the Private Pensions Industry which is currently been supervised by the Central Bank, is also on the agenda for late 2006 or early 2007.

Mr. Speaker the objective behind all these initiatives is to consolidate Trinidad and Tobago's position as the Pan Caribbean Financial Centre.

Special Purpose State Enterprises

Mr. Speaker, traditionally implementation of the Public Sector Investment Programme (PSIP) has faced serious challenges because of skill shortages and cumbersome bureaucratic procedures. Over the last three years, these problems have been exacerbated by this Government's commitment to accelerate infrastructural development in line with our long-term vision. In order to increase the rate of implementation of our expanded investment programme, we will out-source to fifteen (15) special purposes State Enterprises to deliver an accelerated implementation of certain approved Government projects in selected ministries. These fifteen special purposes vehicles will undertake developmental projects in the areas of education, community development national infrastructure, rural development, the development of sporting infrastructure, tourism and urban development. The enterprises would report to the respective line ministers and would be subject to the highest standards of good governance, transparency and financial accountability.

These enterprises are limited liability companies to assist Ministries which do not possess the institutional capacity to manage the various infrastructural development projects. They will have 'project management' responsibilities for the identified projects and the actual work will in turn be outsourced to the private sector. This is consistent with the Public Private Partnership Model of Project Delivery.

Strict procedures have been established to govern the relationships between the Enterprises and the Government in the delivery of their respective mandate. The procedures relate to:

• Funding of the operations of the Enterprises;
• Remuneration packages for the executive management; and
• Procurement and accounting standards and reporting arrangements.

We believe that these enterprises can effect significant increases in the delivery of Government projects thereby improving the well-being of the citizenry at large.

Mr. Speaker, the Board of Directors of the new companies will have full control over the implementation of the projects assigned to their respective company. However, the Boards will be held fully accountable for completing the projects on time and within Budget as well as upholding good corporate governance practices within the state enterprises.

Procurement Reform

Mr. Speaker, another reason for the slow project implementation of the PSIP is the inflexible nature of the existing legal framework – that is the Central Tenders Board Ordinance and its various amendments. The platform has too little flexibility to accommodate modern modes of project delivery.

In the 2005 Budget Statement, I indicated that a Green Paper on the Reform of the Government's Procurement Regime was in the public domain for comment. I am pleased to report that the comments received from the stakeholders have been considered and incorporated into a White Paper which was laid on the table of this Honourable House last Monday, paving the way for a new comprehensive approach to Government's acquisition of goods and services.

Mr. Speaker, the establishment of the new Procurement system will require the repeal of the Central Tenders Board Ordinance with its subsidiary legislation, and its replacement by a new Act. The new Procurement Regime will ensure greater flexibility, open competition and ethical and fair dealing. In addition, it will increase the promotion of national industry.

Mr. Speaker, the proposed Procurement infrastructure will entail the following:

(1) A fully decentralised procurement regime;
(2) Establishment of a single Legal and Regulatory Framework based on the underlying principles of:
• Value for Money;
• Transparency; and
• Accountability
(3) Establishment of a Regulatory Agency and an Independent Regulator with a monitoring and auditing function;
(4) Application of the new Public Sector Procurement Regime to all Government Ministries, Statutory Boards, Regional Health Authorities, Regional Corporations, State Enterprises, NGO's and CBO's.

Mr. Speaker, we anticipate that this new Procurement Regime will come into effect by the fourth quarter of fiscal 2006.

TOBAGO

Mr. Speaker, this House is well aware of the significant progress made by the Tobago House of Assembly in recent years which can be best summarized by the achievements of the tourism sector. Indeed, what the energy sector has so successfully achieved in Trinidad, the tourism sector has done in Tobago, and magnificently so!

For instance, when the Standing Committee on Tourism was set up in 2002, the number of persons employed in the tourism industry in Tobago was estimated at 7,000. Two years later, that number more than doubled. Thus, Tobago accomplished, in three years, the target of 15,000.
Similarly, the island's hotel occupancy rate, currently at 70 percent, is now close to achieving the set target of 75 percent, compared to the 17 percent realised in 2002.

