September 27, 2020

The Economy & Finance, Article No. 36/2020

Contextually, budget 2020 is a survival budget (Part 2)

  • a response to the former Finance Minister

The former Minister of Finance sought to assassinate the 2020 emergency budget in the Saturday’s edition of Stabroek News dated September 11, 2020, but failed miserably in so doing. It is unfortunate that the former Minister’s ramblings can only be characterized as an unimaginable incomprehension of how the economy works, arguably so, and how to resuscitate a broken economy.

The former Minister stated that “the government’s 2020 budget has eroded the revenue base of the country, while enormously inflating the deficit and that the budgetary measures are private-sector oriented rather than for the people.” First, it appears that the former Minister is using financial terminologies carelessly to the extent where he ignored completely the state of the economy and more so the treasury even from the pre-COVID period under his tenure, which, the government of the day has now inherited. That is to say, the former Minister left a bankrupt treasury (absolutely no liquid cash in the government’s bank account) compared to over $80 billion liquid cash he inherited in the bank in 2015.

Second, the budget was delivered within 30 days, less than half the time in a normal budget cycle under the former Minister’s tenure and its more importantly an emergency budget in the context of having survived a period of political turmoil for five months. This, coupled with the COVID-19 health pandemic also induced unprecedented financial and economic hardships for both the business sector and households. This means that businesses would have generated less revenue and would obviously pay less taxes. In fact, the economic impact of the covid-19 pandemic was dealt with extensively by this column over the last five months. Consequently, in a period of such economic circumstance, governments have a responsibility to revamp the economy despite the level of current debt, by borrowing to inject money into the system.

If one were to examine in detail the caveat of the budget it is largely a budget to stimulate both investors’ and consumers’ confidence in the economy so that companies will be encouraged to invest more, and, in turn, create more jobs so that persons who were out of a job due to COVID can find themselves back to work and earning a salary. Further, a private sector-oriented budget is also a peoples’ budget because it is the private sector that create jobs and generate wealth where employees, who are consumers, earn an income, pay their taxes, and more importantly, the private sector is the largest tax payer which is the largest source of income for the government.

A private sector friendly budget also creates the enabling environment for entrepreneurship to thrive, thus, empowering people to invest in their own businesses, which also creates more employment. In fact, the budget allocated over some $300 million for small businesses to benefit from grants and loans.

The former minister further went on to make a politically inclined comment which is rooted in ignorance, at best, in economic policymaking, that the policies administered in the budget will only benefit the ruling administration’s supporters. This is the most nonsensical and unscholarly assertion coming from someone whom is supposed to be a trained economist.

It is worthwhile to note that the budget removed the imposition of VAT on a series of items including electricity bill, water bill, building and construction materials, mining equipment, agriculture equipment, reduction in license fees by 50%, removal of corporate tax on private education and health care, removal of VAT on all-terrain vehicles for mining, forestry, agriculture and manufacturing, and the list goes on. All of these fiscal measures, cannot possibly and practically go towards the benefit of a particular group of people in society. In addition, measures such as the mortgage interest relief being increased from $20 million to $30 million will also benefit every home owner and potential home owners with home loans up to $30 million, not a particular group, the same goes with the low-income loans bracket which increased from $8 million to $10 million. These measures automatically will benefit Guyanese from all walks of life, low income, middle income and the wealthy. These policies are designed to encourage investment from the private sector, boost confidence, and create thousands of jobs within the economy by empowering people all across the country to have their own business, and an opportunity to build, design and own their own home from the lowest income to the highest income – which the people were denied of such empowerment over the last five years, undeniably and irrefutably so.

Finally, for today, the former Minister spoke about the size of the budget suggesting that the expenditure is excessive and must be accounted for. This is very disingenuous of him for the simple reason that more than some 50% of the budget is already spent while acting as a caretaker Finance Minister, well before the current government took over, and, therefore, it is former Finance Minister who ought to have accounted for some $160 billion, most of which was expended outside of the legal remit under his tenure, quite destructively and irresponsibly.

To be continued…

About the Author:

  1. Bhagwandin is an economic and financial analyst, lecturer and business & financial consultant. The views expressed are exclusively his own and do not necessarily represent those of this newspaper and the institutions he represents. For comments, send to jbbankingadvice@gmail.com.