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Category: Property Matters
Property Matters – The Business of Government
Once again, I am using this edition of Property Matters to consider the ever-controversial State Enterprises, against the wider question of the role of the State. This is no small area for examination and I start by using what seems to be the favourite quote of Trade and Industry Minister, Stephen Cadiz, “Government has no business running business“.
Given the politics practiced here, it should be no surprise that all our political parties give emphasis to the important role of the private sector in the economy and society and so on.
The line of reasoning goes like this – “The State is only here to facilitate and clear the way for Private Enterprise. The State does not intend to stand in the way of or compete with Private Enterprise” Those are not actual quotes, but they are just a paraphrasing of the sentiments expressed by various politicians over the years, whatever the party in power.
But the actual scale of the State’s involvement in the economy is in stark contrast to the political speeches. It is my view that the State is in direct competition with the Private Sector in significant areas of the economy. The large numbers of State Enterprises are inescapable examples of that.
We have to remember that it wasn’t always so. A major part of the physical development in this country took place via the Ministries and without the involvement of any State Enterprises. For instance, all the Primary Schools, Government Secondary, Junior and Senior Secondary Schools were built by the Ministry of Education. All the Health Centres were built by the Ministry of Health and the Highways etc – up to the recently-opened extension to the Diego Martin Highway – were all built by Works & Transport.
Our State apparatus is huge, expensive and mystifying.
Growing up in the 1960s and 1970s, I can only remember a few State Enterprises – BWIA, TTEC, WASA, TELCO, Caroni, NP, NHA, PLIPDECO and maybe TRINTOC. That sector grew hugely since that time. So today, for a country of about 1.4M people, we have 26 Ministries, 73 Government Bodies and 58 State Enterprises (according to ttconnect – The Government of Trinidad and Tobago portal). To me, those are staggering numbers. There is more on that in the sidebar.
Clearly the tendency is for that sector to grow, I cannot remember the last time the State disposed of any of their companies. That seems to be given serious consideration only when there is an absolute crisis of the sort which confronted the NAR government in the late-1980s downturn.
In terms of expense, just consider that the 2011 Budget has an anticipated capital expenditure for the State Enterprises of $6.725Bn. That figure is only for projects and so it excludes the salaries, rents and normal running expenses of those companies.
In this article, I am going to start asking about the State Enterprises which are in the Construction/Property field. Those are, in descending order –
- UDeCOTT – Urban Development Corporation of T&T
- HDC – Housing Development Corporation of T&T
- MTS – National Maintenance, Training & Security Company Limited
- NIDCO – National Infrastructure Development Company
- EFCL – Education Facilities Company Limited
- RuDeCoTT – Rural Development Company of T&T
- East POS DV Co – East POS Development Company
Some people would include National Insurance Property Development Company (NIPDEC) near the top of that list, but that is not a State-owned company, although many times one would be forgiven for thinking so.
Given the serious allegations of corruption at UDeCOTT leading to the Uff Commission and the continued public concerns on the State Enterprise sector, we are entitled to ask some searching questions.
There has been tremendous growth in the size of the State since independence. Some doubts arise when one tries to consider why we now have so many of these State Enterprises. Even more sobering than the purpose for their existence, are the questions of what has been the real performance of these State Enterprises.
When one considers that the State Enterprises listed are required to engage consultants and enter contracts for those construction works, the question has to be – What value do they add to the process of State procurement?
In the case of both UDeCOTT and the HDC, these State Enterprises are operating without accounts for several years and therefore in breach of the elementary rules of governance. UDeCOTT’s last accounts were at the end of 2006 and NHA/HDC has had none since 2002 (I am informed that HDC recently filed its 2006 accounts). In neither case have the Directors of those companies been sanctioned in any way.
Two of the hugest State Enterprises operating as rogues in a manner which is impermissible by Private Sector norms. Even Lawrence Duprey’s CL Financial group had to publish its accounts within a year.
We have a large, subsidized State Enterprise sector, all paid for by taxing the very people against whom they are competing. That is ‘advantage with a V’.
We need to ask how compatible is this arrangement with our National Development?
I am saying that it is hardly possible to blame this administration for the errors and excesses of the last one, but the honeymoon is running out fast. Some say it is already done.
The point is that there is now an opportunity to engage in some reflection as to the purpose and performance of these huge State Enterprises.
In relation to the property and construction sector, there is also a recently-announced and large-scale national planning exercise taking place in two parts. That is also a good reason to pause to review the character and pace of the State’s activity, particularly in the construction sector.
At the strategic level, there is no clarity as to the purpose of these State Enterprises.
At the level of performance, there is little evidence of value-added, far less value for money.
At the level of Corporate Governance and the transparent management of taxpayers’ dollars, there is extremely poor performance with no apparent intention to penalise the wrongdoers.
This sector of the State is in need of urgent, public and thorough examination.
SIDEBAR: What are the real numbers?
According to the Supplementary Public Sector Investment Program 2011 (p.5) – “…The State Enterprise Sector is comprised of fifty eight (58) companies of which forty seven (47) are wholly owned, six (6) majority owned and five (5) in which Government has a minority shareholding…”
But the TTConnect website shows only 38 State Enterprises on a list which excludes HDC, UdeCOTT, RuDeCoTT, EFCL, VEMCOTT and East POS Development Company. That list also includes the Securities and Exchange Commission – which had never seemed to fit the profile of an enterprise – and Trinidad & Tobago Mortgage Finance, which is only 49% owned by the State, according to their own website.