But, Mr. Speaker, Tobago's achievements are not confined to the tourism sector. Other significant recent achievements include:

• Steady advances by health promotion clinic and the encouraging progress in dealing with the HIV/AIDS situation;
• The swift, steady and effective response to the human suffering and physical destruction associated with Hurricane Ivan and the landslides in Windward Tobago;
• The peaceful acquisition of Pigeon Point that placed one of our nation's treasures forever in the hands of the Assembly and the people of Tobago; and
• The achievement of virtual full employment

I take this opportunity to congratulate the THA-led Task Force which developed the Comprehensive Economic Development Plan for Tobago, a plan which accords with the Vision 2020 National Strategic Plan and carefully maps for Tobago the necessary development strategies using natural gas as an engine of growth.

Recognising the paramount need at all times to ensure that the people of Tobago know that their support has not been misplaced, the air bridge must be made more reliable. At the same time, discussions are ongoing regarding the purchase of two fast ferries to adequately serve the sea-bridge. In keeping with the THA's commitment to facilitating the Tobago Heritage Land Trust, Pigeon Point has been purchased. Cove Industrial Estate is being established as T&TEC is in the design stage of the electricity generation station there, human resource development is high on the agenda as it is an imperative for the quantum leap that Tobago must make, thus TTHTI has established a campus and the UTT is also doing the same.

Mr. Speaker, this Budget includes an overall allocation to Tobago of $1.3 billion, of which $1.1 million is for recurrent expenditures; and $240.9 million for the regular development programme, of which $80.7 million is allocated to the Infrastructure Development Fund. A further $470.9 million would be expended under various heads of expenditure for the direct benefit of the people of Tobago.

Indeed, as in recent years, the $500 million Capital Expenditure Borrowing Facility for Tobago is retained in this Budget; and will be activated by the Assembly in the next fiscal year, in accordance with existing administrative arrangements.

The people of Tobago will therefore have access to resources in excess of $2.3 billion for this fiscal year.

CSME AND THE PETROLEUM FUND

Mr. Speaker, permit me to say a few words on Trinidad and Tobago's role in the CSME and more generally, about our support for and commitment to regional integration.

As Honourable Members are aware, Trinidad and Tobago is the largest market in CARICOM, and we are responsible one way or the other for about 80 percent of the trade that takes place in the CARICOM arena. CARICOM represents Trinidad and Tobago's second largest export market behind the USA. In 2004, Trinidad and Tobago's exports to CARICOM amounted to US$1 billion while imports were valued at US$94 million, resulting in a trade surplus of US$916 million. The trade surplus vis-à-vis CARICOM has averaged over US$700 million in the period 1999-2004.

What this means, Mr. Speaker, is that thousands of jobs of our citizens – in manufacturing, in financial services, in shipping and trading and in various other services – depend on the maintenance of satisfactory levels of economic activity in CARICOM.

It is for this reason that it is critical that we provide whatever assistance we can to our CARICOM neighbours.

Last year in the face of rising oil prices, the Government established a petroleum fund to provide assistance of TT$300 million (US$48 million) to CARICOM countries. This assistance was to be directed to poverty alleviation and disaster recovery efforts.

For the coming fiscal year, the Government will maintain the Petroleum Fund at the same level – TT$300 million (or the equivalent of US$48 million). This Fund, will be administered by the CARICOM Secretariat and a Committee of CARICOM Prime Ministers. Disbursements and accounting arrangements will be handled by the Central Bank of Trinidad and Tobago.

Major Initiatives bearing on the 2005-2006 Budget Energy and Tax Reform

Mr. Speaker, I now turn to the fiscal measures which are included in the 2005-2006 Budget.

Gas

In the Budget presentation of October 2004, I indicated the Government's intention to review and revise the energy sector fiscal regime. The review was seen as appropriate given that the last significant modification to the petroleum fiscal legislation was in 1992. The 1992 legislation was instrumental in fuelling the tremendous growth in the energy sector over the last 15 years. While I will do nothing to interrupt this successful track record, the structural changes in the global energy market and the growth of the local gas industry dictate that a review is timely and appropriate.

Recognising that these changes could not be undertaken lightly, we took the prudent step to engage in a deep enquiry which involved extensive research using world-class energy taxation consultants and wide ranging consultation with all the stakeholders. As I said in my last Budget, the issues involved in energy taxation are very complex and out of an abundance of caution, my government sought to take the time necessary to arrive at a solution that provides government with a fair share of returns accruing to the energy sector while maintaining incentives for continued investment in the industry.

