THE 2010 BUDGET: LONG ON WORDS; SHORT ON VISION

Feb 21, 2010 APNU Column, Features / Columnists

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Minister of Finance, Dr. Ashni Singh, presented his 2010 Budget to the National Assembly on Monday, February 11, 2010, with his predictable boast of it being the largest in Guyana’s history. However, after he had spent three hours outlining his $142.8 billion Budget, Guyanese were still at a loss to discern how this Budget would help to improve their well being.
The Government’s continued failure to engage in consultations with relevant stakeholders, before the preparation and presentation of the 2010 Budget, is typical of the arrogant and high handed behaviour of this Administration over the past three years.
In any event, any such consultations would only have revealed that the 2010 Budget would be long on words but short on substance.
DEFICIENCIES EXPOSED
In the Budget debate which began on Monday, February 15, 2010, PNCR Members of Parliament exposed the numerous deficiencies in the Budget and illustrated the lack of vision that attended its preparation. The inescapable conclusion is that the Jagdeo PPP/C Administration is incapable of presenting any coherent plans to create the necessary economic and social conditions to lift the growing army of pauperised Guyanese out of poverty and improve their quality of life.
TAX BURDENS
The burden of the 16 per cent Value Added Tax (VAT), which collected billions of dollars last year over the projected target, remains as a millstone around people’s necks. The Government’s failure to lift the income tax threshold for yet another year means that a large proportion of the six per cent increase in wages and salaries to public servants will return to the Government in taxes with little benefit to the workers.
The escalating cost of living, particularly, the increased cost of food items, will ensure that worker earning minimal wages and salaries remain close to the poverty line, while Old Age Pensioners, who received a ludicrous increase of $300 last year and are now to get another ridiculous $300 this year, will continue to be disadvantaged.
Consequently, while the budget announces ad hoc allocations in several sectors they have little relevance to taking the large and increasing number of Guyanese out of poverty.
HUGE EXPENDITURE BUT NO MENTION OF CORRUPTION
The Budget highlights huge expenditure in several sectors, yet there was no mention of measures being put in place to address corruption, when it is known that Guyana ranks high on the world’s Corruption Index and the huge leakages from the public purse continues to be highlighted in the Reports of the Auditor General and elsewhere.
The continued failure to commit to the early establishment of the Public Procurement Commission in 2010 confirms that the Jagdeo PPP/C Administration has no interest in addressing this problem of corruption and discrimination in the award of Governmental contracts. It is evident that to do so would damage their entire political hierarchy.
UNEMPLOYMENT
The Budget also failed to address the issue of unemployment and the ad hoc allocation of resources, allegedly, for specialized training of youth outside of the long established training institutions, is a blatant attempt to politicize this activity, while ensuring the continued strangulation of the Critchlow Labour College by withholding allocations to that institution.
It is also ironic that, while the Minister has announced such huge allocations for technical training outside of the established institutions, nothing has been allocated to improve the quality of training at our Government Technical Institutes, even in the face of current industrial action by the teaching staff of those institutions.
2010 TARGETS UNACHIEVEABLE
Despite the prediction of economic growth, the production projections in our major sectors, apart from gold mining, are not promising. Rice production for 2010 has already been affected by the incompetence of the Ministry of Agriculture in failing to take early action to alleviate the El Nino conditions.
The projected sugar production target of 280,000 tonnes is lower than that which was projected in 2008 despite the lofty presentations about the new Skeldon Sugar Factory. Guyanese and, more particularly, the sugar workers, are not fooled by these grandiose speeches, since the failure by GUYSUCO, for the first time in its long history, to pay workers on time, in 2009, is still fresh in their memories.
An excerpt from PNCR shadow Minister of Finance and Development, Mr. Winston Murray, is worthy of reflection:
“If we examine carefully the picture for growth in 2010 and indeed coming forward from 2007 and before, what is, and has been, significantly missing is the laying of a true foundation for the facilitation, encouragement and realisation of sustained strong economic growth through private sector  investment and, in particular, foreign direct investment.
