Sep 15, 2020 Letters
In Stabroek News of 2020.09.14, a letter was published by Deodat Indar, Minister within the Ministry of Public Works, under the headline, “Emergency budget is a step in the right direction.” His letter was ostensibly a response to an article carried in that paper which strung together parts of a more than one hour interview I had with another media outlet, giving my reaction to Budget 2020 that was presented by the Minister of Public Works.
I found it odd that the onus of a response fell upon a Junior Minister, not in the Ministry of Finance (that, in itself, would have been bad enough), but in the Ministry of Public Works. So, we have the Budget being presented by the Minister of Public Works, the Appropriation Bill being signed by the Vice President, and the Budget response being left to the Junior Minister. Such a development is unheard of in the history of budgeting and finance in our Parliament. It points to confusion and disarray that are of the government’s own making.
As a politician now wetting his feet in Parliament, Mr. Indar is advised to let truth be his North Star, though some would say that politician and truth are anathema. His response was more of a distraction, a side show. Clearly still on the campaign trail, he was in familiar mode of the PPP of attacking the messenger, instead of understanding the message. I seek solace in the words of Dr. Michelle Obama: when they go low, you go high.
Nowhere in his response was there a serious attempt to engage me in debate, to rebut my main messages, which were essentially that Budget 2020 was visionless; all it achieved was an unmanageable deficit that could destabilise the country financially. I elaborate further.
Tradition dictates that the President would address the Parliament at its ceremonial opening of a new session, where the opportunity would be taken to spell out his government’s policies, programmes, projects, and give insights to the legislative agenda over his 5-year term. For whatever reason, this did not happen. The task, therefore, devolved on the Minister of Finance to use the budget speech to lay out, in detail, and to bring into sharp focus, his government’s Vision 2025. This was not done (unlike Budget 2015 that was presented on August 11, 2015) – a serious omission when one considers that there is no national development plan or strategy. The resurrection of the dated Low Carbon Development Strategy (LCDS) can hardly be considered to be a viable substitute. This makes the rejection by the government of the recently-completed Green State Development Strategy (GSDS) all the more foolhardy.
My second point is the ballooning of the deficit, occurring at a time when the Vice President is on record as saying the Treasury is bankrupt. Set out below is a table taken from page 3 of the Estimates of Revenue and Expenditure for 2020.
Summary of Revenue and Expenditure
(in billions of Guyana dollars)
1. Overall deficit 19.7 17.4 75.9
2. Total Revenue 244.1 274.2 253.7
3. Total Expenditure 263.8 291.6 329.6
Source: Estimates of Revenue and Expenditure 2020
As shown in the table, the Overall deficit, which declined from $19.7 billion in 2018 to $17.4 billion in 2019, is budgeted to sharply increase to $75.9 billion, nearly 4.5 times the size in 2019 and equivalent to about 2.5 times the current amount in the Sovereign Wealth Fund. That is a fact and no amount of invectives thrown at me, by Mr. Indar, will change it. This is gross mismanagement of the country’s financial affairs that should not be countenanced by anyone, regardless of their political stripe.
This recklessness is due mostly to the government’s inept policies. Total Revenue, which rose by 12.3% in 2019, is budgeted to decline to $253.7 billion, or 7.5%. No doubt, the contraction of the non-oil economy, as a result of COVID and the uncertain political situation in the first half would have dampened tax collection and influenced the projected outcome. However, a major contributory factor is the weakening of the tax base by the indiscriminate removal of taxes to satisfy manifesto promises, regardless of the objective conditions or whether these are currently feasible. For example, at a time when gold prices are US$1900, the government chooses to remove VAT on mining equipment. Would this be to encourage a surge in mining activities? Simple economics would indicate that that price is enough of an inducement to achieve this questionable objective.
Another example is the removal of corporate income taxes on private health care and education, ostensibly to bring down the prices of these products. A noble and worthy gesture, indeed! Except that simple economics indicate that whenever demand outstrips supply, as in both cases, removal of a tax or subsidy does not necessarily lead to lower prices. The supplier is not induced to offer such concessions, especially in the short-term, unless an explicit contract is forged between government and supplier. One just has to recall what happened when the Coalition government removed the VAT on private education.