I am pleased to report that over the course of the last year, the government has had fruitful discussions with the industry and arrived at a position that I believe is equitable and fair under the current circumstances. The comprehensive review has led the government to make amendments to the fiscal regime with the following objectives:

• Continue to provide incentives for further exploration and development activity through accelerated capital allowances provisions;
• Create an appropriate balance in allocation of future gas sales between LNG and gas sold to the local downstream energy sector;
• Assurance that all contracts along the LNG value chain should be based on Fair Market Value principles;
• Review the relevance of the continuation of any concessions provided to facilitate the development of the LNG industry;
• Provide incentives to stimulate oil production.

Oil

Mr. Speaker, in July 2005, an amendment to the Finance Bill 2005 was enacted that included measures to reform the system of taxation of income from oil production. This, and the reform of taxation regime for income from gas production are major initiatives which will increase significantly the revenue that the people of Trinidad and Tobago will receive from their energy wealth.

I would like to acknowledge publicly the tremendous work done by the Energy Tax Committee, chaired by Prof. Kenneth Julien, which laboured long and hard to bring this very important exercise to a successful conclusion. The new tax regime has a number of highly technical aspects that I would not seek to outline at this time. I would, however, review some of the salient features as follows.

Mr. Speaker, income from oil production is taxed through a Petroleum Profits Tax (PPT), a Supplementary Profits Tax (SPT) and the Unemployment Levy. The PPT yields about 60 percent of the tax and the SPT about 30 percent.

Under the old regime, the tax base for the SPT was determined after deducting capital allowances which invariably included expenses in respect of both oil and gas exploration and development. Under the new regime, SPT would be computed on gross crude oil income with no allowances except for the royalty allowance, but at slightly lower rates.

To compensate for the increase in the taxable base, the rate of tax has been lowered. The rate reduction is somewhat larger at oil prices below US$21 per barrel than at higher oil prices. The trigger price at which SPT becomes payable has also been increased slightly.

Moreover, under the new regime, SPT payments are now based on a weighted average price of crude calculated quarterly instead of annually. Previously, SPT was assessed annually but paid on a quarterly basis. This often reduced the Government's cash-flow pending end-of-year adjustments.

The major advantages of the new regime are (i) it is simple to administer and would provide a more predictable, stable and transparent revenue flow (ii) as oil prices increase, the Government will realize a greater share of the additional revenues than previously and (iii) a company's increase/decrease in exploration and development expenditure will not affect the SPT take.

As regards the Petroleum Profits Tax (PPT), the amendments to the existing regime involve:

(i) the removal of the first year allowance for both tangible and intangible expenditure and the postponement of annual allowances to year two or until commencement of commercial products or whichever is earlier.

(ii) the shift to quarterly tax payments calculated on a current year basis;

(iii) non-deferral of capital allowances and allowing decommissioning and abandonment costs only when they are incurred; and

(iv) limiting deductible management charges to 2 percent of expenditure.

As part of the discussions with the industry, the government sought to ensure that the levels of taxation were equitable across all the industry players. In that regard, as part of our fiscal reform process, we asked the largest energy company, BP Trinidad and Tobago to consider accelerating the onset of a 10 percent gas royalty – currently due to commence from 2017. I am happy to announce that my government has secured agreement with the company to a volume equivalent to 10 percent of gas sold for LNG. This royalty will be implemented in a phased manner beginning in 2005 and be fully effective by 2008. The company currently sells some gas through NGC at preferential prices for use for power generation. This value is recognized by the government as equivalent to a similar royalty on gas sold to local industry through NGC.

REFORM OF THE NON-ENERGY TAX REGIME

Mr. Speaker, in the 2005 Budget Statement I indicated that a Tax Reform Steering Committee had been established in the Ministry of Finance to address the reform and simplification of the non-energy tax regime. The Committee, with technical assistance from the International Monetary Fund (IMF), has submitted a number of recommendations. The Government plans to implement some of these with effect from the coming year, others are being considered for implementation on a phased basis over the next several years.

The Committee noted that at the personal level the current direct tax regime was overly complex with too steep a tax rate structure at the lower income end, and contained too many special purpose allowances. The Committee also observed that at $25,000, or about 40 percent of per capita GDP, the personal allowance was low by international standards.

As for the corporate tax regime, the current structure was seen to be competitive both regionally and internationally. However, the Committee felt that a regime based on more generous depreciation and investment tax credits would be more attractive to current and potential investors and would bring greater benefits to the economy.