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Property Matters – Reforming UDECOTT
Last week’s cover story in the Trinidad and Tobago Guardian paper was of the same title. Readers were treated to a two-page article introducing UDeCOTT’s new Board of Directors and offering several views from the re-appointed Chairwoman, Jearlean John.
As a long-time UDeCOTT-watcher, I was really pleased to see their new Board appointed, but John’s opening quote in that article was provocative in the extreme. Speaking about the scandalous International Waterfront Centre (IWC), UDeCOTT’s flagship project, John is reported to have mused “…Whatever else he did, he did that…” Ms. John was referring to the now-departed Calder Hart.
Truer words were never spoken, but yet it was a provocative opening. How so?
Despite the regime change, it seems that the IWC remains UDeCOTT’s flagship project. On the one hand, its admirers point to the architectural merits of the complex and the repeated claims that it was completed on time and within budget. On the other hand, it is a monument to a chronically-flawed process of project conception and approval, being one of those classic ‘white elephant’ projects, with a ‘break-even’ point at some point in the distant future, if ever.
The IWC represents a serious paradox in the entire UDeCOTT fiasco, but more interestingly, it offers an insight into the extent of the issues facing that State-owned company. Yes, there is an unbroken thread of unreason through this flagship project to the bigger picture.
I will move from the general to the particular.
To begin at the very basic level, UDeCOTT has published no audited accounts since the end of 2006. Yes, that company, one of the hugest in the country, was operated throughout its period of greatest activity without audited accounts. Quite seriously, that indicates a far larger failure in terms of the rules and guidelines for State Enterprises, the oversight of the Parliament and of course the sheer dereliction of the Cabinet. At one point in the Uff Enquiry, UDeCOTT’s attorneys stated that it was a $12Bn company. Of course, the last Prime Minister repeatedly told the public that UDeCOTT was a leading State Enterprise.
At the Uff Enquiry, Calder Hart was questioned under oath by Alvin Fitzpatrick SC, the JCC’s attorney – the relevant extract is at http://wp.me/pBrZN-51 – and said on 28th January 2009 that all the issues with UDeCOTT’s accounts had been resolved. He went on to say that the accounts would be published shortly. Of course that has never happened, so we have to ask why.
In March 2010 I made yet another public call for the publication of those accounts. But even worse, according to a Newsday article on 18th March 2010, Jearlean John, the newly-appointed Chairwoman said
“…Explaining that she adheres to “good corporate governance” in her professional life, John said Udecott will adhere to the law and the standing accounting practices as outlined by the law…”
That published promise was never delivered.
The simple fact is that we cannot continue talking about performance and good governance, far less change, without knowing the condition of our largest State Enterprises.
That is a serious and inescapable point. We were sorely disappointed by the wanton mismanagement of the last regime and its consequences on the State Enterprise sector. The State Enterprises cannot and will not function if the actual strategy is unsound. The State Enterprises are meant to be servants to the Central Government.
I expect better from you both, Minister Mary King and Chairwoman Jearlean John. Much better. No continuation of the past follies and shameless excuses. I am saying plainly to you, Ms. John, that you promised us these accounts nearly a year ago and we have nothing. Sad to say, but a little further and your statements on this important matter could echo Hart’s, as he told his tale.
That article in last week’s BG stated that the new UDeCOTT Board would consider financials for 2008, 2009 and 2010 at its first meeting. No mention of 2007 and I hope that was a mis-print.
Where are the UDeCOTT accounts? What is the mystery? Are the issues resolved or not? Is there yet another ‘Code of Silence’ surrounding this nexus between Calder Hart, the PM’s office and PriceWaterhouse Coopers?
But what does the IWC have to do with all this?
You see, the various UDeCOTT supporters have continued to applaud this project as the flagship and a leading example etc. etc.. Even Jearlean John seems to be going in that direction.
So here are a few facts on that project –
- The break-even rent – This is the rent a project needs to earn to repay its cost (those costs include land, professional fees, construction and finance – they do not include for profits or maintenance). In the case of the IWC, that break-even rent was calculated by me, in this column and prior to the Uff Enquiry, as being of the order of $30 per sq. ft. Please note that rents of good quality space in POS at the time this project was approved would have been in the $12 psf range.
- The Feasibility test – I questioned Calder Hart under oath at the Uff Enquiry and he stated that only one UDeCOTT project had been the subject of a feasibility test- the very IWC. He stated that its ‘break-even rent’ was ‘…under $20psf…‘, but when I questioned what was the value he had attributed to the land, he replied ‘NIL’. Bogus and unprofessional approaches to massive investments. Hart was prepared to omit the property in order to carry out a feasibility test on a property development. That is the sheer scale of the failure we are looking at. All these projects were approved by the Cabinet, according to Manning’s 13th May 2008 statement to the Senate.
- The financing model – UDeCOTT’s 2006 Annual Report was strong on the point that that project in particular did not require a State letter of comfort or guarantee. It was meant to demonstrate the scale of achievement and independence.
- When will the IWC break even? – The best offices in POS are rented in the $15 psf range and the IWC comprises some 900,000 sf of offices – that is about nine times the size of the Nicholas Towers on Brian Lara Promenade. Due to its size, it would be reasonable to expect the IWC to fetch a rent of about $12-13psf now, if one were fortunate. Given that background, it seems that this project will never break even.
