What the people of the country would have wanted from budget 2017 would have been a reduction of their tax burden, stimulation of the economy to produce real growth and the generation of well-paying jobs.
It isn’t clear that the budget, the third by Minister of Finance Winston Jordan, delivers on any of these fronts.
Where personal income tax is concerned, the Minister and various spokesmen have been at pains to stress that every single bracket of taxpayer will be taking home more particularly with one-third of salaries being tax free for those earning above $2,160,000 per annum. A top income tax rate of 40% has been introduced but it has however been pointed out by accounting firm Ram and McRae in their detailed annual budget review that this is essentially a regressive tax regime. The first phase rate of 28% is much too high.
While taxpayers could be assured that there will be more money to take home, the real story this year are the varied demands on this take home pay after it enters the abode. The striking headline of this budget, stripped of the winding invective and rhetoric is the Value-Added Tax (VAT).
It is worth pointing out that when the Jagdeo administration introduced VAT and the Excise Tax in 2007 as a replacement for six other tax measures, it was styled as a “revenue neutral” exercise. This was not the case and VAT yielded a windfall and not as a result of an overnight broadening of the tax base. The same outcome appears likely from the series of amendments that the APNU+AFC administration is making to the VAT regimen. While the government has played up the drop of VAT from 16% to 14% as a cut in the rate of 12.5%, what it does not do is compute the impact of the other changes.
For example, VAT will now be assessed on electricity bills over $10,000 per month and water bills over $1,500 per month. The government has said that 80 per cent of GPL customers pay less than $10,000 per month. This seems to be a dubious figure. The government has made no effort to calculate what the potential outturn from its utility taxes on consumers will be.
Just purely on a matter of governance, the government’s decision to affix VAT to utility bills must be seen as one of the most oppressive and uncaring budget measures by any government in recent years. The decision to shake up the VAT regimen is grounded in the original APNU+AFC manifesto promise from 2015 to cut VAT.
The Granger administration had second thoughts about it after it entered office as it pleaded that the state of the economy it had inherited was far worse than expected. That, of course, was not a credible excuse for making lofty promises on the campaign trail and then failing to implement. For two budgets, the government failed to act on its pledge in relation to cutting VAT. It has now finally dropped the rate but has blatantly sought to recover the 2% cut via other measures and perhaps even vastly exceed it.
This was not a fulfilling of a campaign promise by APNU+AFC but an intent to extract even more taxes from householders and others for the most basic of utility services. This was therefore a fundamental mutating of the coalition’s original promise on VAT. It has not even been located the decision to cut VAT in a comprehensive policy based on rigorous studies for the remainder of the coalition’s term.
Then there is the range of goods and services which were previously zero-rated but will no longer be except for those related to exports and manufacturing inputs. Items in this band include education material and services, health and medical services/supplies and computers for personal use. When account is taken of all of these plus the fact that the expanded VAT-exempt items will see costs being passed on to consumers, it is clear that the higher take home pay for citizens will be easily gobbled up and so a major plank of the coalition’s budget is illusory.
There is also deep concern in all circles about the budget announcement of the intention to garnish accounts of those who owe taxes to the GRA. There should be consultations between the government and stakeholders to establish exactly how this is intended to be orchestrated. Any such move requires careful consideration to ensure that there is a series of steps prior to any attempt to access the accounts of members of the public. The rights of stakeholders in this process and the covenant between the account holder and the bank must also be clearly considered. There is also consternation at the proposal to amend the VAT Act to prevent a person owing tax from leaving the country.
On the matter of stimulating economic growth, it is difficult to see where this will come from. There are no purpose-built incentives in the budget save for clean energy which could end up favouring a few friends of the coalition. Aside from green energy there are no offerings. Sugar is in dire straits, rice production is declining due to a lack of remunerative markets, timber and bauxite are depressed and there is serious grumbling in the gold sector. Where will any new industries arise from?
The same is the case for job creation. In his budget speech last Tuesday, Minister Jordan gave impressive numbers for investments in the business sector. He said “Over the course of 2016, total investments, including foreign direct investments (FDI), facilitated by Go-Invest totalled $114.8 billion, a significant improvement over the $89.3 billion inflow in 2015.
This year’s investments will yield over 6,000 jobs in various sectors, including 1,327 in agriculture, 1,366 in energy, 1,500 in ICT, and 1,483 in tourism and services. In 2017, Go-Invest will target $139.8 billion in investment and the composition of the investment portfolio will be restructured to ensure greater diversification within the economy, with additional focus being placed on the tourism, agriculture, and light manufacturing sectors. These ventures are estimated to create an additional 3,870 jobs”.
It would have been instructive if both Minister Jordan and Go-Invest provided details to substantiate the figures for 2016. Where precisely will these jobs be created, what sorts of wages are being paid and what incentives and concessions have been granted for these businesses to start up? Judgement has to be withheld until such information is provided. There is also yet no sign of any serious diversification plan for the sugar industry with hundreds of livelihoods at stake.
This budget will be remembered for its tax on water and electricity and its absence of any real plan to lift economic growth and create jobs.