2017 Budget is audacious, forward looking – Minister Jordan -promises to always present early budgets
GINA, Guyana, Saturday, December 10, 2016
Making his final presentation on Budget 2017, Finance Minister Winston Jordan described the actions by Opposition Members of Parliament (MPs) as “fully consistent” with what has been heard previously in the National Assembly.
Members of the Opposition staged a walkout from the Parliament Buildings after making their presentations on the last day of the Budget Debates.
The Minister stated, “These contributions are consistently confused, disjointed or simply and blatantly erroneous. Adopting scaremongering tactics akin to Chicken Licken, theirs was a litany of feeble laments, strung together, one after the other, in an coherent fashion.”
Minister Jordan questioned the motives of former President and now Leader of the Opposition, Bharrat Jagdeo whom he said, despite “appearing with vendors and other low paid workers”, lived in the most “palatial mansion in this country, built on prime land, ancestors’ land, bought at peppercorn rates.” It was explained to the House that the former President, via the Ex-President’s Bill, increased his salary 100% every year since he was in office from 2006. The Minister said, “Between 2006 and 2011, his salary increased from $223,783 to $1,304,503, or nearly 500%. During that same period, the minimum wage increased from $26,069 to $35,657, or a paltry 37% in five years. This is a champion of the poor?” Minister Jordan asked.
In just about eight months, the Minister explained that this Government increased the minimum wage by that same percentage, from $42,703 to $55,000, “almost 40% in under eight months.”
The Finance Minister then went on to describe the 2017 Budget as the finest that he has worked on and produced. “Cutting my teeth at State Planning Secretariat (SPS) in 1981, under the indefatigable and indomitable Clarence F. Ellis, Chairman of State Planning Board, I have been involved in the preparation and/or presentation of 25 national budgets. This Budget is audacious in outlook; it represents a change in the narrative that has dominated our economy for the past 50 years; it is a paradigm shift.”
Presenting his third Budget in 18 months, the Minister made reference to some statements made by various members of the Opposition over the past few days. He noted, “While they are entitled to their own opinions, they are certainly not entitled to their own facts. ” The fact that an early Budget was presented was clarified by the Minister who stated that he wasn’t “aware that it was a curse to present an early Budget” adding that no country would seek to produce a Budget after the start of the fiscal year.
He gave several examples such as that of 1968 Budget presented by the late Dr. Ptolemy Reid on December 29, 1967, the Budget for 1970 which was presented on December 22, 1969 and several others. Whilst he noted some sought to question this early presentation, the Minister noted his decision was supported by the former Auditor General Anand Goolsaran. “It has to come out before the end of the fiscal year or else you will have a truncated year,” he explained. Even the PSC, the Minister noted, will benefit from an early Budget. This point was even supported by the former “outspoken Auditor General”, the Minister said.
“Why doesn’t the PSC understand this?” he queried.
The Minister then vowed that no other Budget to be presented by Government will be laid after the start of the fiscal year.
On the issue of pre-Budget consultations, the Finance Minister said that whilst some groups responded to invitations to meet his team of Budget planners, several such as the Political Opposition declined. He described the refusal of some to consult with his Ministry on the Budget as the the behaviour of a “recalcitrant child”. Many gave all sorts of excuses as to their reasons not to engage the Ministry, Minister Jordan noted, “and this did not bode well.”
Finance Minister Jordan reiterated his disfavour of granting tax concessions noting that the Private Sector Commission (PSC) was repeatedly informed about his stance that they should not go to him for concessions. He said, “Everybody wants a concession, but nobody is bringing numbers to convince you, the Minister of Finance, that you should be getting those concessions….and when you don’t get the concession,” he continued, “you complain that you didn’t get it.” He also stressed that, “Once concessions are given, it is difficult to take them back. He stated his preference for lower taxes and a tax code uniformed and uniformly applied.”