If UDeCOTT’s best project will never break even, the entire company must be insolvent or so close as to not make a difference.
If their best project is a big-time loser, it is no wonder that the last administration was reluctant to publish UDeCOTT accounts. The very year (2006) that project started was the very year the accounts stopped being published.
The profitability of the Hyatt, which was reportedly cited by John in last week’s article, needs to be backed up by those accounts. In any case the unprofitable offices far eclipse the Hyatt.
It is clear that UDeCOTT’s new Board have a heavy task before them in terms of fixing its many ills, but they need to start with an honest and straightforward approach. If the country has to count our losses, you need to do so now, Chairwoman John. Do so.
There is no right way to do the wrong thing.
Property Matters: Housing Policy Review as an element of the Welfare State
There has been a recent, refreshing discussion on the shape and necessity of our welfare state. The Welfare State is used to refer to the various administrative arrangements which redistribute the nation’s wealth to assist the more needy citizens in our midst.
The discussion was initiated in the T&T Review of January 3 in Gregory McGuire’s thoughtful and solidly-based review of the welfare spending trends and their wider consequences. The responses ranged from a two-part article (Part I & Part II) in the Express from Professor John Spence, with an attempted rebuttal from Dr. Errol Mathura in the same newspaper. From the Guardian, there has been a serious commentary on Sunday 16 by Dr. L Trevor Grant – ‘Curb escalating poverty in rich T&T’ – and the editorial of Monday 17, dealing with the fate of the empty HDC houses.
That Guardian editorial – ‘Housing Shame’ – was based on the reports of an investigation into the situation at several of the HDC virtually-completed, but unoccupied housing projects.
Sunday’s Guardian headlined with ‘Scandalous’ on an abandoned $156M HDC project and that is my point of discussion on this Welfare State matter. The empty homes built by the HDC are symbolic of a serious need to re-examine our housing policy.
Above and beyond the case of the vandalized HDC homes, the fundamental public housing situation is scandalous. Scandalous is my word to describe a policy of allocating of scarce resources to build homes, without satisfying the needs of the poorest applicants. That is a blatant misallocation of public resources.
As I wrote in the Trinidad Guardian newspaper in 2007, our housing market is divided into 5 layers, moving from the neediest to the wealthiest –
- Homeless – People who have nowhere to live or rely on charity for shelter.
- Permanent Renters – People who can never afford to buy.
- Transitional Renters – People who are renting now, but will end up as home-owners.
- Home Owners – People who own their homes.
- Multiple Home-owners – People who are wealthy enough to own more than one home – these people are also the ones who rent property to the others.
According to the latest figures released by the Housing Development Corporation in March 2010, there are over 10,000 empty homes in their stock of newly built units. In addition, there is a waiting-list of hopeful applicants believed to be in excess of 100,000 people. How can we reconcile those figures?
Dr. L Trevor Grant is the only author, to my knowledge, to have written on the plight of the homeless in our society and his column in Sunday’s Guardian gave telling details on the level of need in those communities.
We have constructed a national housing policy which pays only lip-service to the housing needs of the poorest applicants. The clear preference – PNM or PP – is for the applicants who qualify to buy a home from HDC. That is the only explanation for the reality of 10,000 empty new homes and 100,000 waiting applicants.
There have been some recent handovers of new HDC homes to applicants featured in the press and those have all detailed the incredible length of time these applicants waited for their new homes. Waiting periods in excess of 20 years have been mentioned.
There is a severe disconnect between these expensive policies to provide subsidized housing and the reality of being a poor applicant on HDC’s waiting-list.
At this point, an estimated 76% of our people live in owner-occupied property. That is comfortably above the comparative figures for the USA or the UK, where the numbers are in the 68-69% range. It seems clear that we are approaching the limits to which we can realistically grow home-ownership in our country. In some ways we may already have exceeded those limits.
Another point I detailed in my 2010 series ‘Housing Policy Imperatives’, was the nature of the housing subsidy being offered by the HDC. For example, if the HDC sells a home with a market value of $500,000 to an applicant for a price of $325,000, the difference between those two figures is the housing subsidy. Yes, in this example there is a $175,000 housing subsidy to each of those people who buy those homes from HDC.
The big question is – if the HDC can afford to provide these benefits to applicants in the layer of ‘transitional renters’, what are the levels of subsidy and number of new homes being provided to those in the poorer layers?
If that relationship does not improve to favour those who cannot ever afford to buy, we will be stuck in an increasingly frustrating housing fix.
The housing fix is notable for the inequity with which the country’s scarce resources are allocated and the hopelessness of the poorer applicants.
There are also secondary problems which run very deep and those include the issues highlighted in the Guardian’s story on the abandoned HDC estate.
What is the cost of securing all these virtually complete, but vacant homes? I am reliably informed that the annual cost of security is of the order of $50M, yet there are still significant episodes of vandalism and squatting.
Additionally, we have to factor in the cost of maintaining and repairing the unoccupied homes. Empty properties deteriorate at a faster rate and that is a cost to the HDC which could be avoided by putting people to live in these empty homes.
The estimated annual sum of $50M to secure these homes is staggering. That sum of money could build over 200 badly-needed low-income homes every year.
There is a newly-appointed HDC Board and the time is now opportune for a review of this important Welfare State policy.
A critical factor in all this is the role of rent controls, since the long-established rent control boards were allowed to wither on the vine by the last administration.
Rent controls and the planning regime need to form a part of the Housing Policy Review.