Several measures were already being enjoyed by the supplier/consumer and do not provide new relief. These include removal of VAT on electricity, water, medical supplies and hinterland travel. The removal of export taxes is a non-measure since no such taxes are imposed. The re-introduction of old tyres and cars over 8 years old is retrograde, inconsistent with greening the economy and indifferent to the gridlock experienced with the existing car stock on the few main roads in the country. A better approach would have been to lower the taxes on new cars and new tyres. Even though none of the measures indicate a revenue loss or gain (in violation of the Fiscal Management and Accountability Act), it is clear that the 7.5% decline that is projected for total revenue would worsen in 2021, when the full year effect of the measures is felt.
An examination of Total Expenditure would see the same folly. From the table, total expenditure, which rose by 10.5% in 2019, is projected to rise further by 13% to $329.6 billion. Mr. Indar claims that $160 billion of that amount was already spent by the time his government took office. But, nowhere in the Estimates can this figure be identified. I hope he is aware that Article 219(3) of the Constitution demands that a Statement of all withdrawals from the Consolidated Fund during the period that Parliament was dissolved be presented for approval prior to those expenditures being included in the Appropriation Act. I await the presentation of that conclusive evidence, since that would determine how much is being budgeted to be spent in the last quarter.
Mr. Indar and his colleagues extol the virtues of Budget 2020 as being a people’s budget. There is $25,000 to be provided to all households, instead of households that are in need. The logistics of that exercise has not been disclosed but, already, there are screams of discrimination. There is mention of a two-week bonus for the Disciplined Services and $150 million set aside for frontline workers. There is no increase in the income tax threshold, no reduction in the income tax rate for workers, no announcement of increase in salaries for public servants.
Some of the expenditure measures are to take effect from January 1, 2021. As such, their costs are not reflected in Budget 2020. For example, Old Age Pension will increase by $4,500 per month. Assuming 53,000 pensioners, this would add $2.86 billion, annually. It is not clear whether recipients of Social Assistance will benefit similarly, as no mention was made of them in the budget. If this was an oversight, then about 12,500 recipients, getting an increase of about $2,500 per month will see another $375 million being added to expenditure in 2021. Pensioners will be getting free water. But this measure reintroduces an element of discrimination, since it benefits only pensioners with a water meter in their name. Assuming they will get the $18,000 that they received annually, prior to May 2015, this will add another $954 million to expenditure in 2021, by way of subsidy to GWI. The government also announced reintroduction of child grant of $15,000 and doubling of uniform allowance to $4,000, both with effect from 2021. These were not costed, but will surely add another couple billions of dollars to expenditure in 2021. These are sufficient examples to show why the double whammy of declining revenues and inflated expenditures has caused the budget deficit to balloon. These are the unvarnished facts, which Mr. Indar must refute. As the former Chief Finance Officer of a well-known company, he would not have recommended such a budget to the board. Why does he not exhibit the same rectitude when it is the national economy?
The second matter has to do with a fraud of $300 million at Guyoil. When this matter was brought to my attention, circa July 2020, by the then Chairman of the Board, Mr Mark Bender, I, immediately, requested that he call in the police. He advised me that an internal investigation was being conducted and, upon conclusion, the police would be called in. I called the then Chief of Staff of the GDF, Brigadier West, to enquire whether he was aware of a fuel scam involving employees of the army and Guyoil. He expressed awareness of the matter and indicated that the army was conducting investigations. The scam was also brought to the attention of Cabinet and the Defence Board, both institutions of which I was a member. I demitted office on August 2, at a time when the investigations by Guyoil and the army had not been concluded. This is not the first attempt to besmirch my character; several have been made in the recent past.
I do not intend to prolong any debate on Budget 2020. I leave that to our Parliamentarians, commentators, students and other interested stakeholders.
Former Minister of Finance
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