Category: Public sector

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A tribute to Winston Murray – in his own words

Introduction
Business Page joins in paying tribute to Winston Murray, economist, attorney-at-law and politician who offered this country a unique blend of experience, expertise, capacity for research, hard work and patience, all reinforced by unusual humility, integrity and respect for others. He was proud of his roots in the Essequibo island of Leguan, the place and community where he was born, but which our political system did not allow him meaningfully to represent; committed too to the PNCR which he served with distinction for several decades, but which rejected him when it most needed him; a firm believer in the virtues of a healthy, informed and honest debate, outside and inside a parliament in which he excelled over and above all others of his time, a parliament that is poorer for his passing; a patriot in the most noble sense of the word, putting country above self and personal considerations.

No word is sufficiently adequate or praise generous enough to describe Mr Murray the man, the servant of the public and this son of Guyana. The word ‘void’ at the national level cannot convey the space created by him during forty years of dedication, or the experience and expertise gained in vocations and professions ranging from the primary school teacher, the diplomat, public and political servant, economist and attorney-at-law. Inadequate too is the word ‘loss’ at the level of the party to which he committed his entire career, serving it steadfastly even as its appeal became tarnished by mis-steps and non-steps and its leadership pool haemorrhaged from dissatisfaction within the ranks.

Today’s tribute to Murray is one mainly in his own words, drawn from Hansard, the official record of the debates in the National Assembly. I go back only to 2007, the year in which Dr Ashni Singh, a technocratic Finance Minister presented his first national budget. I chose that year because Murray saw in Dr Singh the prospects and possibilities of a new culture and a combination of competence and integrity in the financial management of the country’s affairs.

Even when he soon came to question his initial opinion of and optimism about Dr Singh, his disappointment was expressed in the best tradition of parliamentary courtesies. So on February 9, 2007, on Dr Singh’s first budget presentation, this is what Murray had to say of him:

“I wish to congratulate the Honourable Minister of Finance, Dr Ashni Singh, on the occasion of his inaugural presentation of the National Budget. This Minister has shown a refreshing approach to openness, and in fact, prior to my coming here today, drew my attention to certain small discrepancies, which are really printer’s errors, and I thought that, even though small, the fact that he should call to mention them was not an insignificant occurrence, and I hope that that same spirit will be a hallmark of his tenure as Minister of Finance.”

On his reservations about sugar’s contribution to the economy and GuySuCo’s turnaround plan
“Sugar was supposed to be the flagship within the traditional sectors, but the present position shows that for the last years, the industry has been making significant losses and is projected to continue to do so until at least 2012, when it is projected to return to marginal profitability. This is the position notwithstanding the fact that Government has taken over significant debts from GuySuCo and notwithstanding the bragging of about $2 billion worth of cost reduction in 2009. This industry is being significantly subsidised by the Guyanese taxpayer. A massive investment to over US$160 million is expected to ramp up sugar production ultimately to 450,000 tonnes per annum. The issue is that at what cost of production and, therefore, how competitively?

“The state of the Skeldon factory and the availability of the 1.2 million tonnes of cane necessary to feed it are also causes for concern. We are assured in the turnaround plan that the canes will be available. The question is: How soon? Until then, the Skeldon factory will continue to operate below capacity, thereby negatively affecting the cost of production and possibly the technical functioning and efficiency of the factory.”

On budget size and oppressive taxes
“I could not leave the 2010 framework without reference to and comments on the statement that Guyana’s largest budget ever, requires the introduction of no new taxes. Given what I have said earlier about tax yield and tax burden, the issue is not ‘no new taxes,’ but rather doing something to lift the oppressive burden of taxation on the citizenry. That is what we have to do. And with that connection we call for the return of the VAT windfall to the people through a reduction. And we call for a reintroduction of a graduated progressive rate of income tax.”

On accountability, Clico, the Lotto Funds and integrity
“With respect to the Economic Services Committee, I have to highlight the unresponsiveness of the Minster of Finance to invitations to him to come to that Committee to update us on matters relating to C.L.I.C.O. There was a resolution passed in this National Assembly for this Committee to follow up on such matters. We have written him at least twice and he has not had the courtesy to even grant us the favour of an acknowledgement.

“Equally grave, if not more so, is the failure of the Minister of Finance himself, a highly trained professional, to observe some principles of financial governance. He continues to allow the Lotto Funds to be placed into a separate bank account instead of being put into the Consolidated Fund. He continued to allow the sale of public assets to be put into a separate bank account instead of finding its way into the Consolidated Fund. And now under the LCDS he is talking about putting money through G.R.I.F. (Guyana REDD Investment Fund), but nowhere in the scheme of things is there contemplation for bringing this money into the Consolidated Fund which is where it belongs to be supervised by this Parliament on behalf of the people of Guyana.”

