Business Page – June 24th, 2001


Budget Debate Preview

Introduction

Tomorrow at 2 PM the parliamentary debate on Budget 2001 begins. The Budget was presented to the National Assembly on June 15, a session marked by a walkout by the members of the PNC-R protesting the appointment of former Chairman of the Guyana Elections Commission as Attorney General. All indications are that the PNC-R will participate in the debate which will test the capacity of both sides of the House. It is the first budget debate under the post-Herdmanston Constitution so that there are now members representing the regions of the country. This will add a new dimension to the debate although it has to be said that there is little purity in the system in that the bond between the constituencies and their representatives is not necessarily a close one.

The Budget Speech according to an editorial in the weekly Catholic Standard ‘did not generate the usual wide interest and contention which budgets usually do’. No wonder. The political situation in the country is on everyone’s mind and often matters such as the Budget, unless they contain bold, new initiatives will not retain attention for very long. Mr. Norman McLean, President of the Guyana Manufacturers Association (GMA) described the Budget as “not containing any dramatic positions but found it to be a stabilising one as it continues the programme the government embarked on last year’. Other leading members of the private sector and some trade unionists were also critical of the Budget particularly as it failed to offer any increase in the threshold at which personal income tax becomes payable.

Minister of Finance Saisnarine Kowlessar, who will be under pressure to defend the Budget during the debate, appeared concerned about the criticisms and must have noted that no well-known private sector person or organisation or trade unionist has spoken in favour of the Budget. The Minister held a press briefing to elaborate on the difficult political and economic climate within which the Budget was constructed and used the opportunity to address some of the issues which have drawn criticisms. Minister Kowlessar is respected for his low-key, religious and non-confrontational approach, qualities that will serve him well during the debate since criticisms are likely to be directed at issues rather than personalities.

Continuous Process

In the press briefing, the Minister noted that the Budget was not a “one-stop document’ suggesting that his door and his mind were not closed to the representations made by the many Guyanese individuals and organisations which responded to his invitation to offer pre-budget comments and recommendations. This is a very positive statement which the Minister should reinforce with action. Mr. David Yankana, Executive Director of the Private Sector Commission, echoing a statement made last year by top businessman Mr. Sattaur Gafoor, noted that “this [the omission of any recommendation by the PSC] puts in jeopardy the usefulness of the consultation exercises as we can expect to see reservations in future on private sector entities participation in consultation processes”.

Business Page hopes that this is merely temporary frustration and that the private sector and the entire society will continue to make their representations not only to the Minister but to the entire Government offering their perspectives and recommendations on what needs to be done. The private sector must be aware of the limited relevant experience of the members of the Government and it is unfortunate that a leading member of the private sector should have turned down a reported offer of the trade and tourism portfolio. Too many Guyanese, whether in business, the professions or the wider society prefer to criticise rather than participate. We have to put our time where our words are and be prepared to make the necessary contribution to the development of the society.

The Minister can demonstrate commitment to his notice that he regards the process as continuous by a willingness to adopt practicable suggestions made during the debate as well as the recommendations he received during the consultation process. He would have drawn from the series of meetings between President Jagdeo and Mr. Hoyte the tangible and non-tangible benefits of dialogue. His own engagement with stakeholders in the economy in a similar process can yield immense benefits to the country since it will facilitate a better understanding of the issues and concerns facing the government and the rest of society.

It would be unfortunate if the comments on the Budget by the private sector are regarded as anything but constructive and sincere. Business Page believes that there are still opportunities available to the Minister whereby he can acknowledge the role of the private sector in the economy and create the conditions for their effective operation. Of course the Minister will be aware of, and make allowance for the quality of our private sector and the sometimes narrow agenda which it pursues.

The trade union NAACIE, in lamenting the failure to increase the personal taxation threshold, suggested that it might not be too late for the Minister to correct the situation. The Estimates presented to the National Assembly reflect a substantial deficit and any increase in the threshold will increase this. It is therefore both unlikely and unusual that he would make any changes at this stage. Ironically however, while this column is being written there is an announcement by the President that Omai will get a 1% royalty rate reduction on gold exports provided that the savings from the reduction are applied to exploration activities in Guyana. Of course, the budget implications of the two scenarios will vary significantly and the trade unionists and others who were looking for late changes in the threshold should not use this as a precedent.

