Business Page – March 31st, 2002


Budget 2000 Revisited

 

Introduction

The Parliamentary debate of the 2002 National Budget has ended with the Budget passéd in its entirety. It was an exercise that will leave the population more convinced if more misguided of the non-significance of this event. With the major opposition party in Parliament sticking to a decision of all the opposition parties to boycott sittings until reforms are undertaken to make that body useful, it was outside of Parliament that some of the more interesting discussions on the Budget took place. Business Page does not share the view that the national budget is not important. Apart from the unique opportunity the Budget presents to the Government to condense and communicate its message, it is also done in the context of an economy where both monetary and fiscal policies are not in independent hands but are very much controlled by the Minister of Finance. It is therefore a major policy document.

In the UK, the Bank of England carries primary responsibility for the management of inflation and monetary policy and fiscal policies are defined and designed by well-staffed units. In the USA most people would consider Chairman of the independent Federal Reserve Board Alan Greenspan far more important in the management of the US economy than the ……… Secretary …… O'Neill. It is clear therefore that the Budget Speech in Guyana is still the most important policy pronouncements in the national calendar and the country's legitimate expectations are completely justified. Of course this does not suggest that the Minister of Finance and indeed all other Ministers should avoid such policy statements for the rest of the year - they should be on-going but since money is often at the core of policy executions, their inclusion or reference thereto in the Budget is to be expected.

While the Minister of Finance displays a marked reluctance to speak publicly on the Budget, the President seems to think it is his duty to charge in and publicly attack anyone who does not unreservedly support the Budget. Youth and good taste and manners are not mutually exclusive and the President must allow for - and indeed should welcome - opinions which differ from his. Indeed, that is the essence of democracy and is arguably the best way to expand one's knowledge. Surely even the President would have to admit that the absence of the PNC-R from Parliament contributed to the lack of added value to the Budget. While Business Page came in for some of the most unpresidential language from Mr. Jagdeo this piece is not intended as a response to him. The President is entitled to his opinion as is every other Guyanese.

Size matters

Much has been said particularly by the press about the size of the Budget at $68.9 billion but no one has bothered to consider that that amount includes both current and capital expenditure which is quite understandable but also includes $8.6 billion of interest and $3.02 in debt repayment. This approach seems to create a virtue of borrowings and their attendant costs even if those borrowings do not provide the quality of returns which good management will produce.

Also included in Current Expenditure is an amount of $9.970 billion.for "Transfers to the Private Sector" Private Sector here however means such bodies as the State Planning Secretariat, NARI and the Guyana Revenue Authority which could hardly be considered private sector. Very significantly as well is the level of HIPC support in the Budget making possible the increases in spending in the social sector. Finally on the question of size is the dependence of the Budget on external financing which including HIPC funds amounts to close to $18. billion.

Return on Investment

Even allowing for creative accounting and some off-balance sheet financing such as direct overseas financing of some public entities, the annual budgets have grown over the years. Prime Minister Sam Hinds noted that since 1997 political and social issues have served to retard economic progress but the Government side offered no hint in the very one-sided debate as to what it was prepared to do about one of the most immediate concerns of the opposition, viz. the ineffectiveness of the Parliament. Worryingly, the Government seems quite satisfied with the status quo. It must surely have stretched Mr. Reepu Daman Persaud's imagination to say that "the people of Guyana can testify to the substantial improvement of the way and manner in which Parliament now functions". While updating the number of sittings of Parliament to twenty in the past twelve months, Mr. Persaud boasted that Guyana now 'stands equal to any in the Caribbean" which is more than a stretch even allowing for the bacchanal in Trinidad & Tobago.

Every investment is undertaken with a view to providing some return which may even be in the form of reduced future expenditure. In the private sector the expected return is often measured by the change in shareholder value in the long term while in the public sector it is generally a question of economic or social returns. The Speech suggests that there is a serious deficiency in planning in this country, making measuring results and comparing them with plans an uncertain task at best. All the evidence indicates The very substantial social and capital programmes are failing to deliver acceptable results and there is an urgent need for better planning at the national level to replace the obvious confusion suggested by the several different plans referred to in the Budget Speech in successive years. Two years ago, it was the ten-year National Development Strategy, last year it was a "comprehensive economic development strategy for implementation over the next five years" and this year it is the Poverty Reduction Strategy Paper. If we cannot get consistency between two succeeding Budgets it will be even more difficult to reconcile two plans with a longer time horizon. Can we start by assigning the State Planning Secretariat some specific functions?

