Minister of Finance Dr. Ashni Singh has signalled that government has no intention of reducing the 16% VAT, saying such a move would benefit the wealthy and not the poor.
Further, Singh urged the opposition to behave responsibly and not wield what he dubbed ‘scissors of tyranny’ on the allocations in the budget.
He said this during his rebuttal of the arguments made by the various members of the opposition as the budget debate wrapped up yesterday, after six days of presentations.
“Were we to be able to afford any revenue measure, I would submit to you that a cut in VAT would be the most inefficient way of assisting the poor people of this country. In fact, it is precisely because of that that we have progressively raised the income tax threshold,” he said.
The Minister pointed out that the increase that the government has made, from $40,000 to $50,000 per month, places in the pocket of any taxpayer who is above $50,000 an additional $3,333 of disposable income.
The Minister said that the issue of VAT needs an objective and dispassionate look. “Anybody that abandons the temptation of popular political appeal and objectively and seriously examines the VAT will soon discover that a reduction in the VAT will bring little or no benefit to the poor people of this country. In fact… the most vulnerable will benefit least from a cut in VAT and it is in fact the [better off] that will benefit most from a cut in VAT,” he said. “In fact Mr. Speaker, if you wish to assist the most vulnerable in our society, a cut in VAT is the least efficient way to do it,” he said.
“Take for example a [person] with modest income. Let us say person ‘A’ with modest income takes home $49,500 per month. Person ‘A’ buys basic food items for $25,000. Person A pays an electricity bill, pays a telephone bill, buys clothing, pays for public transportation and sets aside in a box under the bed or in a savings account at a bank $5,000,” the Minister illustrated. “The only vatable items in that list are telephone and clothing and [the person] pays 16%, a total of $1,280 a month, out of $49,500 take home pay,” he said.
“Mr. Speaker a cut in the VAT from 16 to 12% will result in [that person] paying not $1,280 VAT but $960 on the identical consumption, resulting in the saving in the grand sum of $320 per month,” said Dr. Singh.
He repeated the illustration but used a person with a higher income of $1 million per month. “[That person] buys food but [they] buy a more complex basket of items, some of which are vatable, [for example] canned items and imported items,” Dr. Singh said. According to this person’s consumption and income, they will incur some $98,400 in VAT in a month. He said that with a four percentage point cut in VAT from 16 to 12%, this person’s VAT bill would reduce to $73,800 and generate monthly savings of $24,600.
“In other words, your poor person who is going to benefit by the princely sum of $320 a month is contrasted with your hypothetically wealthy person who will benefit from the grand sum of $24,600 a month of additional disposable income, based on that person’s consumption basket. Put simply, Mr. Speaker, this four percentage point cut in VAT will give the poor man $300 in his pocket and give the wealthy man a half of the poor man’s disposable income. In fact, Mr. Speaker, he will save on his entertainment alone $10,000 as a result of the cut in VAT compared with the poor man whose entire disposable income is $49,500,” argued the Minister.
“This is not rocket science…VAT is a tax on consumption. Those who consume modest items…those who consume a small basket of modest items incur a modest VAT bill. Those who consume a lavish and large basket of goods incur a large VAT bill and they will benefit most from the cuts,” he said.
“So let us be clear… this argument that the poor man will benefit from [a VAT reduction] is a misrepresentation to the people of this country,” he said. “It is indisputable that a cut in VAT will benefit wealthy people more than it would benefit poor people… that is indisputable,” he said. “In fact, the VAT that a wealthy person will save with one flat screen TV bought will be more than the VAT paid by a poor person for the whole year, for everything that they will buy,” he said.
Dr. Singh said that the debates on the budget, barring the isolated positive contributions, were characterised by factual inaccuracies in some cases, grandstanding and an attempt to mislead.
“It is time we lift the level of the debates in the National Assembly out of the morass of these overworked themes,” he said. “We are committed to the strictest standards of accountability. We have worked diligently to put in place mechanisms to ensure that our legislative framework as it applies to accountability is stronger,” he stated.
Calling the opposition out on their threats, the Minister said that it is easy to brandish the scissors in the air and make threats about cuts to the budget “as if to drive fear in anyone.” “Over the next six days, Mr. Speaker, we will be considering the National Estimates and it is the legitimate right of the opposition to ask any question they wish within the Standing Orders in relation to those numbers. It is indeed the legitimate right of the opposition to propose any change within the boundaries of the Standing Orders to those numbers and we will defend that right. Our laws provide for it, our Standing Orders provide for it and we will defend that right. But I will say this…that that right shall have to be wielded and exercised responsibly because the people of Guyana are watching,” he said.
“It is easy to brandish the scissors as an emblem of the tyranny of one, but Mr. Speaker I would urge careful and judicious judgement. I would urge responsibility,” Dr. Singh said.
The Minister said that with regard to the examination of the estimates, it is important “that we bear in mind that we are speaking of resources allocated to fund important government programmes, whether in health, in education, in housing and water, in public infrastructure, in public works, in tourism industry and commerce, in general administration, in foreign affairs, among others.”
He said that even if the opportunity was lost over the last six days to put tangible meaning to the intentions expressed to work together, he hoped that over the next six days there will be judicious and responsible conduct in the National Assembly. “It is incumbent on all of us to ensure that we don’t use this tyranny of one, this majority of one, the power of the majority of one, to cut solely for the purposes of cutting,” he said. “It is the people of Guyana who benefit from the services provided under these programmes. It is the workers of the public sector who are employed. It is the people of Guyana who do the work every day,” he said.
“I would urge Mr. Speaker that good sense prevails and that tangible and substantial meaning be put on the lofty statements made about working together. Were my friends on the other side of the house to do otherwise, to capriciously wield the tyrannical scissors, they would be venturing perilously close to squandering the golden opportunity provided to us by the unique circumstances in which we find ourselves today,” said Singh.