There is no right way to do the wrong thing.
2010 Review
This is the time to reflect on the changes we have witnessed in the last year and the several challenges arising from those. This column will attempt to combine the ‘Property Matters’ concerns with the ongoing examination of the CL Financial fiasco.
The Uff Report
For me, the largest single event this year was the completion of the work of the Uff Commission of Enquiry into the Public Sector Construction Industry, with particular reference to UDeCOTT and the HDC. The controversial Commission of Enquiry was at the centre of widespread public concerns as to the level of corruption in the State construction sector. To his credit, the Enquiry Chairman, Professor John Uff QC, PhD, insisted that the proceedings be televised and the results of each day’s hearings were also posted to its website.
The Uff Report made history in this country, since it is the first time that a government has published the Report of a Commission of Enquiry. That is no small accomplishment and despite the fact that these massive wrongdoings took place under the last PNM administration, the act of publication has to be welcomed.
But there are still challenges, because, for whatever reason, the Uff Commission’s website, www.constructionenquiry.gov.tt has now been shut down, which is a real pity, since it contains the important testimony of many witnesses on the issues in this area. That website needs to be re-opened and I am calling on the Attorney General, under whose Ministry the Enquiry was operated, to ensure that takes place. It is no large expense to have these important documents made available to the public. In light of their educative content, I would suggest that the actual documents be housed at UWI, as they have a direct bearing on the deliberations of the Engineering and Social Sciences Faculties.
Of course we had the sight of a fleeing Calder Hart and a defeated Patrick Manning, his PNM cohorts drinking bitter tea for his fever, all attributable in my view to the groundbreaking Uff Commission.
Looking forward, we have the fact that the 91 recommendations of the Uff Report were adopted by the Peoples Partnership in the run-up to the 24th May General Election. We have now been promised that those are to be implemented by Minister of Justice, Herbert Volney. We await Volney’s early report as to the implementation.
In that connection and taking from the PNM example, I am, once again, calling for the publication of the report of the Commission of Enquiry into the Piarco Airport project. The Bernard Report must be published now.
CL Financial bailout
The other huge event of the year was the budget speech on 8th September 2010, in which Finance Minister, Winston Dookeran, disclosed publicly that he was revising the terms of the CL Financial bailout. That bailout was a hugely suspect act, the largest financial commitment ever undertaken in this country, without proper due diligence or even any proper ventilation in the Parliament. Our Republic had never been so financially violated and in broad daylight. It was encouraging to see the Finance Minister take the point to its logical conclusion and of course that brought about the large-scale organisation of various aggrieved groups to put their point.
That series of organisations, committed to the doubtful mantra of the guaranteed investment – whatever that is – took on a series of bizarre and increasingly combative stances. The signature theme being that ‘We are not responsible for our decision’. We were being treated to a spectacle worthy of any of the ‘Ole Mas’ presentations of yore, in which successful investors – on average at least $700,000 was invested by each of these ‘protestors’ – having benefited from the operation of the capitalist system were seeking 100% redemption from the State.
The entry of the Prime Minister into this debate on 1st October was in my view a turning-point in our development. For the first time in my memory a politician, who had the majority, to achieve the significant changes which had been tabled, stepped back from that act of sheer power to attempt an act of persuasion. It was a signal lesson in the reality of possibility in our lifetime. Even if one is amongst the Clico Policyholders’ Group (CPG) and feeling aggrieved, the calm audacity of the Prime Minister’s decision must be respected.
Most importantly, we now have a one-man Commission of Enquiry established with the eminent UK jurist, Sir John Colman QC sworn in. That Commission is to examine the causes of the CL Financial and Hindu Credit Union collapses. The Colman Commission is expected to start sittings in January 2011 and the Attorney General has directed that its report be delivered in 6 months’ time.
The Manning Factor
The most comical event of the year is the bold-faced attempt by the former Prime Minister, Patrick Manning, to shift attention away from the PP’s revelations as to the illegal spying activities of various State agencies. Manning, the original PM, attempted to show-up the Prime Minister, Kamla Persad-Bissessar, with a series of allegations on the status of a house being built with private funds on private lands for a private purpose. The Prime Minister effectively dismissed Manning’s concocted concerns with the telling observation that all the refutations she quoted were available from the public record, if the accuser had ever been interested in examining that open source.
Having stirred to life and found his voice, it is important to note the several matters on which Manning maintains a stony silence –
- Calder Hart – Where is Calder Hart? The nation was told solemnly by Manning that he knewCalder Hart’s whereabouts and further, that Hart was not a fugitive. We are now told that Calder Hart cannot be located and Manning needs to speak on this. Is it true that Hart gave Manning his location? Has Hart changed locations? Or is it that Manning has not shared that information with the correct authorities?
- Election rationale – What, if any, was his rationale for calling the general election at mid-term? I am not sure that anyone knows the answer to this one, but it is surely of continuing interest.
- Guanapo Church – What is the truth behind the ill-fated Guanapo Church? It is not my habit to wax scriptural, but that was a ‘house built on sand’ if ever we saw one. The reason for the State Grant of this land and the rapid grant of full planning permission – a record of only one month between the date of application and the grant – remains unexplained. As for the architect’s plans for this huge church in the grounds of the PM’s residence, the mind boggles. Where is Pastor Pena? We need to insist that Manning tells us more about this miraculous church.
