Spending versus tax reduction

Feb 01, 2009 Peeping Tom

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Peter R. Ramsaroop, MBA
Chairman, Vision Guyana

OVERVIEW:
We all know by now, I am one of the biggest advocates for Tax Reduction. One senior diplomat told me this week that we must show how we intend to accomplish our goals of tax reduction, while stimulating our economy for growth. It sounds simple, but I agree.

Our plans for the nation include a well thought out vision, but resourced with less taxes and a stimulated economy that will create jobs. I believe in the P3 model, private/public sector partnership. The type of programmes I am advocating is about providing jobs for Guyanese who have become victims of the world economic crisis.

In the US, for example, millions of jobs have been lost and the government there needs to undertake a number of projects, of varying kinds, to provide jobs.

There are a number of industries that contribute to a project. For example, in construction, we are talking about trucking and hauling, raw materials, building of burglary alarms and systems, and so on so that a variety of industry and skills would now be employed which would have other wise been unemployed.

More people in jobs means more money. People will start to spend slowly, confidence will return to the US economy and the economy would be on its way out of the trough steadily climbing towards the peak of another economic cycle. There are also small projects which are labour intensive, which brings with it jobs.

The point of the stimulus is to create jobs. Businesses will respond to rising aggregate demand and will respond by turning their businesses around. Those who were closed would reopen and those who downsized will start to gradually call back staff.

WHAT ABOUT GUYANA?
Let’s take the case of Guyana in comparison. We have always been a pedestrian in responding to our own developmental needs and therefore have been unable to create jobs for our people. The stimulus packages in the more developed economies are geared towards increasing aggregate demand from their diversified domestic production base. Guyana’s is mighty narrow and is basic.

Tax cuts aimed at stimulating production from the private sector certainly is not a viable option; its multiplier effect in terms of government revenues will be unnoticed under the current circumstances.

However, if we allow tax breaks for retooling and investing in new equipment for new businesses here again, there is uncertainty of the multiplier effect. Tax incentives to businesses should be based on jobs created or jobs saved. Our production base is too narrow; tax breaks will not benefit businesses, only businessmen (no offence, mind you).

TAXES AND INCENTIVES:
I feel that the income tax threshold should be increased to $75,000 and VAT should be reduced by 6%. This to my mind is more beneficial to the majority of the people. I do not favour reduction in business taxes. We must focus on the citizens and Consumers. We are an import intensive economy and the multiplier effect will be staggering on the government revenue (in addition to all the leakages associated with corruption at the revenue agencies).

In simple terms, the budget has to carry new spending programmes and tax cuts all designed to save and create jobs. I don’t see the private sector having much option here. This must be a good government-led activity. In broad terms, the budget should affect/help the people in the following areas:
• Increase in tax threshold means more disposable income
• Reduction in VAT means cost of some selected goods will come down
• Support for the extremely vulnerable, maybe going back to the original SIMAP model under the ERP
• Employment assistance to the recently jobless workers such as those from the bauxite industry.

Tax relief has been offered in Canada but these are aimed at shoring up the faltering real estate and home construction sector. Not tax cuts to businesses. Funds are going to be made available to help businesses stay open and employ people, for example to pay for operating costs, and these funds have conditions and are from programmes designed to support businesses.

CONCLUSION:
It is so apparent that the politicians have lost touch of what we the citizens need, such as reduction in our taxes, (income and VAT). We must be able to stimulate our economy. I have said many times that every dollar we spend turns our economy over ten times.

We must be able to integrate the debt we acquire; the tax reduction we must undertake as a new government and provide certain incentives that stimulate our economy.

We need a government that understands our needs. As we reduce taxes, we must work on initiatives that create new jobs. When one reads that we are importing 14,000 tons of sugar, our hearts just skip a beat, because we know that it’s not just our government that has failed but us also, because we have allowed them to.

We have lobbied hard for diversification of our sugar industry. We all now have experienced the incompetence of those put in charge such as the Ministry of Agriculture.

As you think of 2011 and what is needed in a new government, reflect on what the cup or the tree has done for you. If we all focus on the G, focus on Guyana, we will be able to achieve a better nation. It is not about the party you are aligned to, it is whether or not you believe they can solve Guyana’s economic problems.

If you do not believe they can, then focus on how Guyanese Everywhere, which includes you and me, will be able to make a difference in our beautiful nation. We all realize we must change, or else our children will inherit a land that they will not be proud of.  Until next time “Roop”

Send comments to [email protected] and www.visionguyana.com

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