THE NEXT COALITION GOVT. MUST RAISE THE TAX-FREE THRESHOLD TO $500,000/MTH

Jan 24, 2024 Letters

Dear Editor,

In his ‘Address to the Nation’ on Republic Day 2021, Leader of the PNCR, Aubrey Norton announced that a government he leads will abolish income taxes for low-wage workers. More recently, in January this year, the main Opposition, likely in an effort to respond also to the concerns of the middle class, publicly promised to extend the ban on income tax to workers in the middle-wage bracket.

To so abolish taxes would simply require raising the tax-free threshold. Currently, the threshold stands at an unserious $100,000/mth. I would advise the main Opposition to raise it to around $500,000/m … within its first 100 days in office. A tax-free threshold of $500.000/m would move the needle in the lives of over 210,000 workers: approximately 54.000 in the public sector, approximately 150,000 in the private sector, and several thousand self-employed persons. The impact on poverty, inequality, opportunity, and economic energy would be almost immediate. Sure, such a proposal prompts several questions. First is the question of cost and affordability. To estimate those, we note that the government received $72B in 2023 in personal income taxes. Raising the tax-free threshold to $500,000/mth would cost several billions less – for a total that would be under 4% of government expenditure. In oil-rich Guyana, cost and affordability are within our reach.

Second is the question of financial sustainability. Can a government afford this expenditure every year in an uncertain future? Financial sustainability is a function of both sustainable revenue and priority setting. In terms of sustainable revenue, the interest payments alone into the Natural Resource Fund from 2026 would surpass $100B annually. With prudent financial investments in equity, etc (as opposed to receiving only bank interest on our deposits, as currently the case), interest payments can cover the proposed scheme as well as a sizable chunk of other government spending. In terms of priority setting, governments allocate their spending in line with their development philosophy and strategy. APNU, with its stated agenda of putting people first and at the centre of development, is already telling us where its priorities lie.

Third is the question of, as VP Jagdeo likes to put, “eating the budget out.” In other words, the VP and other critics of such spending proposals see them as “consumption” by the grasping masses and not as economic investment in the people. They see such proposals as having a finite and wealth-destructive impact, and not as having a self-perpetuating wealth creation impact. They see such proposals as unjust rewards to undeserving people, and not as a government’s moral duty to ensure the welfare of citizens and to guarantee their rights to a decent life.

Fourth is the question whether such a large increase in the tax-free threshold would trigger inflation and the Dutch Disease. These concerns, often deployed by the PPP as bogeymen, have been put to rest by the Opposition and newspaper editorials. In passing, let’s ask: where are these concerns of the government in raising public expenditure by over 40% in each of the last few years? One does not need an economics degree to realize that the Opposition’s emphasis on putting people first is not only morally superior, but also a better economic development model than the PPP’s obsessive spending on infrastructure, where most of it is lost through waste and corruption and —critical to note – will do little to nothing to expand the productive capacity of the economy.

So, I encourage APNU to put a number to its proposal to abolish personal income tax. Put that number at a tax-free threshold of around $500,000 a month. Along with a salary top-up for low-income workers, such a proposal is a targeted but sweeping approach to effectively transform the lives of many households and to add dynamism to the economy through increased spending, saving, and investment by citizens.

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