The Budget Process

Feb 08, 2010 Editorial

Today, the Minister of Finance will present the Budget 2010. Over the past years we have presented an overview of the Budget process and its premises to assist citizens in evaluating a presentation that will have profound effects on their lives.

We do so once again against a background of a global recession, which contrary to assurances, did impact negatively on our economy.

The Budget gives a detailed account of what the Government will spend during the coming year in their mandated task to better our lives.

We should firstly be aware of the total amount the Government will be spending (expenditure) and from which sources will it obtain the funds to be spent (income).

For this year we can expect that the total Government expenditure will be increased from that of last year, even without the worrying billions of “supplementary spending” that will be submitted later in the year.

One reason for maintaining your equanimity is that all the money that the government spends will ultimately come from you – some before it reaches your pockets.

If the budget follows the old pattern, much of the money will come from VAT and duties (the latter is passed on to you in the sale price of goods), income taxes (33% of your hard-earned wages), corporate taxes (35 % of their profits) and sales of licences, stamps etc.

With a continued economic slowdown (the government had to lower their growth projections), the income and thus the taxes from Guysuco and the bauxite companies will continue plummeting: the government will have a greater shortfall or deficit. That deficit, which we believe will be over forty percent of expenditures this year, will have to come from loans and some grants.

The latter are akin to gifts which we can expect to be severely curtailed since the traditional grantors are in deep funk. Loans, as most of us know to our cost, have to be repaid and citizens would have to consider whether their Government spending over forty percent more than it collects is a wise policy or not. Loans, after all will have to be repaid some day – the days of debt write-offs are now gone.

The other areas of scrutiny ought to centre on the areas the Government spends our money. In a mixed economy such as ours, traditionally, Government spending attempts to achieve three goals: attempting to stabilize the macro-economy; assist resources to flow most efficiently to sectors that will deliver the greatest growth rate to the economy and lastly to ensure that there is some equity in the distribution of the national income so that the least fortunate of our society do not get left irretrievably behind.

We should look for funds allocated to kick-start the LCDS. Among the “macroeconomic fundamentals”, one has to be concerned, for instance, with the rate of inflation – both last year’s actual and this year’s projected one – since this, in essence, devalues the money one earns, to the extent of the rate.

In terms of policies to encourage growth of the economy, these can include tax and fiscal measures to encourage investment. Since the Government of Guyana is itself the biggest source of spending, the decisions of Government itself on the projects it selects for development ought to be scrutinized.

The bottom-line question is, was there growth in the economy? It is accepted that our economy will have to grow at a rate of around ten percent per annum if we are to make any significant dent in our poverty rates in the next decade. Our rate has been less than one percent over the last decade and with the travails in sugar and bauxite, we find it difficult to believe that we will do much better this year.

Finally, we must ask whether any measures were taken to assist the poor. Was the income tax threshold increased? Will the 16% VAT rate be reduced as so many have pleaded? And for the rich, were there more tax holidays and deferrals?

We hope that citizens will become more involved in a process that involves them where it counts most – their pocketbooks.

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