Truth and the budget
Dear Editor, First in regard to truth and the budget: There is a saying that the first casualty of war is truth, but we need the longer version to understand the motives for some of the exchanges on the budget. It is ‘Among the calamities of war may be jointly numbered the diminution of the love of truth, by the falsehoods which interest dictates and credulity encourages.’ The undeclared war between the PPP and the APNU+AFC dictates that we can’t look to those two for truth. We therefore need independent commentators. Here is where we find ourselves with a grave problem.
Guyanese have allowed neutral spaces to dry up to the point where those on whom taxpayers’ money has been spent in the form of university education have either deserted or prefer to remain as spectators. Where are the neutral economists to comment on the budget? The one person we could have looked forward to – Professor Thomas – to make an analysis has other plans (as we can see from the topics he plans to deal with in upcoming articles) and the reason is obvious. He cannot make comments which are in opposition to those of his government.
Most of the commentary about what the 2017 Budget will achieve has been made by persons incompetent in the field of economics. I am also an incompetent. However, I am competent enough to know where to look for information. So let me share what my consulting economist has told me.
1 – The claim that the budget has a large shortfall in revenue against expenditure:
Absolutely true but not a problem. It is called deficit financing and is inevitable in less developed countries. Much success of it depends on how anti-inflationary measures are employed to combat inflation. Most of the disadvantages of deficit financing can be minimized if inflation is kept within limits. Deficit financing is unavoidable. 2 – The budget will cause inflation: Before I tell you what my consultant said I must admit that this was the strangest one to my memory. You don’t have to be an economist to know that this is pure unadulterated nonsense. Check the Bank of Guyana records and you will see that every year there has been inflation (the same thing increasing in price over time) since there have been records. So it doesn’t matter what kind of budget there is in 2017, or who forms the government, there will be inflation. That is why the house and land your father bought in South Ruimveldt Gardens for $20,000 in 1969 can be sold for $20,000,000 now. 3 – The budget will be bad for business: My economist says that deficit financing-led inflation helps producing classes and businessmen to flourish. But fixed-income earners suffer during inflation. This widens the distance between the two classes. In other words, income inequality increases.
Strange. Our businessmen are worried about inflation? Here’s what my economist says on the budget not resulting in economic growth:
This is the most interesting of all. My economist begs to differ. He says: “During inflation, private investors go on investing more and more with the hope of earning additional profits. Seeing more profits, producers would be encouraged to reinvest their savings and accumulated profits. Such investment leads to an increase in income, thereby setting the process of economic development rolling.”
Eh, eh? Now, then what kind of economist is this man? I have great news for Tacuma Ogunseye who said (facetiously, no doubt) that he was just getting excited as he was about to read Sase Singh’s references from a supposed Indian guru and ended up hungry. My economist is Indian! His name is Ritika Muley.
But here is the best news of all. His services are free and can be found here:
http://www.economicsdiscussion.net/publicfinance/deficit-financing/deficit-financingmeaning-effects-and-advantages/17460 4 – VAT: Enough free advice from Mr Murley. Now, here’s what Guyanese need to know about the VAT. These were some of the benefits that were to be attained according to GRA when VAT was launched in 2007:
• Broaden the tax base, thereby spreading the burden of taxation more equitably;
• will generate substantial amounts of revenue, even at relatively low tax rates, and the revenue will accrue steadily throughout the supply chain;
• it is an efficient and relatively inexpensive tax to administer with operating costs typically in the region of only one per cent of the tax yield.
The budget presentation offers no information on how successful the first objective has been. There is no discussion as regards the number of taxpayers before VAT and after VAT and whether this is increasing. This would have been so appropriate given that 2017 would mark 10 years since the VAT launch.
Bullet point 2 means they could probably drop that 14% on water and electricity to 7% and still make sense. Lastly, the raising of the threshold from $10m to $15m suggests that experience over the last 10 years of VAT did not accord with bullet point 3 above, because if the idea is still to capture as many taxpayers as possible, the raising of the threshold does not make sense.
Voluntary registration under the VAT system was also available at the beginning as businesspersons were supposed to have actually noticed that it was better to be under the system than outside it.
All pretence of this seems to have been dropped by the government of the day.
In summary, my good Guyanese compatriots, let the politicians posture and prance all they want to in Parliament. You mek sure yuh doan tek set up! An consult Mister Murley yuhself!
Yours faithfully, Frederick W A Collins