Dear Editor,
In the response of Finance Minister Winston Jordan to Stabroek News’s February 17 editorial, he asserts that to mitigate the impact of the ‘Brain Tax’ on working class parents struggling to invest in their children’s education, private schools should absorb it as was done by GTT. Note carefully, in this case, that though it appears altruistic, the absorption merely represents a reduction in the payment of corporate taxes due by the telephone company. “A similar arrangement has been implemented by the CJIA,” he writes, “which has decided to absorb the VAT to be applied when parking at the airport. In like manner, the private educational institutions may wish to consider similar approaches.”
Editor, this line of reasoning supposes that the goal of any firm, primarily, is to minimize its corporate tax burden, and therefore any firm would seek to maximize its expenses to generate as low a profit as possible to pay the government as little tax as possible. As even my little sister, a freshman economics major, would point out, a firm’s overarching aim is to maximize its profits, that is minimize its costs and maximize its revenues. On no planet, would a business drive up its own costs if it can help it.
So why did GTT and the Cheddi Jagan International Airport (CJIA) absorb the VAT on data services and parking respectively? First of all, GTT did not absorb the VAT on data services for cellphones. Prices have gone up. GTT, however, absorbed the VAT on DSL, perhaps as a tactical concession to the private sector and upper middle class who lobby forcefully for an end to the company’s de facto monopoly on DSL, landline and international calling services. As for parking, I don’t have to point out that Guyanese would rather take buses, take taxis, or park ten miles away and walk than pay for something such as parking. What the VAT on parking for CJIA would have most likely done is transfer the profits from CJIA to the government, which is kind of like taking food from your own pot and putting it in the fridge and saying you have more food overall. To compare the markets for parking and data services to the market for private education is to compare apples and oranges. Education, on the other hand, is an inelastic good. Parents would rather cut back on other expenses than subject their children to the destabilizing decision of having them withdrawn from a school where they’d have forged strong bonds with peers and teachers. The schools, being businesses, would simply pass on the Brain Tax. The schools do not necessarily factor in the benefit to society from the high quality education they provide to children at a substantial fee to parents. It is the government’s job to consider the social benefits. The schools, it bears repeating, would have no incentive to rack up their expenses by taking on the Brain Tax when they could easily pass it on to the parents with little to no loss of their revenues.
Editor, the Minister flippantly regards the decision of parents to send their children to private school, as “a choice.” And he is right, but there is more in the mortar than the pestle. Consider this: over the last nine years Guyana’s economy has grown by one third, but over that same time period, by my count, there are now twice as many private schools now as there were nine years ago. Which other consumer product market does this look like? The market for private vehicles, of course. As Guyana’s economy began to open up in the nineties and take off in the new millennium, the number of private vehicles on the roadways exploded. As Guyanese citizens’ incomes crossed a certain threshold, owning a car became a must-have and a cultural symbol of attainment.
Even if real income levels fluctuate, as long as real wages remain above a certain level, private vehicle owners aren’t going to pack their cars, and resort to minibuses, and all the risk and unreliability the public transportation system entails. It is the same thing with private education: once parents were earning above a certain amount, even though tuition took a huge chunk of their paychecks, the public school system wasn’t much of an alternative if they could help it; for instance, last year, two thirds of the top one per cent in the Grade Six Assessment came from private schools.
This is why the demand for private education is so unresponsive to tax-driven prices increase (ie, inelastic), and this is why the tax would fall on the backs of schoolchildren and their parents, but not the school owners. This is established microeconomic theory, just see equation 5.40 in Microeconomic Theory Basic Principles and Extensions by Christopher Snyder and Walter Nicholson.
Editor, the Minister and his colleagues have implied that private education is a luxury good. While, by the laws of economics, private education would not be classified as a necessity the way flour, rice, water and sugar are, private education – like mid-priced sedans – is not a luxury the way yachts and private jets are.
Editor, a miasma of intellectual laziness hangs over this imposition of the Brain Tax by the government and the Minister’s pathetic rationalization of it. The Minister states that, “as of 2016, there were fifty-four such institutions registered with the Guyana Revenue Authority, few of whom were tax compliant, including submission of yearly income and corporate tax returns.” So is the Brain Tax on students a way to compensate for these schools not being tax compliant? Yes, it is! If the schools’ owners are not meeting their corporate tax obligations, then the Guyana Revenue Authority (GRA) needs to do its job and audit the schools’ books to ensure they meet their tax liabilities. The Brain Tax is a perverted shortcut that just punishes students, and still lets the schools’ owners off the hook since, as was pointed out earlier, the owners would just pass the Brain Tax on. One doesn’t solve one problem by creating another.
Editor, the Minister apparently blames the private school system for the high attrition rate among trained teachers in the public sector, when he vents, “You will not fail to notice that while the government continues to expend millions on training its teachers, the private school system benefits immensely by merely offering a better salary to them ‒ something they can afford to do by, for example, charging fees ranging from $40,000 to $60,000 at the nursery level.” Editor, the World Bank states that 8% of the trained teachers leave the public school system annually, roughly 660 over a three-year period. But the World Bank posits that these “teachers take jobs in other sectors or take teaching jobs in other countries. Similar to the nursing profession, recruitment of teachers by wealthier countries is not uncommon in the Caribbean.” The World Bank doesn’t blame the private schools for trained teachers haemorrhaging out of the public school system. In Trinidad and Jamaica, governments there subsidize private schools. Guyana’s own National Development Strategy and even the World Bank credit Guyana’s private schools, all self-financed by the way, with reducing overcrowding in the public school system.
Editor, it can be readily conceded that lifting outcomes in the public education system is hard work, whether you’re the United States, or a small South American country. But even the impending Commission of Inquiry on Education would not recommend that cannibalizing the private education sector is the way to do that.
Editor, the Minister ventures precariously into dangerous territory when he asserts that “we [the government] were able to increase the budgetary allocation for public education.” But with changes made to the VAT schedule, and more products being taxed, the actual amount being expended on public education, net of taxes, actually declined by roughly $1B as former Minister of Education, Ms Priya Manickchand, pointed out in her budget presentation last December.
Editor, the President as well as his Minister of Finance have made a lot of utterances regarding the Brain Tax being essential to “broadening the tax base” and creating fiscal space. In any first-year macroeconomics class, they teach that if government finances are tight, a government could either cut spending or raise taxes to balance its budget. With a billion dollars for the white elephant that is the D’Urban Park project, the $170 million spent annually on storing condoms and lubes, and the hundreds of millions more yearly to cover the salary increases for members of parliament and government ministers, it is clear that the Brain Tax could be foregone if these wasteful expenditures were eliminated, and the pockets of schoolchildren need not be picked for the government to meet its expenses. In 2020, this will not be forgotten.
Yours faithfully,
Saieed I Khalil