Mr. Speaker, the Committee found that while the indirect tax regime was in line with international best practice in most instances, the performance of indirect taxes lags behind that of other countries of similar economic position. This was due to a number of weaknesses in the design of the tax regime, particularly as these relate to the level of excise tax rates, the extent of the current zero-rated list of goods and services under the VAT system, and the level of VAT refunds.

The Committee also recommended that the Government look at ways to expand the tax base through:

(i) a comprehensive capital gains tax;
(ii) a complete overhaul of the present property tax system, following a comprehensive island-wide cadastral survey.
Mr. Speaker, tax reform is a continuous exercise and we have started the process. Given the importance of a modern, effective and efficient tax regime in achieving our economic and social objectives, the Government proposes to establish in the Ministry of Finance, a Tax Policy Unit, with a mandate that includes the continuous reform of the tax regime in Trinidad and Tobago.

The Cabinet has, however, decided to introduce a number of tax measures in the coming fiscal year. Several of the measures are geared to simplifying the current system. We have prepared an appendix with the whole list of measures for circulation to Members of Parliament. I would, however, like to announce the major ones in the package.

Personal Income Tax

Mr. Speaker, given the deficiencies in the Personal Income Tax System identified by the Steering Committee, I propose to increase the personal allowance from $25,000 per annum to $60,000 per annum with effect from income year 2006. Accordingly, the following allowances and deductions will be eliminated:

• The personal allowance of $40,000 per annum for individuals age 60 and over;
• The child allowance of $1,200 per child;
• The Mortgage Interest Deduction;
• The tax-free withdrawal from pension funds and deferred annuity plans for the purchase of a first house;
• The $10,000 deduction for credit unions and co-operatives; and
• The 25 percent investment deduction in respect of equity investments in hotels.

In addition, I propose to replace the current rates of Personal Income Tax of 25% and 30% with a single rate of 25 percent.

Mr. Speaker, these are significant measures indeed as they will put an estimated 300,000 taxpayers out of the income tax net altogether. In addition, everybody will pay a flat rate of 25 percent.

The change will result in an important simplification of the tax regime in that instead of the series of deductions which only benefit specific individuals, all wage earners will now get expanded relief. This means, Mr. Speaker, leaving much more of the workers' wages in their hands, so that they could improve their welfare and the welfare of their family.
Mr. Speaker, this Government has considered the matter in depth and we believe that it is one of the best ways of having the broad mass of the population share in the benefits derived from the high oil prices. This is the concept of the energy dividend. The revision has another important effect. By simplifying the tax, not only have we made it easier for the taxpayer but we have also made it easier for the staff of Inland Revenue Department, who can now devote more of their energies to ensure compliance.

At the same time, Mr. Speaker, the Government has sought to tidy up a number of issues relating to in-kind benefits and the taxation of annuities, pension contributions and benefits.

Corporation Tax

Mr. Speaker, in order to modernize and strengthen the effectiveness of the Corporation Tax structure, we propose to amend the Tax Regime as follows:
i. Reduce the corporate tax rate from 30 percent to 25 percent to keep it in line with the personal income tax rate.
ii. In the case of businesses registered under Section 16A of the Income Tax Act; i.e., an approved small business, an approved company carrying on business in a regional development area, and an approved activity company, we propose to reduce the existing rate to zero percent for a period of five years commencing the First of January 2006. Furthermore, these businesses will be exempted from the Business Levy for a period of five years also commencing from the First of January 2006. In effect Mr. Speaker, there will be four rates of Corporation Tax:
a. Zero percent for businesses registered under Section 16A of the Income Tax Act;
b. 25 percent for non-energy and non-petrochemicals companies;
c. 35 percent for petrochemicals companies; and
d. 50 percent for energy (oil and gas) companies.

Mr. Speaker, the package of measures also includes initial steps to transform the incentive regime. In essence, we plan to terminate several tax holidays for new investors (except for tourism projects under the Tourism Development Act) and to consolidate the remaining provisions relating to investment incentives and depreciation regimes.
One final word on taxation, Mr. Speaker, and it has to do with gambling. As you know, gambling is against the laws of Trinidad and Tobago and this Government is determined to uphold the law. There has unfortunately been a proliferation of gambling activity under the guise of private members clubs. Over the years we have sought to use financial mechanisms to contain the number of such clubs without much success.

