Sluggish economy will slow PPP govt’s promised roll back of taxes- Jagdeo

Last Updated on Friday, 14 August 2020, 20:06 by Denis Chabrol

by Samuel Sukhnandan

Although promising to reverse over 200 tax measures with immediate effect upon assuming office, the new People’s Progressive Party (PPP) government said this cannot be implemented in full measure right now due to several budget constraints.

Vice President Mr. Bharrat Jagdeo made that disclosure on Friday during a press conference, when he was asked by News Talk Radio 103.1 FM/ Demerara Waves Online News whether the government would act on that promise it made during the 2020 election campaign.

“We have to asses the revenue and we intend to keep our promises. Some will be done at budget time. Whether we want to keep every single one of them..but we have to look at the timing of it. Remember a lot of this (promise) was made when the economy was booming,” Mr. Jagdeo explained.

While Opposition Leader, Mr. Jagdeo had promised to reverse taxes imposed by the coalition administration— such as those related to building materials, data, and exports. Mr. Jagdeo had also advocated for the removal of Value-Added Tax (VAT) on key areas such as electricity, water and healthcare, among other things.

Asked to state which specific tax measures will be on the list to reversed during the budget, Mr. Jagdeo related to the press that it will have to be a policy discussion first and that decision will be primarily dependent on costing the measures and seeing which one can go first.

“This is depending on the targeted size of the fiscal deficit, so it doesn’t become inflationary or put too much strain on the BOP (balance of payment) through the exchange rate mechanisms…and then look at what fiscal space you have and how those measures fit in the fiscal space.”

Mr. Jagdeo, a former finance minister, explained that it will be especially difficult to reverse all the taxes at once, especially given that the new government is faced with a “big roll over expense capital,” which according to him, will diminish the government’s ability to do many things because of these past policies.

According to Mr. Jagdeo, the previous APNU+AFC coalition government went on what he described as an alleged “corrupt spending spree,” where it awarded millions of dollars in contracts, with some $21.7 billion being rolled over from last year into this new budget being put together. In addition to this, the previous government carried up a large overdraft at the Bank of Guyana. “So we are starting with that which was already spent or catered for reduces in allowance. We also have roll over projects and a loan…” he added.

The Moscow-trained economist therefore cautioned that it would require a lot of work to “resume positive growth and these are the sectors of the economy that have the greater linkages, a number of measures. We have to stop the decline and reverse it.”

The Vice President, nevertheless, revealed that the government intends to keep its commitment to the sugar workers to reopen the estates, hence why a full assessment of the sugar industry is currently being undertaken. He also promised to fulfill other promises made with regards to the forestry and mining sectors. “…because these are promises and polices that will put people back to work and will be good for the economy,” he added.

Guyana has been without a 2020 budget due to the national elections in March and the ensuing political impasse that followed. As such, Mr. Jagdeo said government has undertaken the task to complete one in three weeks. While it takes 179 days traditionally to prepare a budget from the time the circular is issued to the presentation of that financial plan in Parliament, given the urgent need for one, the government has directed that one be completed in 21 days instead.

“The reason why this is so, is because the help that people need in many of the sectors cant be made available to them, and to reboot the economy unless we have an early budget. So, we will have to work overtime to get the budget ready, in another three weeks,” the Vice President explained.

But in doing so, Mr. Jagdeo revealed that the government is faced with some challenges particularly as it relates to reverting back to the old structure of governance with ministries and its responsibilities being reshuffled. This is mainly aimed at ensuring the smooth disbursement of resources to the various keys sectors of the economy.

However, the new government said it found that the Guyanese economy shrunk by 49.5 percent, taking out the oil sector shrunk in the first half of the year.

With retail and wholesale trade down by 14 percent, transportation down by 33 percent, a 42 percent decline in bauxite earnings and 57 percent in other mining, he said “all of the sectors were in significant decline.”

Vice President Jagdeo said the 2020 budget would have to take into account the GYD$116 billion disbursed and GYD$135 billion spent so far compared to  GYD$111 billion in earnings. In terms of the COVID-19 response by the previous administration, he said GYD$1.134 billion was disbursed to the Ministry of Public Health and GYD$150 million to the regions. He also alluded to an GYD$84 billion overdraft at the Bank of Guyana and the issuance of GYD$70 billion in Treasury Bills. “These are the things that are hamstringing us from passing a budget with room to provide help,” he said.

He said most of the big agencies would require help from central government.  Among them, he said, was the Guyana Gold Board with a GYD$4 billion deficit at the Central Bank. He questioned how the David Granger-led administration had released GYD$10.7 billion to the Guyana Power and Light in the absence of the National Budget.

Mr. Jagdeo said such roll-over expenses would “diminish our ability to do somethings because you have to pay for past policies.”

Public corporations have been given up to next Wednesday to submit their budgets and ministries up to Wednesday, as government moves to fast track the preparation and presentation of the budget from 179 days to 21 days.