- Cleaver Heights – Another area is the wild allegation Manning made, at the close of the 2008 budget debate, as to a ‘missing’ $10M at an HDC project at Cleaver Heights in Arima. Or was it $20M? After inserting that case into the ongoing Uff Commission and having the embarrassment of having the allegation evaporate under cross-examination, Manning needs to tell us just how he came to learn of this allegedly missing money.
- CL Financial bailout – Manning’s conduct in this matter has been the crowning-point of his administration, in my view. The then Minister of Finance, Karen Nunez-Teshiera, was accused of using ‘inside information’ to make early withdrawals of her own funds from the CL Financial Group and to compound the mischief, being a shareholder of the CL Financial group in the sum of over $10M. Manning’s steadfast defense of his beleaguered Minister of Finance was a display of loyalty which is seldom seen in higher political circles. We need to know if the Minister told her colleagues that she was indeed a shareholder of the troubled group. Did she or did she not recuse herself from the Cabinet’s deliberations? My reading of the events, as told by the very Minister, is that she did not.
For Manning to fail to come clean on these questions, he would run the risk of damaging his hard-won reputation for upstanding values and leadership.
White Collar Crime
The obvious connection between these various events is the fact that White Collar Crime – which is sometimes, mistakenly, called victim-less crime – is afflicting our country in a big way.
The year ahead holds significant challenges as we try to go forward in this morass, to escape the conspiracy which I have titled The Code of Silence.
The only way political rulers can carry on as they do, wasting the country’s money for the benefit of their friends and family, is because they are sure of each other’s silence. The people in the private sector who were responsible for the financial collapse are no different. The financial collapse is not, as some have falsely claimed, in any way connected with the Wall Street crisis. That is only a handy coincidence. If our regulators and politicians were doing their jobs we would not be in this position.
Please remember that the alarm bells on CL Financial were sounded by Trevor Sudama, since the 1999 budget debate. More to the point, many of the people who still inhabit the Parliament were there at the time. Again, I give this administration credit for appointing a Commission of Enquiry into this sordid affair.
Also, please remember that both UDeCOTT and the HDC failed to file accounts for years, in breach of the law and State guidelines. That failure was not remarked upon by members of the then Opposition. More to the point, we have now had a change in administration, with no word on the UDeCOTT accounts. I do acknowledge that certain HDC accounts have now been published and that is to be the subject of upcoming commentary.
The Code of Silence must be broken if we are to progress.
Some considerations on Property Tax
At this point in time, the nation’s budget is running at a deficit for the third successive year and the Minister of Finance is tasked with developing new sources of revenue. I think it is time to return to the question of property tax.
According to a recent statement by the Minister, if all the taxes due were paid, we would not have any budget deficit. The ‘tax gap’ is the difference between the total taxes owed and the actual taxes collected. While the notion of total compliance by taxpayers would be somewhat unrealistic, the goal of closing the ‘tax gap‘ is certainly one worth pursuing.
As I wrote on 19th September in this space –
…consider that rental income is also subject to income tax. Not many people who own rental property actually pay income tax on that rental income – if you don’t believe me, just ask a few friends or relatives who own rental property. This seems to me to be an area in which the Finance Minister can easily collect the data and increase the State’s revenue by staying within the ‘No New Taxes’ promise and implementing the laws which are already on the books…”
I am returning to the subject in this article.
When one considers how wealth accrues in our society, it is obvious that property forms a significant part of the nation’s assets. A great portion of the wealth of our successful citizens flows from rentals, buying blocks of land to sub-divide and sell-off lots, development or just flipping (buy low, sell high). There is no doubting that property dealings are a significant wealth-creating engine in our society.
The property sector is lightly taxed, with no real capital gains taxes, very little income tax collected on rentals and very low rates paid for Lands & Buildings Taxes/House Rates. Only in the case of Stamp Duty is there a somewhat modern system in place, but even that has been effectively neutralized by the real traders.
The widespread and varied protests against the PNM’s Property Tax proposals seemed to me to be divided into two types.
- Firstly, the general mood of protest against paying any further monies to a wasteful and corrupt government.
- Secondly, we were fed the notion of inequity, with many examples about pensioners and the less well-off families being heavily promoted.
In saying so, it is striking to me that the position of the serious property dealers remained concealed in that campaign, which was effective in seeking after sympathy-support. Almost reminds me of the Clico Policyholders Group.
The first class of objection is practically dead, given the strong mandate given to the PP in the General Election. That said, it would be literally playing with fire for them, having achieved office by campaigning against the PNM proposals, to bring forward a new property tax in a similar mode.
The second class of objection is interesting in that it could be instantly invoked to play on our natural sympathy for the ‘underdog’.
I am proposing that the Minister of Finance consider targeting rental income for taxation.
So, what are the merits of this proposal?
- Firstly, the information could be easily gathered in the upcoming national census, for which enumerators have already been trained. All that is required is three simple questions –
- Do you rent your home/business? – Yes or No? If the answer is no, the other questions are omitted. If the answer is yes, the next two questions apply.
- Who is your landlord?/To whom do you pay rent?
- How much rent do you pay?
Given the natural tension between landlords and tenants, it is difficult to imagine many tenants concealing or distorting facts for the benefit of their landlords. The simple fact is that there is plenty of information just waiting to be collected.
- Secondly, the legislation is already in place, so there is no need to get any law changed or go to Parliament for any discussion. I am proposing purely administrative measures, in which our existing laws would be properly enforced, something the public is continually calling out for.