The new approach we intend to take is to bring all private members clubs under a strict licensing arrangement to be administered by the Ministry of Finance. Under the proposed licensing regime, only genuine private Members Clubs will be permitted to operate and there will be restrictions on the types of activity in which they can legitimately engage.

Food Subsidy

Mr. Speaker, food prices have doubled over the past ten years. Even while overall inflation has been contained over the last five years or so, rising by an average of 4 percent per year, food prices over this same period increased by 12 percent a year. The main factors behind this rapid rate of increase include increasing non-oil commodity prices such as corn, wheat, soyabean; declining domestic agricultural production; annual floods combined with poor drainage; and high shipping costs due in part to rising energy costs.

In July of this year, the Government established a sub-Committee to examine initiatives to deal, once and for all, with the problem of rising food prices. Having studied the Committee's report, the Cabinet has agreed to implement the recommended strategy which includes (i) the provision of short term targeted and conditional cash transfers; (ii) the reduction or removal of duty on selected food imports; (iii) the use of a restructured NAMDEVCO strategic market intervention as needed, through the bulk buying of basic and agricultural foods.

The medium to longer term plan of action will be geared towards boosting domestic agricultural production. As discussed earlier, this longer term plan involves measures and infrastructural improvements for the agricultural sector; increasing the supply of micro-credit and grants to entrepreneurs involved in agriculture; expanding the role for NAMDEVCO to include the administration of guaranteed floor prices for target crops and the promotion of agricultural processing and the establishment of a mechanism for agricultural insurance.

Mr. Speaker, the proposed cash transfer through a Smart Card will target about 60,000 families. The Smart Card will allow for the purchase of food on a defined list of items of $300 for families of 3 or fewer persons; $400 for families of 4 to 5 persons; and $500 for families with 6 and more persons.

An integral requirement of the programme will involve participation in training. We are targeting implementation by March 31, 2006.

The Ministry of Consumer Affairs will engage a Consultant to detail both the criteria and systems in accordance with best practices for the administration of the programme. There will be proper interface through the Ministry of Community Development and the Ministry of Social Development. The SMART Card programme will replace the Food Hamper programme.

The Budget Estimates for Fiscal Year 2006

Mr. Speaker, as in the past few years, the 2006 Budget estimates provide for a small surplus of $9.8 million, after an allocation to the Revenue Stabilisation Fund.

Mr. Speaker, total revenue for fiscal year 2006 is forecast at $34,129 million while total expenditure for the year is Budgeted at $34,119 million, of which $2,625.3 million is appropriated for interest payments. The expenditure level also includes an amount of $1,862.8 million to be allocated to the Revenue Stabilisation Fund.

In line with international best practice, the revenue projections are predicated on the long term projected oil price, which for our mix of crude oil is about US$45 per barrel. With oil prices currently at about US$65 per barrel, the reason behind these obviously conservative oil price assumptions is to maintain a disciplined expenditure profile and to avoid the need for expenditure cuts in the (admittedly unlikely) event that oil prices fall below our forecast.

On the other hand, our expenditure programme is based on an oil price of US$35 per barrel. The difference between the revenue price and the expenditure price is estimated at $ 1,862.8 million is allocated to the Revenue Stabilisation Fund.

Oil revenue is projected at $18.1 billion, compared with $11.1 billion in the previous year while non-oil revenue is $16.1 billion compared with collections of $17.1 billion in fiscal year 2005.

Mr. Speaker, our forecast for oil revenue includes an amount of $1billion arising out of the introduction of the new oil tax regime. Of course, given the progressive structure for the new tax regime, if oil prices turn out to be higher, our tax collections will increases correspondingly.

The new gas tax regime will have an even larger impact on our tax collections. As I indicated earlier, previously our gas taxation was based on transfer prices which were considerably lower than the actual prices at which the gas was sold. With the new tax regime based on the concept of fair market value, the increase in revenue attributable to the new gas regime, is about $2 billion.

Mr. Speaker, the projected decline in non-energy tax collections is attributable to the significant tax relief that this Government has decided to give to the broad mass of taxpayers, but particularly to the middle-income taxpayer. The cost of the tax relief has been estimated at $1.7 billion, on a net basis.