Tinker with the tax system

Despite the fact that for five years the personal tax-free allowance has remained unchanged, the Government appears surprised at the public's dismay and incredulity at their failure to increase it or even explain what has become a poverty issue. After all, if twenty thousand dollars cannot pay rent, light bill, mini-bus fares and buy food, how can it also pay taxes? The government's response to the widespread condemnation was complete confusion first saying that it preferred to deal with the threshold as part of wider tax reform. When it was pointed that of the three tax measures proposed in the Budget, two were cosmetic the argument then shifted to cost. One commentator has pointed out that it will cost more to administer the new regime of entertainment tax for cinemas than the revenue it will bring in - a clear pointer to abolish the tax altogether. And on the issue of loss of revenue, it appears that the government is overstating the cost since we do have a twenty percent rate in which many of our taxpayers will fall. And all this completely ignores the fact that empirical evidence as well as prior experience has shown that reduction of rates usually lead to increased not reduced revenue.

In any case, it is both insensitive and disingenuous to regard the increase of a tax allowance as tax reform. Is it to say that without tax reform there will be no increase? In many countries such increases are linked to inflation and are automatic.

The private sector

Once again, our private sector has demonstrated how inept and voiceless it has become. It is riddled with conflicts of interest so that while they will all moan and whine in private, they say nothing in public. Some of the voices which one would have expected to praise if the Budget was positive - such as Mr. David Yankana of the PSC, Mr. Boyer of the Georgetown Chamber of Commerce, Mr. Yesu Persaud of DDL and Mr. Norman McLean of the GMA have been noticeably silent. Prior to the Budget, all of these persons knew exactly what they wanted addressed but now refuse to comment when they get nothing.

While the PSC must be commended for its willingness to help with tax reform it must realise that tax evasion is widespread in the private sector and that real tax reform would put many of our tax dodgers behind bars. Tax evasion is a criminal offence and the Government is not unaware of many of its practitioners.

And our politicians

One of the most disappointing features of the debate is the presentation by Roar leader Ravi Dev in the Parliament. Mr. Dev was one of the intellectual advocates of the boycott of Parliament and his absence from the country for the Budget Presentation was therefore not surprising. He is capable of a much better speech than the one he is reported to have delivered. It was so general that it could add nothing to the debate and one must wonder whether it was a form of protest against his Party which is reported to have insisted that he must attend Parliament.

Ms. Shirley Mellville of GAP was another surprise entrant to the Debate having walked out of the presentation. Ms. Mellville's presentation was not reported in the press but she did take comfort in the fact that her presence was acknowledged.

Conclusion

Whatever its strengths and shortcomings, the Budget is now law and the country has to move on. Budget Director Dr. Ashni Singh's honest assessment and comments on the Budget were as refreshing as they are welcome. The entire financial architecture of public sector accounting and accountability, spending and authority as well as timely and effective auditing need urgent overhaul. Some of these can be addressed by the professionals in the Ministry of Finance, the Accountant General's Office and the Office of the Auditor General. Much rests on the principal players in these offices.

The task of the political directorate is to ensure that these persons are given the resources and the scope to carry out their mandate. The political directorate has the additional task of removing some of the confusion which appears to characterise the policy functions. They must rid themselves of the notion that they have all the answers. They would do well to re-read the Budget Speeches 1989-1992 of then Minister of Finance Carl Greenidge. They were interesting, useful and were obviously designed within the larger framework of the Economic Recovery Programme which is still the basis of our economic policies. In doing so they must avoid distorting information to make the PPP/C look good or the PNC-R look bad as was evident in the "statement" from the Ministry of Finance quoted in the Chronicle of March 29, 2002.

We would not be giving up our political birthright to read and learn from those presentations.