By  stabroek news December 14, 2016

‘The national budget is a document that … authorises the government to raise revenues, incur debts and effect expenditures in order to achieve certain goals …. The process of allocation of resources to different institutions and purposes is essentially a political, rather than purely technocratic one.

Any attempt to address content of budget allocation without looking at political process is therefore unlikely to be helpful’ (What’s behind the budget?

There can be no denying the 2017 budget has been able to bring together a prodigious amount of supporters, usual sympathizers and downright enemies of the government in a chorus of condemnation that reflects a general public disquiet. In this sense, the 2017 budget has been a political failure for sensible budgeting must mean not coalescing the major stakeholders against you.

Politicking is not simply doing political things: it is about deciding who gets what, when and how in an organic manner that best serves the interest of all stakeholders. In modern times, stakeholder involvement and support are vital if their interests are to be protected and budgets are to be optimally implemented.

Most of its more controversial issues surround Value Added Tax and these have been too exhaustively discussed to detain me here. Suffice it to say that it is as if in making the 2% cut in the rate of VAT, the minister of finance believed he had licence to go beyond recouping without some acceptable level of stakeholder consensus. As a result, by this budget the government has united some strategic stakeholders: the Federation of Independent Trade Unions, the Guyana Trades Union Congress and the Private Sector Commission. These stakeholders are now demanding that they be properly heard by going over the head of the executive to Article 13 of the Constitution and the National Assembly.

En passant, even the powerful Roman Catholic Church has chosen this time to call upon the president and opposition leader ‘to engage and agree on a programme of healing to counter the brokenness in Guyana’ and to do it possibly by way of constitutional reforms’ (SN 10/12/2016).

Lest my position not be mistaken: I believe that a government budget should have at least two basic focuses: growth and development of the economy and poverty reduction, and it is suggested that these two goals may be self-reinforcing.

‘There is a very strong link between economic growth and poverty reduction … based on a study of 418 “episodes” worldwide … 1 percent increase in per capita income is associated with a 1 percent increase in the incomes of the poor. The relationship is robust and has not changed over time.

Although a number of policy variables, as measured by economic openness, the rule of law, and fiscal discipline, appear to boost economic growth, they do not have a discernible independent effect on the incomes of the poor.’ (‘Handbook on Poverty and Inequality (2009) World Bank).

Since Value Added Tax was introduced in 2007 and it then became known that it was not revenue neutral and brought the government a windfall, the clamour began that the 16% rate  should be cut. The then opposition joined in this demand and helped to make it into a ‘social fact’, which, it appears to me, as government it is today finding it difficult to fulfill.

I have never supported a cut in the VAT rate on the grounds that so far as their consumption is concerned, the poor can be adequately protected by attempting to maximally zero rate the items they consume and gradually improve their incomes. This society has too many problems associated with poverty for me to support cutting the rate of VAT to essentially benefit the well off.

Harangued as I usually am by those more knowledgeable than I on these matters, I have not bought the argument that the government has it in its capacity to both cut the VAT rate and find sufficient resources by way of efficiencies to attend to development and particularly to the needs of the poor.

I have no faith in government being able to significantly increase its efficiency in a timely manner and believe that public pressure would have been better deployed in attempting to get the authorities to focus upon some pressing issues, e.g., the abysmal condition under which too many of our elderly exist and allowing too many young people on the streets without marketable qualifications and the crime situation this condition breathes.

However, all may not be lost, for if what the unions and the PSC are demanding  fructify, one can rest assured that it will become an annual exercise that could lead to unintended revolutionary changes in budgeting.

Firstly, rooted in the constitution as it would be, it will be institutionalised as an annual feature of budgeting. Secondly, not to be embarrassed at such a public hearing, the government’s own consultative processes will become much more meaningful. Thirdly, to make proper inputs at such times, the social partners will gradually come to work together upon a common presentation. Fourthly, this would gradually lead to the establishment of a permanent stakeholders coordinating machinery, with all that entails in terms of policy development, articulation and monitoring.

Thus, in adversity there is opportunity, for maybe we are viewing the development of the kind of social partnership/contract that so many have paid lip service to all these years. But while such a development may well benefit a divided Guyana, it would severely curtail the policy space of the government.

In other words, their capacity to take independent action and make deals across a whole range of government business would be severely limited. Therefore, there will be resistance from the executive and already the trade unions are claiming that it has been dismissive of them (SN: 13/12/2016).  Nevertheless, this budget has suggested a progressive way forward that it may prove difficult to close so don’t hold breath your but since you can do it longer, keep your fingers crossed and see where we go from here.

In summary, after considering the recommendations of multiple tax reform committees, the minister of finance, upon making minimal cuts to the VAT rate, felt obliged to concoct tax formulations, some of which are bound to ricochet negatively upon the poor.

Indeed, so incensed have his stakeholders become with the sheer audacity of his proposals that we may well be on the cusp of a revolution in budgeting. By unintentionally pointing a novel way towards a social partnership, the 2017 budget has already turned out to be, what some in the regime claimed it is, perhaps the best budget this nation has ever had!