The “Roop” Economic Corner

Jul 16, 2008 News

Peter R. Ramsaroop, MBA
INTRODUCTION:
Welcome. This column will explore economic issues facing us the citizens, and present solutions for us to try individually, collectively and areas where the government must embrace free market economics in order for us to achieve wealth versus just income.

The power of wealth manifests itself in ownership and control of income-producing assets. The power of income manifests itself, via the transfer of that income to others, in ownership and control of assets by others.

If we allow that system to continue, by pouring the vast majority of our income into the vast pools of wealth owned by others, we will always be on the bottom of the economic heap.

We must take stock of our economic position in this country by understanding that income is not wealth. It’s not what you earn, it’s what you keep. You should not work simply for money but allow money to work for you.

Credit is a good servant but a poor master. Those who are poor pay interest, while the rich earn interest. As one author puts it, “Don’t have champagne tastes with a beer budget.” Stop ending each month with more debt than money. You get the picture. Let’s stop the leakages and learn how to inject more. Let us all save more, whenever possible.

WHAT MUST HAPPEN FOR OUR INDIVIDUAL ECONOMICS TO CHANGE

Axe the Zero Rated Programmes. Why? When an item is VAT zero-rated, it does not reduce the item’s price at the time of purchase. For example, rice prices are on the rise in Guyana even though we are a rice-producing country. The Government then decided to zero rate rice hoping the price would come down.

It didn’t. A farmer needs to buy machinery to plant, which are duty tax, provide transportation of materials and labour, all of which are on the increase because of fuel; other components that are needed in planting such as spraying equipment are at 16% VAT.

Therefore, even if the seller sells the rice at as zero rated item, the cost to produce did not really change. Unless our Government stops taxing all the components to get rice to the market, prices will hardly come down.

The situation worsened, where the government started to sell rice by buying the rice from a miller, but, then they paid for all the other costs such as labour and transportation to sell it, thus reducing the price. What this did was, it placed, you, the retailer at the market, out of business.

SOLUTION:
Instead of zero-rating items or Government getting into our private sector business, they need to reduce VAT to 7% which will then infuse back our money into investments in the market and put money back in our pockets to spend.

Raise the Tax Threshold to minimum $50,000. Why? Recently the tax threshold was raised to $35,000. That means that a worker pays 33% of every dollar above that threshold in addition to the many other taxes and contributions such as NIS, property tax, license, vehicle fitness, etc. When one has to pay $5,000-$10,000 in electricity bill alone, imagine what is left to feed a family of four.

If you calculate the taxes then paid from one’s salary, plus every time we go to the store or market we are paying that additional 16% VAT, the burdensome noose around our necks gets tighter:

SOLUTION:
Increase the tax threshold to minimum of $50,000 and reduce the 33% tax for everyone to a stair stepped approach based on income levels.

CONCLUSION:
To determine whether our economy is improving, we must ask ourselves two primary questions. 1) Is there an increase in new job opportunities as a direct result of new public policies? and 2) Is our investment climate improved so that we see investors streaming through our airport to set up factories and offices in Guyana? The latter is a key indicator in the creation of new jobs.

One reason for the lack of new foreign investors may be attributed to the lack of sound investment policies that are indisputably geared towards achieving more household income and ultimately the creation of wealth for our citizens.

In addition, our tax and investment policies must become transparent and consistently applied to all businesses, without favour to a special group. We also should enforce rules that ensure companies doing business in Guyana operate under the same rules and on a level playing field.

These are just a few of our primary challenges that will be explored in future columns in this corner. Until next time, “Roop”.

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The “Roop” Economic Corner

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