- Thirdly, owner-occupiers will be lightly taxed under the present arrangements, while only the landlords will pay income tax on their rental income. That will negate the sympathy-objection, as outlined above.
In terms of actual implementation, it would be advisable to get a high rate of participation by offering a tax amnesty to those who filed corrected tax returns within say 3 months. The waiver of penalties and interest charges on the 6-year tail of liability would be an attractive incentive to sensible investors.
Just to be clear, the payment of income tax on rental income does not set-off or reduce a property owners’ liability to pay property tax, as in the case of Land & Buildings Taxes or House Rates.
There is a substantial pool of untaxed income, together with an inescapable means of gathering the necessary information.
The only question is ‘What are we waiting for?’
SIDEBAR –Property Tax Act 2009 – an update
The closing act of the last PNM regime was the vastly-unpopular property tax, which was assented-to by our President on 29th December 2009, after bruising months of public protest and many, many uninformed statements. The Property Tax Act 2009 was to be the basis of a complete revision of our country’s property tax system, insofar as the old Land & Building Taxes and House Rates were concerned.
The nationwide protest against the Property Tax proposals was a key factor in coalescing the opposition to the PNM and seemed to me to have paved the way to the electoral victory of the People’s Partnership government in May 2010. One of the PP’s most distinctive and popular manifesto promises was the repeal of that Property Tax Act.
I was in support of the proposed changes to the Property Tax system as being long-overdue.
As things stand, no Property Taxes have been paid for 2010 and the Minister of Finance has given property-owners a waiver for this year. That waiver amounted to over $140M and it remains unexplained.
There have recently been advertisements seeking details from property owners to update the database for Lands & Buildings Taxes, so it seems that some further revisions are to take place.
Creating a Context – the role of planning
For me, the key point at which we lost our way in the UDeCOTT/HDC/NIDCO bobol, was the crossroads of the Investment Decision.
That Investment Decision is an indispensable part of any rational process of development, for families, businesses and countries alike. The national level is my concern and there must be broader considerations in making those decisions.
It is clear from the depth of the failure, that the last administration lost its way completely, insofar as elementary concepts such as opportunity cost, payback periods, cost-benefit analysis and so on. We have only now begun to scratch the surface in terms of understanding the extent of the losses and corruption – readers, please be reminded that as yet, we have no accounts for UDeCOTT or HDC for several years. In normal business thinking, the failure to publish accounts without even an attempt at an explanation is tantamount to an admission of the most serious problems. Only State-owned organisations can get away with that kind of irregular conduct, which is maybe why they do it.
My concern in this article, is that apart from the Investment Decision in the case of specific projects, the State has an obligation to consider the wider picture in terms of fine-tuning, timing and phasing those projects. Our last land-use plan in our country was approved by the Parliament in 1984 and we have had several fruitless attempts to revise that plan.
The focus here is on the need for a proper practice of integrated planning, in particular long-term land-use and town-planning. By integrated planning I am speaking to an approach which takes account of varying principalities, such as land-use, financial constraints and national targets. In addition, the approach allows a balance to be struck between the competing demands within various time-horizons, such as immediate demands, medium term demands (say, 10 to 20 years) and longer-term considerations.
Lack of an updated national Land-use plan
As I wrote in the Business Guardian of 9th October 2008 –
“The Minister of Planning, Housing and the Environment spoke at a breakfast meeting of the Couva/Point Lisas Chamber of Commerce on September 10, and some of her reported comments deserve our close attention.
The minister told her audience that the National Physical Development Plan was passed in 1984 and had been continually updated, but that “that plan has somehow never reached to Parliament.” Somehow. The mind boggles.
One report said, “Dick-Forde said the external and internal committees on national development were working towards the completion of the National Development Plan, which will be taken to Parliament in the next two years.”
When this tidal wave of development is at an ebb, we will then have a plan tabled in Parliament for discussion. To what end?” see http://www.newsday.co.tt/politics/0,85974.html
Given the last Minister’s stated timetable, we ought now to be having a draft plan published for consideration. Where is this, Minister King? When do the consultations start?
Transportation planning
This is a vital, related area and Minister of Works & Transport, Jack Warner, told us that the PNM government paid $21M for an incomplete Comprehensive National Transportation Study (CNTS) – see http://guardian.co.tt/news/general/2010/10/09/warner-pnm-paid-21m-non-study – and I agree. That fact only makes the situation more doubtful, since we seem to be making major transportation system decisions in the absence of a strategic plan.
Just consider –
- The Tunnel to Maracas
This was first announced in the 2011 Budget – see http://www.finance.gov.tt/content/Budget%20Statement%202011.pdf at page 24…We all know how difficult it is to access Maracas Bay through the North Coast Road.
Currently, it takes approximately 45 minutes to get from Santa Cruz to Maracas Bay. Furthermore, landslips on the North Coast road are a major deterrent to persons wishing to access this scenic route for pleasure or business. As a result we will do a business plan for a new: ‘Connective Development Project’. This project would create an underground tunnel from Maracas Valley to Maracas Bay, to enable quicker access to the North Coast…
That strange project was then taken up by Warner at length – see http://guardian.co.tt/news/general/2010/09/26/warner-s-tunnel-take-next-year
- The expansion of the Highway Network
We are now aware that the National Infrastructure Development Company (NIDCO) is proceeding with ambitious Highways packages from San Fernando to Point Fortin, with the San Fernando to Mayaro route under active discussion – see http://www.newsday.co.tt/politics/0,124988.html. - Coastal Water Taxis
It seems that the government has changed its mind, three times, on this part of our public transportation system. Firstly, we were disposing of two of the four new water-taxis as being superfluous. Secondly, there was an about-face, in which it was decided to keep the new water-taxis. Most recently, I have seen advertisements for the provision of brokerage services for the disposal of these vessels. Again, what is the basis?
