The Budget’s measures are substantial, revolutionary and are probably unprecedented. It is presented at a time when the Government is having to defend itself against accusations of corruption and cronyism. The reception to this budget can strengthen the bond between the Government and citizens but must mark the end of any honeymoon period for the APNU+AFC Coalition Government.
While some of the “first 100 days” promises have been kept, there has been widespread disappointment about the perception that the Government has been taking care of itself while ignoring matters like “significant salary increases” for government workers and a code of conduct for parliamentarians, ministers and others. Indeed, the President himself recently described the VAT reduction promises as hasty.
The main takeaway from this Budget may not be the wind farm initiatives, the infrastructural programmes or the increase in Police manpower. It is about the fifty-seven tax measures set out in thirty pages of the Speech. In introducing his budget measures for 2017, Minister Jordan said that “we are about to embark on a new generation of tax reform, starting from Budget 2017.”
Unfortunately, he did not outline the vision – the end product – of this process and how long it would take. Tax reform requires a policy statement setting out the objectives and goals, a detailed multi-year plan of implementation, an explanation of the benefits and costs of the plan, the phasing in the long-, medium-, and short term and then address those items which would be implemented in 2017. This would go a long way in establishing certainty and predictability so necessary in making decisions.
The proposals in relation to VAT are substantial but represent a substantial rejection of the main principle of a VAT system. Items such as medical services and prescription drugs will now be subject to VAT – it is hard to believe that this is what was intended. But the Minister only focused on Water and Electricity. We have tested the proposals and found them to cause an increase in prices including on a most basic food item – bread. At the practical level, these proposals will therefore be inflationary.
The projected cost and revenue of the budget measures are in many cases not provided and where they are provided, they seem to be doubtful. The overall impact of budget agencies having to pay VAT makes comparisons with the prior year difficult and reduces the effectiveness of any analysis.
Some of the budget measures were inarticulately communicated or were misconceived. For example, the so-called 40% tax rate combined with the alternative personal allowance will lead to regressivity and not progressivity in the tax system. Higher income tax payers will actually pay a lower rate than lower-middle income tax payers. In other words, instead of a progressive system, we will have one that is regressive. When combined with the changes in VAT, our tax system becomes totally regressive, which can hardly be what was intended.
Some measures, such as the reversal of the minimum Corporation Tax into a maximum Corporation Tax for Commercial Companies, can hardly be described as feasible and we do not see any other choice for the Minister than a reversal of the proposals. Other proposals seem unnecessarily penal, disproportionate, and unfriendly and can drive some taxpayers underground at a time when the call is for a widening of the tax net.
We believe that the budget measures, if implemented as they are proposed, will have a negative impact on the economy and growth. In our view, the achievement of the projected growth will be extremely difficult, if not impossible to achieve.
On crime prevention, Guyana does not simply need 20% more police officers – it needs to take those now doing clerical duties and put them to do real police work; it needs to pay better salaries to police officers and to deal with corrupt practices among them.
On our health system, the decline in key socio-economic indicators – such as a 26% fall in vaccination of one-year olds against polio – makes troubling read.
On our industries, radical changes are required in Sugar but there is still some uncertainty on what those changes are or what counter measures will be put in place to deal with the effects.
If the measures are passed as proposed, we can expect a rough ride in 2017.