On strengthening Caricom
“I believe we need a more dynamic and functionally relevant framework for the furtherance of the goals of CARICOM. For example, I believe that the Secretariat should have a strong project development arm that seeks to use available data, and make and support project proposals to strengthen regional capacity. It could also be involved, if only as an observer, in relevant discussions between and among Member States in the formulation or execution of projects. The institution cries out for being streamlined and possibly being restructured. It is no accident, I wish to observe, Sir, that the Heads of important international agencies are generally not permitted to serve more than two terms, normally a period of ten years.”

On limitations of politicians and the usefulness and role of experts
“Politicians see the electoral cycle as the framework of their operations, and so their eyes are set [on the year when elections will come]; and the measures that they will take will not necessarily address the longer term economic problems that the country faces, but are likely to be guided by the imperatives of an election victory… I say therefore to the Hon Minister of Finance and to the Government more generally that they should heed their own advice and agree to the setting up of a group of experts, who can independently analyse where we are, where we are likely to go and propose measures for dealing with what is likely to be a most difficult situation.”

On the airstrips at Leguan and Wakenaam
“It did not escape my attention, for example that in 2008, the sum of’ $108 million was earmarked for airstrips at Leguan and Wakenaam along with rehabilitation of the airstrip at Baramita. Obviously, the projects for the airstrips at Leguan and Wakenaam did not materialise, as they are therefore repeated for 2009… I think it is a sick joke to propose such a project when the citizens of Leguan are more concerned about proper and adequate number of beds at the cottage hospital; when they are more concerned about the availability of drugs and other medicines at the facility; when they are more concerned about the reliability and timeliness of the ferry service and about better drainage and irrigation facilities.”

On further evidence for corruption
After recounting several cases of the illegal purchase of drugs, impropriety in the regions and drawing attention to Guyana’s low ranking on the Transparency International Corruption Perception Index, he offered to the Speaker of the Assembly, “Sir, but perchance they want more evidence, I advise them go to the project site where projects are being implemented; and go to the villages across Guyana and talk to the people, and you will get all the evidence you need, to know that corruption is endemic in this country.”

On VAT and revenue-neutrality
“Throughout the Debate on the VAT Bill in 2005, all the major Government Speakers and the Ministers in particular, emphasized the revenue neutrality of the tax. We were assured that the solemn intention of the Government was to collect the same amount of money as would be foregone by the taxes that would be scrapped. A regime of Excise Taxes was also going to be introduced on so-called sin and luxury goods with the intention of maintaining the pre-VAT prices on those goods. Thus, the tax of these goods VAT plus Excise Taxes would result in pre-VAT levels of revenue being collected and that overall the collection of VAT plus Excise Taxes would be revenue neutral.”

On contract employees
“The Government has included a category in the Estimates known as ‘contract employees’ and we have again on numerous occasions requested that the information on ‘contract employees’ should be fully set out at the back of the Estimates. Do you know for the traditional Public Servants there are appendices O through S, which state the category in which each Public Servant falls, and in another Table gives you the salary scale applicable for those positions? And that is all we are asking for in the interest of transparency that these Contract Officers who many people see as replacing; that is why you do not want to put the authorized staff in the Estimates.

They are replacing the traditional Public Servants more and more but there is no transparency of their method of appointment or of levels of salary they are paid. We call upon you to explain to this National Assembly during this Debate, why it is not possible for you to include this as an appendix to the Estimates the framework in which contract employees are employed in the various agencies and the levels of their remuneration.”

On making belief and missing the truth
“In January 2010, the Hon. Minister of Finance brought a request for supplementary provision for, among other agencies, the Ministry of Housing and Water in the sum of $5.6 billion of which $4 billion was for housing development. I cannot avoid commenting on this because, to me, it represents a brazen act of illegality which should not go without being mentioned and pursued.

“We were making believe here that we were appropriating $5.6 billion to the Ministry of Housing and Water. It is clear that the Hon. Minister of Housing and Water, with prodding from and acquiescence of the Minister of Finance, missed the mark of truth in this Hon. House when in response to my question as to how much of the $4 billion had already been released he said ….”

And later when the question surfaced in the Committee of Supply and with the Housing Minister still reluctant to come clean, Mr Murray lamented, “I note that the Hon. Minister is not budging and is not answering any of these questions, could I ask whether he has become deaf all of a sudden because I want to know. This National Assembly needs to know. Is there a deliberate act on the part of the Minister to withhold information from the general public about his compliance with the Constitution, compliance with the law and about his observation of a proper budgetary process? Is that his intention?”

Sense of humour
On Irfaan Ali, Minister of Housing and Water: “Please I want it to be noted that I am not saying that Minister Ali is rubbish, I am saying that what he said is rubbish.”

“And I want to suggest that in naming this Budget under the title Staying the Course I would not like to stay on this course. That is the first point. I did not recommend it.”

