COST-CUTTING IS NOT THE ANSWER
Jul 07, 2017 , http://www.kaieteurnewsonline....g-is-not-the-answer/
The PNC has a funny way of managing the economy. In the seventies when the oil crisis hit, it should have been expanding rather than contracting economic activity. Sugar prices were high, bauxite was doing well. The best plan was to expand to grow out of the crisis created by the increase in petroleum imports.
Burnham got the wrong advice. His economic advisers, as declassified documents are now revealing, told him to ban and restrict imports so as to curb consumption. He did just that. Burnham got the wrong advice. He slashed imports and ended up hurting more than consumption. He ended up also affecting the productive sectors. The country therefore could not have grown out of the crisis.
The restrictions on imports led to a slowdown in the economy, thus causing the economy to contract further. The foreign exchange crisis got worse rather than better. And Burnham, believing in the late Clarence Ellis and Kenneth King, never got wiser.
The APNU+AFC coalition is not facing an economic crisis today. It inherited a solid economy, one which has been growing for more than ten years. The economy is not going to collapse. The problem the government faces is that it is biting off more than it is capable of chewing. It is making the same mistake that the PPPC made.
The PPPC tried to make every Budget the largest Budget ever in the history of Guyana. And so the PPPC passed larger-than-ever Budgets which they or the country did not have the capacity to absorb.
The APNU+AFC coalition cannot spend the sums that it voted in the National Assembly. The country does not have the absorptive capacity to spend those billions which were passed in its three Budgets so far.
The need to raise revenues to finance these excessive Budgets has resulted in overtaking the population. The cost of living has gone up.
Even the government’s own numbers confirm this fact. The government claims to have increased wages to offset this inflation, but not everyone works with government, and the heavy taxation followed by a slowdown in business activity – which is now also being acknowledged by the government – has led to a precipitous shortfall in tax collection.
The government’s response to this is to employ cost-cutting. We are told that envelopes are being recycled. This shows that the government is clueless as to how to address its present problems.
The Cabinet, as part of the cost-cutting exercise, is going to be meeting regularly with the permanent secretaries. In other words, the Cabinet is going to micromanage the spending of government ministries.
This is going to be a failed strategy, because cost-cutting will only end up with ministries having to return larger sums each year to the Consolidated Fund. The Budget is too big. If there is any trimming to be done, it has to be at the level of the Budget.
Trimming the Budget will mean that the government does not have to overtax the population. It can remove many of the controversial taxes, including the tax on private tuition and the VAT on water and electricity consumption. It can also pay workers more, instead of having to return unspent monies to the Consolidated Fund.
Investing in a living wage for workers is going to offer a stimulus to businesses, since workers will spend a greater share of their higher disposable income. Businesses will enjoy a boost in sales. When this happens, the businesses will increase their profits and tax collection will increase.
Cost-cutting is not the answer to the government’s problems. It is a retrograde step. The government should be trimming its Budget, rather than asking permanent secretaries to recycle envelopes.