Sewer Treatment plants and the threat of cholera
We recently had shocking stories about the leaking of significant amounts of untreated sewage into the Maraval reservoir – see http://guardian.co.tt/news/general/2010/11/19/wasa-boss-moka-residents-must-pay-repair-sewerage-plant. That is no surprise, given the widespread practice of property developers walking away with their profits in hand upon completing the sales of their properties, but with no proper plan for the maintenance of the sewer treatment plants.
Once again, this is an area which urgently needs to be addressed in terms of town planning, local health, WASA regulations and adequate financial mechanisms for ongoing maintenance of these facilities.
The Housing Development Corporation (HDC)
The HDC’s new target for 2011 is 6,500 new homes and that is still a huge number. Given our limited land resources and the absence of a national planning framework, how is this to proceed?
There remains the unanswered question as to what is the basis for these decisions?
The Limits of our financial resources
The Minister of Finance recently called for Ministries to not implement any new large projects, due to the financial limits constraining state expenditure – see http://www.newsday.co.tt/news/0,129148.html. That is a valid call, which shows that the time is ripe for us to plan our major strategies and projects so that they can conform to some sort of national context.
That context would have to include elements such as land-use, transportation implications, financial limits and the question of the capacity of the economy to meet the targets being set.
SIDEBAR: Fuel subsidies in national planning
The question of fuel subsidies is an important part of this integrated planning discussion, since, at approximately $2.8Bn, they are a large part of our national expenditure. More to the point, the effect they have on our behaviour is largely unremarked, which is paradoxical – the gas price being so low that we do not really consider it in our daily choices.
It is a classic example of the sort of ‘policy silos’ which the integrated planning approach seeks to overcome.
The Minister of Works & Transport speaks out strongly against the heavy subsidies necessary for the operation of the Coastal Water Taxis – no statement from Warner on the larger sums spent on the fuel subsidy. The Minister of Energy, in the run-up to the budget, says that these fuel subsidies may need to be reduced. The Minister of Finance, in his budget address, said –
“…The largest Subsidy is on petroleum products, particularly gasoline which usually represents one to two percent of GDP per annum. All of our citizens benefit from this subsidy. It is often difficult to determine whether resources are being used wisely to achieve the intended objectives of subsidies. We are currently reviewing whether alternate options are more efficient…”
We need to develop a holistic view of the various subsidies being paid in our economy and transportation subsidies, including fuel, are important considerations.
The goal of promoting the wider use of public transportation has to be adopted with some vigour and creativity. The fuel subsidies enjoyed by small vehicles – say, less than 12 passengers – should be gradually reduced with a shift of those subsidies to larger-capacity vehicles. They make more efficient use of our limited roadways and would reduce the adverse effects of traffic and pollution.
The three Ministries concerned should join with the Ministry of Planning in mapping out these strategies and policies.
The strategic goal should be to decrease the convenience of individual car-journeys and increase the convenience of the mass-transit approach.
It is no easy shift to go from today’s congested reality to the medium-term goal of a much-improved transportation system with travelers having several choices. That journey would involve a virtual culture-shock for most of us, but it is one we should start, sooner than later, for our common good.
That is one of the examples of how an integrated planning approach can offer fresh solutions to serious problems.
Property Matters: Some comments on the property and construction proposals of Budget 2011
This was the inaugural budget for both the newly-elected People’s Partnership and its Finance Minister, Winston Dookeran.
The burning question for me in preparing these comments was the big one – “Is the Honeymoon over?”
In my view, the honeymoon for this new government will last about 6 months, given the sheer scale of the mess they have inherited.
There were real expectations aroused in the recent election campaign and the reduced revenues available to the State would have made the budget into a balancing-act, particularly when one considers the repeated promises of ‘No New Taxes’.
The main items on the property and construction aspects were –
- PROPERTY TAX
The Property Tax was ‘Axed’ as promised – “…The Property Tax will be replaced by the old Lands and Building Taxes regime at the old rates and old values. There will be a waiver of lands and buildings tax for the year 2010…”There has been a misleading rebuttal on this from the Opposition Leader, Dr. Keith Rowley, in that the 2011 Estimates of Revenue tell us that the Land & Building Taxes are expected to increase from $71.4M to $173.8M. Rowley’s statement would lead one to think that the property tax take would be of the order of $300M, due to the omission of the municipalities. In fact, that is not the case, since the revenue of the five municipalities (POS, San Fernando, Arima, Chaguanas and Point Fortin) are found in the Estimates of Revenue for Statutory Boards and Similar Bodies etc. Due to the fact that one of the effects of the controversial property tax was to relieve these municipalities of their powers to tax property, the 2011 estimates of revenue need to be properly interpreted. The municipalities are estimated to raise revenue of nil in 2011, since all their revenue – as well as that of the regional corporations – is collected by the Counties and transmitted to the Central Government.The true picture is that $142.52M was the estimate of revenue from property taxes in 2009 – that is the combined figure for House Rates, paid in municipalities, and Land & Building taxes paid elsewhere. We are therefore anticipating an increase in revenue from this source of the order of 18%.No rationale was given for the waiver of property taxes for 2010, which was an astonishing decision, given the background against which the budget was drawn up.