I hope we would all agree that a growth rate of two per cent and three per cent per annum (for a low middle income developing country like Guyana ) is hardly the basis on which prosperity can be built or expected in the foreseeable future.
PREREQUISITES FOR GROWTH
In this regard the PNCR-1G believes that there are four prerequisites for true take off growth.  They are:
1.         Comprehensive reform of the tax system;
2.         Clear and uniform ground rules for investment without the imposition of ministerial discretion;
3.         A facilitating institutional framework; and
4.         An aggressive programme for seeking out investors and investments.
The budget is conspicuously silent on all of them and because of constraints of time I will briefly deal with only two of them.
TAX REFORM
First – tax reform:  In the 2008 Budget speech at P41, the Minister of Finance said: “Our government is firm in its belief that our tax system must promote our competitiveness as an investment destination, it must be simple and efficiently administered.”  Truer words have never been said.  We were also told then “. . . . . in 2008, we will conduct a study of our tax system to determine how we can implement further tax reform . . . . .”
Sadly, there was no reference whatever to the study in either the budget of 2009 or 2010 though we are told at P51 of the 2010 Budget speech that “consideration will be given to options for tax reform.” The fact is that a review of the Guyana Tax System was done in 2008 but for all practical purposes it has been gathering dust.
Here are some of the findings of, and recommendations from, that review:
1.         Guyana tax yields have been high over a long period.  Among lower middle income countries Guyana ranks number one with an average tax yield of 33% compared to the group average of 17.7 per cent.
2.         Employees in Guyana are relatively heavily taxed.  The income tax threshold is $35,000 per month and there is a 33 1/3 per cent flat rate of tax on all income above that.  This is coupled with a 5.2% employee N.I.S contribution.  On top of this employees (like others) pay a broad based 16% VAT as well as excise taxes and import duties on a number of consumer items.
3.         Guyana has high and differentiated tax rates on business income:  45 per cent on commercial companies, 35 per cent on non-commercial companies, and 33 1/3 per cent on all unincorporated business.  Within the Caribbean corporate tax rates range from 40 per cent in Barbados,  to 36 per cent in Suriname, 33.3 per cent in Jamaica, 30 per cent in Haiti and 25 per cent in Belize and Trinidad and Tobago.
There are recommendations that the rate could be lowered to a uniform 30 per cent with confidence that with such a rate Guyana would be providing an effective foreign investment incentive.
4.         Guyana has consistently scored poorly across a range of different country ratings that reflect the risks and costs of doing business in Guyana.
It should be mentioned here that the ease of doing business Guyana in 2010 is ranked 101 out of 183, slipping three places from a rank of 98 in 2009.
SEEKING NEW INVESTORS
In 2009 we were told that a revised investor roadmap and investor guide were to be completed in 2009.  In addition, three additional sector profiles were to be completed.  But we have had no word on any of this.  We repeat our suggestions that in all sectors in which we need investment we must work the international fora where investors are gathered to prosecute our cause for investment.  We must become more pro active.
This effort should be accorded the highest possible priority.  Of course, ability, commitment and dynamism are perquisites for success.
Often, we wonder whether this Government has any appetite for Foreign Direct Investment. Sometimes we get the feeling too, that the Government fears that the presence of any large international company could affect its absolute control over the economy and attendant matters.
BLINKERED APPROACH TO LCDS DANGEROUS
Perhaps, too, these matters have become irrelevant given the apparently new found panacea for development, viz., the much-touted and proclaimed Low Carbon Development Strategy (LCDS).
While the advocacy for the LCDS has been spirited and passionate and the promotion superb, we must regrettably acknowledge that the results have been disappointing.  The lesson here is do not put all your eggs in one basket.  With almost a blinkered approach to the pursuit of this LCDS the Government may have been neglecting other important policy issues and in the process has also incurred the wrath and fury of miners and foresters, among others.
Ultimate targeted annual receipts of US$580 million are projected with the period 2010 to 2015 projected to yield between US$60m and US$230m annually.
The Budget debate concludes tomorrow, with the reality that despite the robust debate and numerous suggestions the PPP Administration will arrogantly proceed without any amendments.

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