Financial plan
On November 28, the Minister of Finance presented the budget for the year 2017 for the consumption of the people of Guyana. According to the Fiscal Management and Accountability Act, the 
budget is a financial plan used by the government to deliver its programmes and policies for a fiscal year. In Guyana’s case, the fiscal year coincides with the calendar year and so the budget presented by the government will cover the period January 1 to December 31, 2017. This article discusses the budget and will attempt to do so in the context of the economic reasoning that is usually associated with public finance and the taxing and spending authority of the government. Therefore, it will seek to examine the various concerns that arise when a public sector budget appears. Even though most public enterprises are responsible for themselves, the word public sector is being used here because there is usually a linkage between the budget and the profit and losses of those entities. It is hoped that readers would appreciate that such an approach, coupled with the many complex issues contained in the financial proposal of the government, would lead to a multipart article and delayed opinions about specific elements of the financial plan.
Economic reasoning
The economic reasoning that permeates public finance revolves around several issues. One issue is the allocation of resources between the public and private sectors. This issue is essentially about taxation since that is what the government uses to make the allocation. The fundamental issue is how much of the money that is generated from employment, investment and government spending should remain with the private sector (households and businesses) and how much should go to the government to finance its programmes. The split of the income pie between government and the people is quite often the source of contention in any budget and the question that usually arises here is which group can use the money better. Is it the private sector? Or, is it the public sector? The people backing either side will defend their positions, but the issue has real meaning for the growth of the economy and the aspirations of the population. This matter of resource allocation is easily complicated by the tax structure and tax rates that are used to allocate the resources.
Affordability and performance
The factors of the tax structure and the tax rates bring out another set of issues which matter to Guyanese and are important to understanding what the budget is all about. The set of issues are the ability-to-pay and the benefits principles. Separately, these two principles deal with whether Guyanese can afford to pay the taxes being asked of them and if they are satisfied with the goods and services that they receive from the government. Consequently, the ability-to-pay principle deals with the issue of affordability, while the benefits principle deals with whether or not people are satisfied with the performance of the government. It boils down to the perspective of the individual employee, including employees of the government and the individual investor. Here, the individual investor also means artificial persons like companies whose shares are privately held and those whose shares are sold on the stock market.
There is one other issue that comes into play here and that is the incidence of the tax. This concern is just as true for taxes that are imposed on income as they are for taxes imposed on production and consumption. It starts all the handwringing for households and businesses, even though they might bear far less of the burden than the tax rate suggests by the time the effects of the tax are settled. There is a simple explanation for this uncertainty and it comes from the willingness of the taxpayer to substitute the supposedly overtaxed product with one that is not so. The worries come when substitution is not an option and the taxpayer either has to give up buying an item in order to now keep buying an overtaxed item or stop buying the overtaxed item altogether. This scenario applies to all taxpayers, including the elderly and the other vulnerable groups. It matters to all those with fixed incomes that do not move easily with good or bad economic times.
Effects of programmes
It is against the foregoing economic reasoning and considerations that the 2017 budget proposal will be assessed by this writer. While the financial plan covers one year and serves to estimate the amount of money needed to finance programmes and policies during that time period, the effects of the programmes and policies on the people and businesses of the country could last much longer. As such, this writer has also come to realize that for Guyanese, the budget serves as an important policy document and, under current circumstances, perhaps the most important policy document to guide their decisions about life and living. The budget must accommodate these beliefs and the interests of different groups and communities in the country. When people feel that the budget does not speak for them, it arouses emotions and those emotions could be stimulated and intensified by political rhetoric and political taunting. Under those circumstances, a sober assessment of the budget is needed.
The budget process requires the government to raise its revenues in one year and to spend the money within the same time period. Quite often for bureaucratic reasons that does not happen. Taxpayers are allowed or sometimes required to complete their contributions in time periods subsequent to that of the budget. On the spending side, the government is allowed to make payments in subsequent periods in which the money is budgeted. While the measurement of revenue collection and spending is limited to one year, the revenue collection and spending process is a continuous event. This timing gap gives rise to the need for the government to borrow money.
One other thing needs to be said about the budget before examining its specifics. Where the government is concerned, each year the budget also serves as a means of assessing its performance over the prior fiscal period. It must do that in order to make sure that it does not repeat the mistakes of the past or continue with programmes and policies that do not add value to people’s lives or businesses. Consequently, the budget serves also as a means of enabling the government to take corrective action when performance varies from actual or realized outcomes. Lessons are learnt and are applied as appropriate to bring about improvements. It is the place where people look to see if the things that the government will do respond to their needs or not.
First concern
The first concern one should have about the budget is the allocation of resources between the government and the people. The allocation of resources between the government and the people is described by Professor Clive Thomas as the tax level. The tax level is measured by expressing the total tax revenue collected by the government as a percentage of the gross domestic output or GDP of the country. Work is still being done on determining the allocation. However, based on the information contained in the budget, preliminary estimates show that the government was likely to take 24 per cent of the income generated in the economy next year from households and businesses. This is in contrast to an average of 22 per cent that was observed between the periods 2010 to 2015. In other words, it would appear to this writer that taxpayers in Guyana were being asked to allocate two percentage points more of their income to the government. Since this was likely to be the actual amount of money that Guyanese will give the government, it represents the effective rate at which they will be taxed taking account of all the taxes that they will encounter in 2017. This means that in some instances the amount that Guyanese will pay will go up and in other instances it will go down.
It is these undefined changes in the effective tax rate that have to be sorted through in order to understand what impact the taxes will have on households and firms. One needs to know where the burdens will lie and if persons will be able to adjust their spending and lifestyles as a consequence of the tax. Consequently, Guyanese need to be very careful about the noises being made about the budget from various quarters.
(To be continued)
