No effort

The disclosure on migration emerging from the Wikileaks cable appearing in the daily newspapers might well explain the lack of urgency on the part of the current administration to create the conditions for faster private sector jobs in Guyana.  While the cables give us an insight into the extent of migration from Guyana, it makes us realize also that there is no effort by the current administration to confront and reverse the problem.  In an IMF Working Paper of 2006 on Emigration and Brain Drain, the authors noted that Guyana had lost about 89 percent of its tertiary-educated labour force.  This would be the group of highly qualified persons best able to help the country to grow at a faster rate and offer Guyanese a better quality of life.

The absence of a strategy to encourage Guyanese to stay and build the economy suggests that the reportedly high loss of skills continues and it does not seem to bother the current administration. With remittances representing one of the largest sources of revenue, the motive for the intransigence on skill defection is to reap the rewards of money transfers that come in the form of remittances. The satisfaction that this brings to the administration also diminishes its interest in developing a policy on job creation. As the IMF study observed, remittances enable “the government to appropriate more resources and distribute them to those in power”.

Complaining

LUCAS STOCK INDEX The LSI gained less than half of one percent on positive trading by the stocks of Banks DIH (DIH). It was only one of two stocks that traded this week and gained two and one half percent in value. The other stock was Demerara Distillers Limited (DDL) which recorded no movement in value. Despite the positive results, the spread between the index and the risk-free Treasuries due to mature in December 2011 remained below 21 percentage points.

From a revenue-generating standpoint, the option of relying on remittances as part of the tax base instead of income from jobs created at home seems to be a preferred course of action for the administration.  Such a tactic might be good for tax policy but it cannot be good for the sustainability of businesses.  Using remittances as part of the tax base enables the administration to bring more money into the public treasury.  The tax on the income of employees and businesses was bringing in about G$21 billion in 2004.  When consumption tax is added, the revenue garnered by the administration rose to G$40 billion.  In that context, the contribution to taxes from earned income was about 25 percent while the business community was contributing 75 percent through corporate and consumption taxes.
Even though consumers bore some of the cost, it was clear that the business community was bearing the bulk of the transfers to government.  With the business community complaining about its high tax burden, the only other alternative for the administration was to shift some of the burden directly onto Guyanese individuals.  This too was an unfavourable option because the administration had no vision for job growth and the personal income tax base did not offer the administration a solution to its predicament.  Yet, the administration had to find a way of shifting the tax burden on to individuals in an effort to meet the demands of the business community, a very powerful constituency.

Adequate

With the high rate of migration of Guyanese, job creation was no longer a necessary objective either.  Nor was it seen as an adequate source of new revenues.  According to a study done by Claremont Kirton in 2006, Guyanese “migrate to the US in search of employment to remit funds home”. It is the same reason that sends Guyanese to Canada, the Caribbean, the United Kingdom and other parts of the world.  In another IMF Working Paper of 2009, the authors point out that “because remittances are generally spent on consumption necessities, they help lift huge numbers of people out of poverty by supporting a higher level of consumption than would otherwise be possible”. Earned income had become a lost cause for the administration.

Salvation

The Kirton study of 2006 indicated that over 72 percent of Guyanese recipients of remittance spent the money on household consumption.  The rest was either saved or invested in housing or some small business.  With the bulk of remittances entering the money supply through consumption and private investment spending, the administration found its salvation by including it in the tax base.  With VAT set at 16 percent, the administration shaves off a hefty amount of remittances for itself.  Since its introduction in 2007, VAT has become the greater source of revenue for the administration versus income tax.  VAT now brings in G$27 billion while personal income tax brings in about G$15 billion.  With a combination of personal income taxes and VAT, individuals contribute over 65 percent of taxes as against the 35 percent from the business community.  When excise duty is included, the burden evens out.

Marginal Productivity

The tactic enabled the administration to shift more of the cost of a business transaction from the business community to individuals. Money that was exchanged between individuals and the business community had now become a direct target of fiscal policy.  The VAT replaced the consumption tax which was a transaction between the government and the business community.  The use of VAT is a clear policy to take advantage of money that comes in the form of remittances.

But as the 2006 IMF study shows, remittances tend to discourage participation in the labour force and even where participation continues, the emigration loss reduces the marginal productivity of both skilled and unskilled workers.   While there is opportunity for fiscal benefits, the cost to private businesses could be greater than the derived fiscal benefits.  The private sector has a stake in the skill defection battle but does not behave that way.

No Bother

The slow growth in job creation is no bother to the administration.  Remittances keep Guyanese happy and the government gets the revenue that it wants.  Therefore, Guyanese should not look forward to the current administration reducing the rate of VAT.  The possibility is even more remote now that it has already announced a reduction in the corporate and company tax rates and feels satisfied that it has dismissed workers’ complaints with an increase in the income tax exemption threshold.

Grief

The ones left to worry are Guyanese without jobs.  Businesses must worry too because the loss of critical skills limit the rate of business expansion.  It is the grief that is facing the younger generation, many of whom are graduates from the University of Guyana and other post-secondary institutions.  They confront an unfavourable job market that would be of little care to the administration as long as the remittances keep flowing.  The group that offers a solution to this dilemma would have the best chance of managing the affairs of Guyana for the next five years.  The administration has already played its hand.  It is now the opposition’s turn.

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