By  stabroek news December 11, 2016

Guyana’s economy is declining. The growth rate fell this year and the projection for next year is modest. This means that the income of the government has declined significantly and so has its ability to spend. Public expenditure is one of the two main props that keeps the economy ticking over and sustains employment, income and services. The other is private investment.

In making decisions on the budget, the government found itself between a rock and a hard place. It had to decide whether to reduce spending in proportion to its reduced income or sustain the same or a similar level of public spending as previously by raising funds by way of taxation and borrowing. It chose the latter course by imposing or increasing taxes on individuals and businesses. It has also increased the amount that it will borrow next year, eliminating any prospect of a decline in interest rates.

With the choice made by the government to maintain public expenditure in the face of a declining economy, it was to be expected that the taxes it would raise would target those who are able to pay. This would have meant higher income tax for the higher income bracket, higher corporation tax, higher sin taxes, taxation on high-end consumption and other similar measures affecting the better off.

But none of this happened. No measures were announced to encourage the self-employed to pay their fair share of taxes.

Instead, taxation measures reduced burdens on the well off and on companies, while at the same time, the burdens on low and medium income earners have been increased.

The Private Sector Commission and other business organisations, including the Guyana Gold and Diamond Miners Association (GGDMA) have complained bitterly at the measures proposed and have suggested that business growth will suffer. The GGDMA has been vocal about the new impositions on the local mining industry and have predicted that gold declarations may well decline.

Space permits the mention of only a few proposals. For both the population and businesses, the abolition of the zero-rated status and imposition of exempted status on a range of goods and services will result in higher prices to consumers as the cost of VAT on inputs for those goods and services will make them more expensive to produce.

The burden will have to be borne by consumers, as some businesses have already indicated.

It is not true, as claimed, that the imposition of VAT on water and electricity will not affect low-income consumers. The cost of production of all goods and services that utilize water and/or electricity will go up. This will inevitably be passed on to the consumer.

The consumer therefore gets a double whammy. First he/she has to face the increased cost of goods and services that lose zero-rated status as regards VAT. Second, he/she has to face the increased cost of goods and services that use water and/or electricity in their production.

Any relief by way of reduced income tax or VAT for low-income earners will be far outweighed by the increase in the cost of living due to zero-rating and VAT on water and electricity.

The proposed power to be given to the Commissioner General of the Guyana Revenue Authority to raid the bank accounts of defaulting taxpayers and/or to prevent them from leaving Guyana has caused fear. The Commissioner General already has the power under section 102 of the Income Tax Act of garnishment, that is, requiring a person, which would include a bank, which owes a taxpayer who “is liable to make a payment of tax”, to pay the sum to the Commissioner General. The government needs nothing more.

But the PPP, having created a precedent by giving power to the Commissioner General of preventing persons who owe VAT to leave Guyana by section 42 of the Value Added Tax Act without a court order, the government now seeks by unnecessary overreach to apply the same principle, with a court order, to income tax. After the exposure of Section 42 by Minister Jordan, the PPP ended talk about court action.

The promise of an expanding economy to meet the growing needs of the Guyanese people will not be achieved by this budget. Large-scale projects and big ticket items have been shelved or are on the back burner. Barama has packed up its forestry operations because no one is capable of making a decision on its application for a renewal of its lease. Investors complain that decisions on proposals are not being given serious or any consideration. Decision-making, they claim, appears to be at a standstill and no one seems willing or capable of pushing projects that will benefit the nation. The exciting promise of change in 2015 has not materialized.

Without an overarching strategy for the growth of mining, forestry, rice, agriculture, hydro-power, technology, construction and other sectors, and constant and relentless efforts to remove roadblocks and encourage business, the government gives the impression, which may or may not be true, that it has abandoned serious efforts to grow the economy that we now have, is satisfied with marking time, until oil comes to our rescue. If so, this is not a plan.