The Finance Minister further pointed out that the PSC even asked for concessions, “they didn’t even know they had already. Even when concessions are given, the poor consumers can’t see it.” He noted that there are already concessions being granted to business owners in Regions 1, 7,8 and 9 and these were already in the law. The Minister called on the PSC to get on board with the Government in partnership, “show me your card and I will show you mine.”
Many of the business owners need to change their way of thinking since their overseas counterparts are seeking to do business locally due to the policies being put in place, the Minister said.
The efforts of Barbadian businessman, Sir Kyffin Simpson, the founder of the mega-farm in the Rupununi, were lauded by the Minister. He informed the House that the operation was being undertaken without concessions and producing large amounts of rice and its own electricity, “All he has asked for is more land to expand operations into cattle rearing. He added, “I will recommend next year that he be given a national award by Guyana for his entrepreneurial drive in.”
He repeated Government’s position that its doors are open, and it is ready to do business. Even as the Budget was being presented last week, Minister Jordan revealed that a large group of investors from Trinidad and Tobago, and Suriname was in Guyana to assess business opportunities.
The Minister also mentioned that unlike the previous Government which enjoyed the perks of mostly first class travel, the present Government sought to travel more economically, often doing so in economy or business class rather than first class. He said, “Many of the PPP/C ministers and executives had outstanding advances as at May 2015, many of them for long periods. Eight of them are still in this House.”
The Minister also touched on the loss of the Petro Caribe deal which was due to the previous government. He reiterated that when he and other officials attended a high -level meeting in Venezuela soon after taking office, they were informed that a decision was previously made, and the previous Agriculture and Finance Ministers informed, of that country’s move to halt rice imports from Guyana. This fact was never conveyed to local rice farmers, some of whom still had rice stored on the wharfs for export. Government, he added, was forced to find money to rice farmers for rice and paddy shipped. Minister Jordan said, “Importantly, in spite of the loss, private millers have been able to re-engage the market in a limited way and, as reported by the Minister of Agriculture, over 10,000 tonnes of rice have been shipped to Venezuela for the year.”
The Finance Minister raised the issue of tax reform. He recalled that, between 2009-2013, the PPP/C government undertook two comprehensive studies on Guyana’s tax system and its administration. “Reforms were proposed in both studies, but the recommendations were not implemented. Instead, in 2011, the Government undertook major tax policy reversals when the Fiscal Management and Accountability Act of 2003 was amended to introduce more exemptions and remissions that ultimately made tax administration difficult and revenue losses significant.”
He added that the framework has “remained largely intact, supporting combined high rates and a plethora of concessions and exemptions on a discretionary basis and high levels of evasion across sectors.”
The challenges affecting tax revenue management and collection were recognised by Government and the Minister noted the formation of Tax Reform committee in August 2015. The Minister said the Committee comprise Dr. Maurice Odle, Christopher Ram; Dr. Thomas Singh; and Godfrey Statia current head of the GRA, who were ably assisted by two technical officers from the Ministry of Finance: Dr. Natasha Gaskin-Peters and Ms. Debra Roberts. It was established, with a four-month life span. It was explained that the TRC, in fulfilling its terms of reference, identified a number of core areas for effecting change in the tax system, among them are ; there is need for greater buoyancy in the tax system, since revenue, as a share of GDP, had not risen very appreciably in recent decades… in recent years, excessive granting of tax exemptions, waivers and concessions, including VAT zero rating for most basic commodities, has stultified the revenue enhancement effort, therefore, rolling back of such exemptions, waivers and other concessions is considered necessary.
Another aspect is compensation for a relatively high tax rate, and, also, to encourage increased flows of investment, the authorities have a mainly discretionary, insufficiently transparent incentives system, which has gotten out of control. Moreover, there is little evidence of its effectiveness. A lowering of the corporate tax rate ought to vitiate the need for a plethora of tax incentives.