Mr. Speaker, the expenditure profile for fiscal year 06 is fully in line with the strategy and priorities as outlined in this Budget. As I said earlier, Education and Training, National Security, Housing, Agriculture and Social Services are the areas of main focus. The specific allocations in these areas are:

• $5007.7 million to Education and Training (i.e. combining the Ministry of Education and the Ministry of Science and Technology)
• $2992.7 million on National Security
• $502.2 million on Housing
• $602.2 million on Agriculture
• $1718.5 million on Social Services

In terms of the Economic Classification, total expenditure is made up of:
Personnel Expenditure 6,176.7
Goods and Services 4,019.4
Minor Equipment Purchases 307.2
Current Transfers and Subsidies 14,761.8
Acquisition of Existing Buildings 21.2
Current Transfers to Stat. Brd 4,078.5
Debt Servicing 5,052.1
Total Recurrent Expenditure
(incl. Cap Repayments) 34,416.9
Less Capital Repayments and
Sinking Fund (2,291.8)
Recurrent Expenditure
Fiscal Operations 32,125.1
PSIP 1,500.0
Dollar for Dollar -
Green Fund 150.0
Unemployment Fund 344.0
Total Expenditure 34,119.1

Mr. Speaker, included in the current transfers and subsidies is the sum of $2.3 billion for transfer to the Infrastructure Development Fund to meet capital expenditure in fiscal 2006.

CONCLUSION

Mr. Speaker, let me end this presentation in the same way I began, perhaps using different words but reinforcing the unwavering determination of this Government to achieve certain objectives.

Mr. Speaker, we are giving top priority to the security of the State which is Government's first responsibility to our people. We must be able to walk the street in safety and enjoy our homes in comfort. Despite the obstacles, with the cooperation of all it will be an objective we shall achieve. We cannot fail.

We will work to strengthen families as this is the surest way of strengthening our communities.

We will pursue with a passion our efforts to assuage the concerns and fears of the citizens. We must regain the respect and thrust of each other and, as the challenges arise – which they will, we must put on our tall boots, go into the communities and work with our people. We will make Trinidad and Tobago the paradise it can be. This is not only a task for the Government, it should be a determined resolve for all our citizens.

But to achieve this requires a change in attitude, a commitment and determination by each one of us to be our brother's keeper. I cannot overemphasise the importance of this. It requires that each day we must be better that the last day. It requires:
• a return to the basics of wholesome family life;
• driving carefully on the roads;
• going to worship;
• respecting and caring for our elders;
• Teachers comporting themselves in an exemplary manner to earn respect
• Students obeying laws;
• Helpful police officers;
• Respect for authority;
• Offering of prayers and supplication;
• And going the extra mile.

No Budget and sums of money can replace these challenges. Let us remember Louisiana.

There must be a return to soul ….. to conscience.

This requires unity and not division and I close, Mr. Speaker, by reminding this Honourable House that this is our country – this is our Trinidad and Tobago.

To make it better should be our resolve, our commitment. And, we can achieve this through a return to basics. There is no other way.

I beg to move.

FISCAL MEASURES IN THE 2005-2006 BUDGET

Personal Income Tax

• Increase the personal allowance from the current level of $25,000 to $60,000 per annum;
• Remove the existing personal allowance of $40,000 for individuals 60 years and over;
• Remove the child allowance of $1,200 per child made to a spouse or former spouse regarding the maintenance of a child;
• Eliminate the deduction of up to $18,000 for mortgage interest payments;
• Eliminate the $10,000 deduction for first-time home owners who acquire a home on or after January 1, 2006;
• Remove the deduction of up to $10,000 in respect of shares purchased in a registered credit union;
• Replace the current personal income tax rates of 25 percent and 30 percent with a flat tax rate of 25 percent for all income levels.

These measures will come into effect from January 1, 2006.

Corporation Tax

• Reduce the corporate tax rate to 25 percent excluding the following corporations:
• Petro-chemical companies will continue to be taxed at a rate of 35 percent;
• Energy (oil and gas) companies will continue to be taxed at 55 percent (of which 5 percent represents the unemployment levy);
These measures will come into effect from January 1, 2006.
Approved Small Companies, Approved Companies carrying on business in a regional development area and Approved Activity Companies:
• Remove the tax credit of 25 percent of the chargeable profits currently available to these approved companies;
• Remove the 7-year limit on the application of the 25 percent tax credit given to approved companies carrying on business in a regional development area and to approved activity companies;
• Reduce the tax on the profits of these approved companies from 5 percent to 0 percent for a period of 5 years;
• Exempt the Gross sales of these approved companies from the business levy for a period of 5 years.
These measures will take effect from January 1, 2006.

