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Caribbean Islands

National Income and Public Finance

Trinidad and Tobago's GDP in 1985 totaled US$7.7 billion at current prices, a figure that had declined in real terms every year since the country's peak performance of 1982. In 1985 the petroleum industry continued to dominate the country's production, contributing 24 percent of national output. This was followed by public administration (15 percent), construction (11 percent), financial services and real estate (10 percent), transportation and communications (10 percent), distributive trade (9 percent), other services (9 percent), manufacturing (7 percent), agriculture (3 percent), and electricity and water (2 percent) (see fig. 7). The most prominent changes in the structure of the economy occurred in the petroleum and construction sectors, which had contributed as much as 36 and 14 percent, respectively, to national output during the first five years of the decade. The largest sectoral increases occurred in government, up 7 percentage points, and other services, up over 3 percent.

The fiscal year in Trinidad and Tobago in the late 1980s was the same as the calendar year. The budget was listed by ministries and various government agencies, often broken down by subunits. There were both current and capital accounts, but capital expenditures were not listed in detail.

The national accounts of Trinidad and Tobago were affected greatly by the oil boom of the 1970s and then by the subsequent decline in the 1980s. Because of the increase in oil prices, government revenues tripled in 1974 and expanded rapidly thereafter until they peaked in 1982. Expenditures also expanded rapidly, but less rapidly than revenues, creating budget surpluses every year except for a slight deficit in 1979. Over half of government oil revenues went into the Special Funds for Long-Term Development. In contrast to the 1970s, budget deficits occurred every year in the 1980s, beginning in 1982. A record budget deficit of approximately US$766 million was recorded in 1986. Budget deficits in the 1980s were financed primarily by borrowing from the Central Bank with minimal external lending. In addition, revenue shortfalls were financed by transfers from the Special Funds for Long-Term Development, which generated roughly US$3 billion during the 1970s. These funds, however, were depleted by the mid-1980s from project and deficit spending. Reductions in expenditures in the mid-1980s were attained almost exclusively by deep cuts in capital expenditures. In the late 1980s, the Robinson government planned to curtail current account spending, make state enterprises more accountable, and possibly divest certain government entities. Robinson chose to avoid what he termed the "debt trap and dependence on the IMF" (International Monetary Fund--see Glossary) in favor of belt tightening, reducing expenditures, and increasing revenues through higher taxation.

The public sector investment program that had evolved in the 1970s involved a budgetary process that caused concern in the following decade. As the state took on a greater role in the economy with its oil windfalls, there was less discipline in the establishment of cost restraints for large investment projects, making many capital outlays open ended in terms of expected final costs. In 1987, however, the Robinson government called for the review of the organization and structure of each state enterprise and announced that there would be an in-depth study of the viability of state enterprises. Likewise, Robinson announced that state-owned corporations would need to improve their internal financing and auditing procedures. As part of a plan of capital restructuring, Robinson noted in his 1987 budget speech that most current expenditures that continued to go to these enterprises would be transferred to the capital account.


Total government expenditures in 1985 reached approximately US$3.2 billion, US$380 million more than revenues. Government expenditures peaked in 1982 after a decade of rapid growth that was paid for by increased revenues from oil. As oil revenues increased, so did the government's role in the economy, causing government spending as a percentage of GDP to increase from 20 percent in the early 1970s, to 35 percent by 1980, to approximately 40 percent by 1985.

Current expenditures in 1985 totaled US$2.5 billion, or 78 percent of total expenditures. Current expenditures experienced an average annual increase of 40 percent from 1973 to 1976, decreased slightly in 1977, and then expanded 32 percent annually from 1978 to 1981. Expenditures grew more slowly than revenues, however, generating annual surpluses on the current account from 1974 to 1979 that averaged 18 percent of GDP. The fastest growing portion of current expenditures in the 1970s was subsidies and transfers, which tripled from 1977 to 1980, increasing from 5.4 percent of total expenditures to 12 percent in that same period. Ninety percent of subsidies went to agricultural production, food, and cement. Although total expenditures decreased after 1982, current expenditures decreased only slightly, peaking once again in 1986.

The current account in 1985 was broken down into five functional categories: general services, community services, social services, economic services, and unallocated expenditures. The largest share of current expenditures, 44 percent, went to social services, comprising health, education, welfare, and housing. General services trailed social services with 21 percent, including fiscal services, economic regulation, defense, justice, and police. Unallocated expenditures followed with 17 percent, generally for public debt servicing and payments to local government. Economic services accounted for 11 percent, primarily toward agriculture, energy, and transportation. Community services accounted for the balance of 7 percent, the majority going to roads.

The distribution of current account expenditures in 1985 was typical of the trends in the decade. In terms of economic classification, 1985 current expenditures were divided as follows: 45 percent to subsidies and transfers, 42 percent to wages and salaries, 8 percent to goods and services, and 5 percent to interest payments. Salary increases for civil servants often accounted for a large percentage of increases on the account in a given year. Interest payments' share of current expenditures was lower than in other Commonwealth Caribbean countries because of the economy's manageable debt. The minor cutbacks made to current account expenditures in the 1980s went primarily to reduce transfers and subsidies.

Capital expenditures totaled US$683 million, or roughly 21 percent of total expenditures in 1985. Public sector capital investment during the 1970s grew rapidly, accounting for nearly 70 percent of total investment. From 1972 to 1980, capital expenditures grew 46 percent annually, faster than even current expenditures. The growth in capital investment by the government increased the account's share of GDP from 6 percent in the early 1970s to 18 percent by 1980. During the 1970s, a large percentage of capital expenditures went to purchase numerous state-run enterprises, large industrial and infrastructure projects, and lending to public sector entities. Capital expenditures peaked in 1982 and then declined by 55 percent from 1982 to 1985. These cutbacks drastically changed capital expenditures' share of total government expenditures from the peak in 1982 of 47.7 percent to a low of 21.5 percent by 1985. In 1985 over one-third of capital expenditures were destined for state enterprises. Most of the remaining capital outlays went to housing, schools, agriculture, public utilities, and transportation.


Government revenues in 1985 stood at US$2.8 billion, causing a budget deficit of some US$380 million. Revenues tripled in 1974 as the price of oil soared, causing total revenues to rise from roughly US$245 million in 1973 to over US$700 million in 1974. Between 1970 and 1986, total government revenues as a share of GDP doubled to 40 percent of GDP. Oil tax receipts dominated, contributing 65 percent of total government revenues by 1980. Taxes on the oil sector included corporate taxes, royalties, unemployment levies, excise duties, and others. Government revenues declined substantially after 1982, however, as a result of the fall in oil prices. By 1985 oil-sector tax revenues accounted for only 39 percent of total current revenue; nonetheless, Trinidad and Tobago continued to have one of the highest corporate taxes in the region.

Although the oil sector was the most visibly taxed part of the economy, approximately 60 percent of revenues in 1985 came from taxes from the non-oil sector, primarily individual income taxes, sales taxes, and import duties. Non-tax revenues accounted for less than 1 percent of total revenues. Plans to increase government revenues in the late 1980s included increases in taxation of individuals and corporations, taxes on oil and airplane tickets, and a 5-percent increase in the purchase tax. The new government in 1987 was also studying the possibility of tax reform or major simplifications of the tax system.

Data as of November 1987

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