A third aspect, broadening the tax base is required so as to both reduce the burden of existing individual and corporate taxpayers and enhance the revenue contribution of the “hard-to-tax” self employed, the significant number of unincorporated businesses which pay little or no tax, and those who make up a relatively large informal sector. Evidence disclosed the VAT was not being applied across the country; was widely ignored by significant segments of the economy. There was an appalling level of tax evasion among professionals with only a handful of doctors, accountants and lawyers reporting income over $10 million, requiring VAT registration, Jordan said.
Minister Jordan explained that the report was presented on January 18, 2016, too late to be considered for the 2016 Budget. Given the implication of some of the measures, the Minister decided to seek a second opinion and said he requested assistance of the Caribbean Regional Technical Assistance Center (CARTAC). He said the CARTAC team found the following: Marked changes in the architecture of the VAT since its implementation in 2007, yielding negative impacts on its out-turn.
The numerous instances of zero-rated domestic supplies (of both input and final goods) and exempt imports have undermined the VAT base and its performance.
There was a low VAT threshold by international standards, and, more importantly, low in relation to GRA’s current capacity to achieve a high level of voluntary compliance. The international proxy for the relationship of contributing taxpayers to the tax yields is 80:20. For Guyana, 90 percent of taxable supplies are accounted for by 8.5 percent of registrants. Of payments for VAT, 11 taxpayers contribute 50 percent; 19 taxpayers contribute 60 percent; 31 taxpayers contribute 70 percent; and 53 taxpayers contribute 80 percent.
Then the need to modernize the operations of the GRA was highlighted.
Jordan indicated that among the recommendations made by the team are the following: Tax at the standard rate all semi-processed and processed foods and beverages, non-prescription drugs and health supplements, items for household use, computers and peripherals, appliances, and other final consumer goods; Exempt a short list (10-15 items) of currently zero-rated unprocessed (staple) foodstuffs. (All foodstuff not part of the exempt list should be taxable); consider a reduction in the standard rate to 15 percent, 14 percent or 13 percent (phased-in if more than one percentage point) only if the base is broadened simultaneously to reduce revenue risk; eliminate all conditional VAT exemptions at customs and evaluate the impact of conditional duty and excise exemptions on VAT collections by customs and suspend the granting of new VAT incentives through investment agreements until the Ministry of Finance can ascertain their benefits among others.
The Minister noted that Government made its own adjustments to recommendations offered and these were presented in the 2017 Budget.
The Minister referenced the objections being made to the garnishing of bank accounts by the GRA, in its pursuit of tax evaders. He explained that the Income Tax Act changes were made in 1996, “when none other than Cheddi Jagan was President and the current Leader of the Opposition was the Minister of Finance.” It was explained that a similar provision exists in section 45 of the VAT Act, “However, even though this is a later Act, having come into effect in 2007, it did not take account of section 71(7) of the Income Tax Act. All we are seeking to do, in the context of the announced measure, is to make uniform, the application of this potent weapon in the armory of the Commissioner General, across all Tax Acts. Mr. Speaker, every attempt at a paradigm shift in taxation is met by opposition by some group or sections of the population. You would think that the government would be lauded for strengthening the hand of the CG to enforce tax collection, broaden the base.”
In concluding, the Finance Minister opined that as hard as the Opposition is trying to belittle the Budget, “They are going to fail miserably. They cannot hold back the rising tide of progress which is unfolding right before their eyes. Our Government will continue in the period ahead to focus on our transformative agenda for a modern Guyana – that is the true key to a brighter future and prosperity for all Guyanese.” He proffered a quote from US President Barack Obama, “Change will not come if we wait for some other person, or if we wait for some other time. We are the ones we’ve been waiting for. We are the change that we seek.”
The Minister also quoted Indian Poet, Rabindranath Tagore who said, “You can’t cross the sea simply by standing and staring at the water.”
The announcement of a $25,000 tax free bonus for public servants earning less than $500,000 per month was then announced with Minister Jordan asking that citizens be patient “for the best is yet to come”.
The $250 Billion Budget is the largest ever presented in Guyana’s history.