Road Improvement Tax

• Incorporate the 5 percent Road Improvement Tax into the petroleum excise tax and abolish the Road Improvement Tax with immediate effect.

Petroleum Product Prices

• Reduce with immediate effect, excise duties on petroleum products as follows:
• Unleaded Gasoline (including 95, 92 and 83 RON) from 99.696 cents per litre to 10 cents per litre;
• Kerosene from 7 cents per litre to 5 cents per litre;
• Auto Diesel from 19.6 cents per litre to 5 cents per litre.
• Remove the refinery margin of 2 cents used in arriving at the postal price of petroleum products;
• Increase the retailer's margin by 2 cents as follows:
• 95 RON Unleaded Gasolene from 15 cents to 17 cents per litre;
• 92 RON Unleaded Gasolene from 15 cents to 17 cents per litre;
• 83 RON Unleaded Gasolene from 12.5 cents to 14.5 cents per litre;
• Kerosene from 8 cents to 10 cents per litre; and
• Auto Diesel from 10 cents to 12 cents per litre.
• As a result of the change in the excise duty and ex-refinery margin, the Wholesale Price will be adjusted as follows:
• 95 RON Unleaded Gasolene from $2.37 to $2.43 per litre;
• 92 RON Unleaded Gasolene from $2.11 to $2.17 per litre;
• 83 RON Unleaded Gasolene from $2.05 to $2.11 per litre;
• Kerosene from $1.22 to $1.20 per litre; and
• Auto Diesel from $1.16 to $1.18 per litre.

These measures will:
• Improve the cash flow of wholesalers who bear the burden of subsidy payments in the first instance;
• Significantly reduce the level of subsidy payments by the government; and
• Enhance the viability of the operations of retailers.

Investments in Hotels

• Eliminate the 25 percent equity investment deduction currently granted to hotel investors. This measure will take effect from January 1, 2006.

Pensions and Annuities

• Tax the Refunds of pension plans contributions and surrender of annuities at 25 percent;
• Eliminate the tax on transfers of contributions or premiums to another approved plan;
• Extend tax exemptions in respect of the proceeds of an annuity or other periodic sums payable to all residents regardless of age;
• Increase the contribution an employer can make to an annuity on behalf of an employee, to 20 percent of the gross income of the employee;
• Eliminate the tax-free withdrawal from pension funds and deferred annuity plans for the purchase of a first home;
• Increase the maximum monthly value of a pension fund or deferred annuity plan commuted as a lump sum, from $65 to $500 per month.

Employee Share Option Plans

• Remove the reduced rates of tax on the transfer of shares (under Employees Share Option Plans) from the Trust to the employee. Include the benefits under the ESOP in the assessable income of the employee and tax accordingly with effect from January 1, 2006.

Benefits in Kind

• Tax loans to employees on the difference between the interest rate charged and the arm's length commercial rate of interest (as advised by the BIR and the Central Bank); Tax written-off loans as cash payments;
• Tax Motor Vehicles provided for the use of employees at their full market value. Increase the $100,000 limit on the depreciation of motor vehicles to 100 percent of the value of the vehicles and charge 50 percent of the annual wear and tear on the asset as In-Kind Benefits to the employee; Charge 50 percent of the annual rental value of the motor vehicle as In-Kind Benefit to the employee;
• Tax Housing accommodation provided to directors and employees to the fair rental value of the property.

These measures will take effect from January 1, 2006.

Investment, Incentives and Depreciation

• Terminate tax holidays for new investors for regions and approved activities under the Corporation Tax Act and for approved enterprises under the Fiscal Incentives Act; Tax holidays for tourism projects under the Tourism Development Act will not be removed at this time;
• Terminate tax holidays for small enterprises;
• Terminate the corporation tax holiday for Free Zones, but retain the indirect tax privileges such as import duty exemptions and VAT exemptions.
• Terminate tax exemptions for new investments on interest on lending to tourism, agriculture, small business and housing;
• Remove the deduction for financial institutions of 10 percent of the increase in loans for approved small companies;
• Remove the 15 percent deduction for capital expenditure incurred by an approved property company in the construction of commercial buildings;
• Transfer of the written down value of all pre-1995 assets to their respective classes under the Seventh Schedule of the Income Tax Act; On disposal of an asset within the Seventh Schedule of the Income Tax Act, the full proceeds of the assets disposed of shall be credited to the pool;
• Include all industrial buildings that qualify under the Income Tax In Aid of Industry Act in the depreciation pool under the Seventh Schedule of the Income Tax Act. These buildings will be depreciated at a rate of 10 percent of the declining balance.