Business Page suggests for the Minister’s consideration, the following measures which will have no immediate budget impact but which would send the right signals.

Cutting Red Tape

Over the past few years, under pressure from various international conventions, the Government has introduced several pieces of legislation which have placed administrative and financial burden on business houses. While these legislation are indeed desirable, their application without consideration to the size of the businesses must be reviewed. Some legislation include the Occupational Health and Safety Act, the Guyana National Bureau of Standards Act, the Termination of Employment and Severance Pay Act and the Companies Act 1991 among others.

Government departments and public entities, including National Insurance Scheme, the departments of the Revenue Authority and the Deeds Registry, are also regarded as being too bureaucratic and slow in dealing with issues which come before them. Business Page has called for the establishment of Charters which would guarantee to the public certain rights and privileges and facilitate transactions with them. With one of the highest tax to GDP ratios in the world, Guyanese pay for and therefore deserve a much higher quality of public service than they currently receive.

Tax Reform

This is a recurring theme of Business Page which is concerned with the piecemeal approach taken on taxation in Guyana. Recently, at the request of the Government, the IMF submitted to the Government a study “Guyana Towards a Medium Strategy for Reforming Tax Policy and Administration”. While no formal pronouncement has been made on this study, Business Page considers it extremely deficient in that it failed to address a number of critical factors, not the least being how the tax base can be increased and tax rates reduced. On the basis of its rather limited work, the IMF proposed the introduction of Value Added Tax (VAT). Business Page understands that the limitations have been recognised by the Finance Ministry and now suggests that the Minister make a formal commitment to tax reform with the establishment of a broad based commission mandated to examine the entire economy and the most appropriate system of taxation and tax administration.

Tax Amnesty

In 1991, the Government had granted a limited amnesty on delinquent taxpayers whereby outstanding returns for YA 1984-1990 were granted a full waiver of penalties and interest if those returns were submitted and taxes paid on or before April 30, 1991. Business Page believes the time has come for a similar amnesty for more recent years as an incentive to those persons intimidated by the draconian interest and penalty charges due on late submission.

Business Page understands that the Government may be considering a reduction in the rates of interest and recommend that these rates be revised downwards to reflect the current rates of interest prevailing in the economy.

Tax Depreciation

We believe the current system of charging depreciation on individual assets is unnecessarily cumbersome with no corresponding benefits. A system where the tax depreciation rate is applied to categories of assets known as pooling, would substantially simplify the procedures without any loss of revenue.

Personal Allowance

In order to ensure that workers do not lose on taxes as a result the inflationary effect on the personal allowance, Business Page considers that it would be a welcomed gesture if the allowance is indexed to the annual rate of inflation. For example, the annual inflation rate applied to the personal allowance last increased in 1997 will place the allowance at approximately $24,000.

While data on the number of taxpayers are not available, the rough estimates suggest that if the monthly personal allowance was moved to $20,000 the loss of personal taxes would be approximately 5% and if it was increased to $25,000 the loss would be approximately 15%. Of course, in dealing with tax measures one looks not only at the direct revenue loss but at the entire budget effect. Any direct loss can be made up not only out of additional revenues from higher compliance and better enforcement, but also from greater control of the expenditure side of the budget and overall greater efficiency.

Conclusion

The number of new members of Parliament and constituency representation will add a new dimension to the Budget Debate. Guyanese are anticipating with interest the presentation by Mr. Mansoor Nadir, the leader of the capitalist TUF, who is now the Minister of Tourism, Commerce and Industry. There appears to be some archaic rule that MPs should not speak from a prepared text which perhaps explains the ramblings which contribute so little to meaningful debate. Hopefully the Speaker of the House will not insist on adherence to this rule and that MPs will in fact better prepare themselves. Business Page understands that the order of speakers has not yet been determined which is itself a serious indictment of the management of Parliament. This needs to be corrected.

Let the Debate begin.