It is time gov’t devotes adequate resources to comprehensive study of inequality

Dear Editor,

Rising inequality is a global phenomenon.  It is present in both developing and developed countries, but far more difficult to gauge in developing countries because of the lack of the requisite data and absence of political will.  Such data are usually obtained from surveys.   In the absence of survey data, researchers resort to tax data, usually obtained from the central tax office (IRS in the case of the US and GRA in the of Guyana).  The outdated and suspicious data for Guyana suggest that inequality has declined from independence to around 2006. In a letter to SN, published on 19 May 2016, I argued “that inequality has surged in the last decade or so.”  This letter hopes to strengthen this contention.

The earliest data on inequality in Guyana is that of Jain (1975), which apparently refers to the period 1955-56.  He computes an income Gini of 0.42. An International Fund for Agricultural Development report on Guyana found that “income distribution in certain sectors of the economy” in 1965 generated a Gini of the same order of magnitude as that of Jain.  Since then, all available measures of inequality are for consumption. Guyana’s consumption Gini declined from 44.0 in 1992 to 35.0 in 2006. It is well-known that the distribution of income is more unequal than consumption. A 1996 study by Deininger and Squire found that, on the average, the income Gini was 6.6 points greater than the consumption Gini. On this basis, it appears that income inequality surged during the first PNC regime, fell in the early PPP regime and surged thereafter. Consumption inequality in both urban and coastal areas fell significantly (34.0 and 33.0, respectively) from 1992 to 2006.  Moderate poverty in Guyana declined from 43.2 per cent of the population in 1992 to 36.3 per cent in 1999 and to 36.1 percent in 2006.  Extreme poverty fell from 28.7 percent of the population in 1992 to 19.1 percent in 1999 and to 18.6 percent in 2006.  These data suggest that inequality (probably both income and consumption), as gauged by the Gini index and the headcount poverty index, declined during the last two to three decades.

Consumption by quintiles shows a more stagnating picture. Consumption by the poorest and richest quintiles declined only marginally.  Data from the World Bank for 1992-93 reveals that the poorest 20 percent of Guyana’s population accounted for 4.1 percent of total consumption, which is slightly less than what Jain found for 1956. The richest 20 percent accounted for 55 percent.  In 2006, the poorest quintile commanded 7 percent of total consumption; the richest quintile commanded 42 percent.  Data from Jain indicate that the richest 20 percent of the population “ate” 46.5 per cent of the country’s annual income (not consumption).  It seems, then, that consumption by the poorest and richest quintile did not change much from 1956 to 2006.  This suggests, in turn, that the distribution of the fruits of economic progress remained as unequal now as they were 60 years ago. Unfortunately, I do not have data for an analysis of inequality by ethnicity, but, based on my observation and anecdotal evidence inequality (income, consumption and wealth) among Indians is higher than inequality among Africans.

Guyana – Can taxpayer data be of value?

According to an article carried by Kaieteur News (KN, 22 June 2018), “Less than 300 taxpayers account for 68 percent of GRA total revenue.”  The article continues: “Kaieteur News understands that these 300 taxpayers account for both companies and persons who opted to remove themselves from the corporate person into an individual person.”  This is a difficult sentence to understand.  These 300 taxpayers seem to include both companies and persons but that the identity of some persons was swallowed up by corporations.  Some of these companies have now become individual persons and file as individuals to save on taxes.  If so, how many of the 300 taxpayers are persons? Whatever the interpretation of this quizzical sentence, most business in Guyana are family-owned or owned by a single person. Large corporations employing more than 75 persons are an atypical feature of Guyana’s economy. I hazard a guess that there are no more than a two dozen such private corporations operating in Guyana.  Given this background, I posit that most of these 300 hundred taxpayers – probably around 280 or so – are in fact individual persons. The rest of the arguments stands or falls on the validity of this assumption.

Since GRA raked in $170 billion in revenue in 2017, these 300 taxpayers, who accounted for 68 percent of this amount, paid $115.6 in taxes. If tax-avoidance results in 30-40 percent loss (SN, 26 January 2018) of the revenue GRA collected in 2017, then in the absence of this phenomenon total revenue would have been about $240. It is both conceivable and reasonable that tax-avoidance is highest among the poor and relatively poor, which does not change the fact that these 300 top taxpayers paid $115.6 billion.  In the absence of tax evasion, these 300 taxpayers would account for 47.9 percent total tax revenue collected by GRA instead of 68 percent.  What does this say about inequality in Guyana?  Does it mean these 300 richest taxpayers commanded 47.9 percent of all income (not wealth as income is not the same as wealth) generated in 2017?  If so, then, in more dramatic terms, almost half all of Guyana’s income in 2107 went to 0.04 percent of its population (the wealthiest 1 of America households own 40 percent of the country’s wealth).  If this reasoning is correct, then income, and mostly likely wealth, distribution in Guyana is incredibly unequal.  With such a scenario, GDP per capita makes little sense.  As an average, it tells us as much about income distribution as the man who had his head in the oven and his feet in the refrigerator.  His average body temperature was just right but he was dead! With its weak institutions, dilapidated and prehistoric infrastructure, bitter ethnic competition and massive corruption, the coming oil wealth, set to inundate the country from 2020, will probably turn from a blessing into a curse. In either case, but the latter more than the former, inequality in Guyana will rise even further. If nothing is done, Guyana may very well become a very rich but very unequal country, which brings in its train many evils – social instability, massive crime, poor heath and declining life span, among others.

It is time the Government devote adequate resources to a comprehensive study of inequality – at the national and regional levels, by ethnicity, rural and urban areas.  This must be done before the oil wells begin to shower manna from heaven in 2020.

Yours faithfully,

Ramesh Gampat

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