These measures will take effect from January 1, 2006.

Other Reform Measures

• Remove the tax exemption for the trading income of local authorities;
• Remove the tax exemption for future issues of public debt;
• Expenditure incurred in the production of exempt income will not be treated as a deductible expense; clearly defined provisions for the apportionment of expenditure will be introduced in the taxation legislation;
• Remove the 50 percent uplift for other expenditures including sponsorship of the arts, sports and culture (up to a maximum of $1mn);
• Remove the 100 percent uplift for marginal additions in employment including apprenticeship and employment allowances;
• Calculate relief for bad debts by reference to the Central bank's provisioning requirements for specific bad debts, consistent with the prudential criteria of the Central Bank. This policy will be applicable to all companies;
• Abolish close company legislation subject to a review of the control provisions in the legislation and their impact on other parts of the tax code;
• In the case of related party debt, apply thin capitalization rules to deny tax relief for debt interest where the debt : equity ratio exceeds 3:1;
• Include patents and scientific research to the Seventh Schedule of the Corporation Tax Act.

These measures will take effect from January 1, 2006.

Value Added Tax & Import Duties

• Remove the customs duty and VAT on the following educational tools:
• Geometry sets, under heading number 9017.20.00;
• Notebooks, under heading number 4820.10.00;
• Puzzles, under heading number 9503.60.00;
• Magazines, not otherwise prohibited to be imported or exported or carried coastwise, under heading number 4902.90.00;
• Uncoated paper and paperboard, of any kind used for writing, printing or other graphic exposed, in rectangular sheets, under heading numbers 4802.56.00 and 4802.62.00.

These measures will take effect immediately.

Subject to the approval of the CARICOM Secretariat, the import duties on the following food items will be reduced as follows:
• Frozen Meat of bovine: carcasses and half-carcasses -
From 15 percent to 10 percent
• Frozen Meat of swine,: carcasses and half-carcasses – from 40 percent to 30 percent
• Frozen Lamb: Carcasses and half-carcasses – from 15 percent to 10 percent
• Goat Meat– from 15 percent to10 percent
• Edible offal of bovine animals, swine, sheep, goats, horses, asses, mules or hinnies, fresh, chilled or frozen – from 5 percent to 0 percent
• Pickled pig tails – from 20 percent to10 percent
• Meat of bovine animals (salted or in brine) – from 5 percent to 0 percent
• Cod – from 30 percent to 0 percent;
• Milk and cream, not containing added sugar or other sweetening matter – from 25 percent to 15 percent
• Condensed milk – from 25 percent to 15 percent
• Prunes – from 15 percent to 0 percent
• All other dried fruit – from 40 percent to 20 percent
• Instant coffee powder – from 20 percent to 10 percent
• Roasted Coffee (not decaffeinated) – from 40 percent to 20 percent
• Wholly milled parboiled rice (in packages of not more than 10 kg) – from 25 percent to 15 percent
• Wheat or meslin flour – from 25 percent to 15 percent
• Shelled Peanuts – from 40 percent to 25 percent
• Cooking oil – from 40 percent to 30 percent
• Cocoa powder, not containing added sugar or other sweetening matter – from 20 percent to 10 percent
• Macaroni only – from 20 percent to 10 percent
• Cereal – from 20 percent to 10 percent
• Mixed vegetables – from 20 percent to 10 percent
• Peas – from 20 percent to10 percent
• Beans – from 20 percent to 10 percent
• Orange juice – from 40 percent to 30 percent
• Grapefruit juice – from 40 percent to 30 percent
• Orange juice: for infant use – from 10 percent to 0 percent
• Grapefruit juice: for infant use – from 10 percent to 0 percent
• Grape juice – from 20 percent to15 percent
• Preparations for infant use – from 10 percent to 0 percent.

These measures will take effect immediately.