THERE IS A BETTER WAY!
Budget Day has been announced and almost by reflex one trade union has outlined its expectations that include the usual approaches to increasing workers’ income through raising the income tax threshold and reducing the tax rate.
These are measures which are aimed at placing more money in the hands of workers through fiddling with the tax net and the tax rate. However, increasing the income tax threshold to $60,000 will exclude a substantive share of the workforce from paying taxes but in terms of increasing the disposable income of workers, it will make no major impact.
The income tax threshold is already high and increasing it will only allow for extra income for earning above the threshold. Also, given the difference between the existing and proposed thresholds, in real terms the maximum increase for worker will be under $5,000 per month which is “chicken feed” in these times.
Reducing the tax rate would benefit more those earning in the high income brackets. It is therefore disappointing to read about some of these proposals.
The AFC promised a 20 per cent increase in salaries for workers. But in a strange twist, after it did not win the elections it downscaled this to 12 per cent, no doubt taking into consideration the fact that the government has paid an eight per cent increase just prior to the elections. The problem with all of these proposals is that they do not address something that the PPP had been calling for while it was in opposition more than twenty years ago.
Then, the PPP was calling for a living wage. But in its twenty years in office, it made little attempt to pay a living wage and instead, offered increases each year which was slightly higher than the inflation rate.
So why did the PPP abandon, the quest for a living wage? This can be answered by understanding the nature of class rule. The PPP has ruled in favour of the dominant economic class which is the capitalist class and it has done so not as a matter of deliberate policy but because it has pursued a neo-liberal economic agenda that favors the interests of businesses and suppresses wages.
Under the neo-liberal model, there is investment in everything else except wages. The workers are made to feel that the government acts in its favour by building all manner of things for them, improving their surroundings and providing education and health but doing very little on the wages front.
Workers are told that large wage increases not backed up by economic output will cause prices to rise and increase inflation which will in turn undermine workers’ spending power.
So workers face a dilemma. They desire more wages to become more productive but they are told that if wages are increased too much, the same workers will end up with less spending power because wage increases above certain limits will increase inflation. This serves the interests of the capitalist class very well because it cannot afford to make the huge profits that it makes if workers have to be paid hefty increases.
There is some sense however in not paying hefty increases at any one time. Once a trade union demanded that the lowest paid worker is paid a monthly salary of $80,000 per month. Well if this was ever paid, then most businesses would go broke because they would not be able to generate enough business to cover their wage bill. If the office assistant has to be paid $80,000 a month, then the wage bill would go through the roof.
This is the problem that presents itself when those who are desirous of improving the lot of workers want only to press for increased salaries. They know that the private sector cannot pay such increases and so the next best bet is to source the increase through tax relief.
But as mentioned earlier, tax relief as a means of improving the disposable income of workers is now clearly limited. But the opposition parties and some unions will press for this because they feel that there is no other way.
There is another way but it will involve a pact between labour and employers.
This pact should involve:
a) A living household income should be established. The government should determine this in relation to household rather than personal income. Thus, rather than concentrating on what one breadwinner should earn, the government should calculate what a household of working adults should earn and come up with a living household income.
B) The government should commit to progressively move the actual mean household income to this figure within the next five to six years with adjustments being made for inflation. Rather than concentrating on what the lowest paid worker should be paid, the government should concentrate on the mean household income in the society and try to increase this progressively to the level of the living household income that it establishes.
c) The employers would therefore understand what adjustments they need to make and have five to six years.
d) Adjustments should also be made for growth in the economy. If there is growth, then there should be a more rapid progression. If there is regression in the economy, then the progression to a living household income should be slowed. In this way, sustainable increases can be paid.
Guyana has to move away from this trend of labour demanding tax relief so as to increase workers’ income. The approach to wages should also cease being about percentage increases each year. There should be a general target. That target should be a national living household income.
Each year, based on adjustments for inflation and growth, increases in the wage bill should be offered in a way that moves the actual mean household income closer to the mean living household income.