Before I leave the property tax topic, it is interesting to consider that rental income is also subject to income tax. Not many people who own rental property actually pay income tax on that rental income – if you don’t believe me, just ask a few friends or relatives who own rental property. This seems to me to be an area in which the Finance Minister can easily collect the data and increase the State’s revenue by staying within the ‘No New Taxes’ promise and implementing the laws which are already on the books. But more on that in a later article.
- HOUSING
The Minister of Finance made strong statements in support of home ownership, he also outlined what appears to be a merger between several State-controlled mortgage companies. No target numbers of new homes to be built were given. The Housing and Environment Minister, Dr. Roodal Moonilal, recently announced that the Housing Development Corporation’s (HDC) new output target is 6,000 new homes in 2011. The Housing and Environment Ministry have zero allocation of capital funding according to the 2011 Estimates of Expenditure. There is an allocation of $845M to the Hosuing and Settlements programme shown in the Public Sector Investment Program (PSIP). Those estimates should cross-reference with each other and the fact that they do not is cause for concern, to say the least. This is the pattern of State spending on new homes, derived from the capital allocations only –Year Housing Ministry Capital Allocation ($M) 2008 $718.70 2009 $1,342.40 2010 $860.40 2011 $845.00 There was also the revival of an annual tax credit of $18,000 per household for first-time owners for the first five years. That measure is expected to cost $20M, which implies that just over 1,100 households will benefit from this provision. To quote – “…This measure will generate significant investment in the private sector housing industry….” Given the quantity of unsold, privately-built homes and the volume of HDC units soon to be released onto the market, it seems quite unrealistic to expect that this measure could yield ‘significant investment‘.
What is of greater concern to me is the question of whether we are at the limits of possibility as to home-ownership levels. 76% of our households now own their homes, the comparative figure for the USA is 69% and for the UK it is 68%. How realisitic is it to keep pushing for increasing home-ownership?
The HDC’s low-cost ‘Accelerated Housing Program’ stalled, with over 10,000 empty homes as proof, due to a shortage of applicants who could qualify for a mortgage.
The Minister of Finance spoke of the neglect with which our organisational and institutional infrastructure had been treated and I could not agree more. On this count, there needs to be proper consideration given to the resucitation of the Rent Control Boards. Also, the HDC needs to start giving some of those empty homes to people who just want to rent.
- Special Purpose Entities (SPEs) – What is their future in this new dispensation
Mr. Speaker, no coherent, co-ordinated planning or strategy for state enterprises exists. As a result we have begun to rationalize the state enterprises, including the special purpose companies, which will incorporate a new accountability system that goes beyond the presently operating company ordinances. It is these loopholes in public accountability that resulted in the UDeCOTT scandal. This must never again happen in Trinidad and Tobago.
Now that this just not so since there is a Performance Monitoring Guide of State Enterprises, published by the Investments Division of the Ministry of Finance in 2008. (see – http://www.finance.gov.tt/content/pub0DCE11.pdf)
This issue, as always in our country, is one of implementation. The provisions of that guide are not being followed and the wrongdoers are not being called to order.
The issue for us is to prevent the recurrence of that pattern of mismanagement and disorder in public affairs. That can only happen if we enforce the present guidelines and systems.
In the next column, I will discuss the attempt to map out a new philosophy in this budget and the CL Financial/HCU bailout.
Housing Policy Imperatives – part 6
I am bringing this analysis to a close by asking the question as to which individuals are ultimately responsible for this scandalous situation. The age-old questions persist – Are we mere creatures of circumstance? What influence can one individual have on transforming a situation? Do modern outlooks over-emphasise the power of the individual?
We need to close the circle to understand the role of the high-powered individuals in charge of this policy.
The Author of the Policy
Calder Hart, then CEO of Home Mortgage Bank and well-known to be a protégé of Andre Monteil’s, claimed to have authored our National Housing Policy – ‘Showing Trinidad & Tobago a new way home‘
In October 2002, Hart told me that in his office and he made a point of seeking my views of the new policy.
I questioned the originality, relevance and feasibility of the proposed policies and a frank discussion ensued. It seemed clear, from Hart’s reaction and subsequent behaviour, that he had indeed taken authorship of that misguided policy.
That policy can be viewed at here. Given their non-involvement in the later stages, it is interesting that the cover-page of the housing policy highlights UdeCOTT as a main state agency in its implementation.
The Minister of Housing
The Minister of Housing with longest tenure through this period was Dr. Keith Rowley, M.P., currently leader of the Opposition PNM – he was in that office from November 2003 to November 2007 – see http://www.ttparliament.org/members.php?mid=26&pid=5&id=KRO01.
The HDC was launched on 1st October 2005 to replace the National Housing Authority. The Trinidad and Tobago Guardian newspaper reported Dr. Rowley’s remarks at that time – see http://legacy.guardian.co.tt/archives/2005-10-15/news7.html
Earlier, Rowley said the NHA was restructured because it lacked accountability.
There are a lot of things that did not go right in the NHA and one of those things had to do with accountability…The HDC is not going to function like that. We are required by law to have the accounts ready in a certain period of time. The CEO will be held accountable and the Cabinet will hold the minister accountable and the Parliament will hold the Cabinet accountable. That is what the HDC means.
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