“This year will be another year of trying to find a reasonable job, or of trying to get a visa to leave for ‘Region 11’ or of joining the ranks of the unemployed. This must be a sad state of affairs after seventeen years of P.P.P. /C. rule, but then, I suppose, it could be blamed on the twenty-eight years of the P.N.C.”

And after a scathing critique of the 2009 Estimates and Budget Speech, challenging the other side with the irresistibility of truth, the force of logic, the mastery of detail and the display of oratorical skills, he ended with the following words: “I therefore apologise for any inconvenience that may have been caused in the course of this presentation.”

A true gentleman is a rare being.

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The annual ritual of the Auditor General report

Introduction
Sometimes around now, sometimes later, the press and the public are excited when the report of the Audit Office on the accounts of the ministries, departments and regions is tabled in the National Assembly. They feed on reports of Contingencies Fund abuse, unreconciled bank accounts; single sourcing of drugs from the New Guyana Pharmaceutical Corporation; vehicle log books not maintained and improperly kept stock records. More recently a disproportionate amount of time was devoted in the 2008 and 2009 audit reports on expired air fresheners and Baygon and overpayments of $30,000 and $50,000 for the acquisition of purchases.

Not that these things are not important. They are. But the danger to which the press and the public fall prey is that they displace some of the really crucial issues of accounting and accountability that cost the nation billions of dollars annually, paid for by exorbitant rates of VAT and personal taxes. Perhaps a bit too subtly to be noticed, the Audit Office has been downsizing the report even as the causes and cases of wastage and misuse of public funds become more obvious. Not that size alone matters, but compare the report of 2005 with that for 2009. In 2005 the report ran to 1822 paragraphs, this year it is down to 437 paragraphs, and as the accountants would add, “a reduction of 76 %”! The 2008 report ran to 575 paragraphs so the report is well and truly trending downwards.

Strange contracts
Consider too that in 2005 the Audit Office considered it necessary to address audit issues in the Office of the President – one of the serial offenders when it comes to misuse of public funds – in fifty paragraphs running over twelve pages. This year it is down to seven paragraphs over two pages. One of those seven paragraphs is entirely informational with comments, and its inclusion not quite an audit issue.

The information was useful but a bit confusing. It reveals that two contracts were signed in 2010 (sic) in connection with the Lethem to Providence E-Government Project without identifying the other party(ies). The first for US$1.020M was entered into in April 2010 for the supply of aerial and direct burial fibre optic cables and the second, signed on March 23, 2010 was “for the connection of the Globenet System with the terrestrial fibre network in Guyana.” The report notes that the initial fee of US$1M was to be paid in three instalments. It does not say whether these contracts conformed to the Public Procurement Act.

An amount of $353.6M was provided under supplementary provisions in 2009 for which four cheques were drawn by the Ministry of Finance to the attention of the Office of the President! Except for this the only other current year issue with which the 2009 audit report takes objection was in respect of a procurement by GO-INVEST for which the approval of the National Procure-ment and Tender Administration Board could not be located. Is this for real?

In respect of the Ministry of Finance every one of the fourteen paragraphs was a “prior year matter which has not been resolved.” In the Ministry of Local Government it is five out of six issues identified. For the Ministry of Works under current year issue – Roads and Bridges – $5.894 billion, no contract register was maintained making it impossible to validate the expenditure on projects undertaken.

Conspiracy of silence
Under Customs and Trade Administration the report has quietly dropped information on remissions of duties which in 2008 amounted to $70 billion! In fact there is no evidence that the Auditor General has carried out its duty under the Investment Act of 2004 to carry out a process audit of incentives granted under section 2 of the Income Tax (In Aid of Industry) Act or to point out that the government has failed to publish in the Gazette information regarding all fiscal incentives under that act. Readers have to be forgiven for believing that there is a conspiracy of silence when it comes to such matters.

In 2008 the Audit Office found it necessary to highlight in the Executive Summary of its report the failure to appoint the Public Procurement Commission mandated by Article 212 (W) of the Constitution. In 2009 that matter has been quietly dropped while the stage is also being set that could see the elimination of any comment on the unconstitutional accounting and misuse of the Lotto funds. The 2008 report repeated a decade long, strong recommendation that the Ministry of Finance take appropriate measures to comply with the Fiscal Management and Account-ability Act and pay the government’s share of the Lottery proceeds into the Consolidated Fund. This year the report informs the nation – without comment – that the Attorney General has given a legal opinion concerning the deposit and use of those funds in which the AG states that, “There is no legal obligation to transfer moneys therefrom to the Consolidated Fund.”

If the Audit Office had been following the news he would know that this is a matter that is currently and actively engaging the courts in an action brought by citizen Desmond Trotman against the same Attorney General! The AG must therefore be aware of the case and it would seem self-serving, improper and unprofessional for the AG to have ventured an opinion in this matter. This fact should not escape the Audit Office which at the very least should have sought some independent advice on the matter.

Dormant accounts
One issue that caused me some concern is the way two long-dormant accounts were treated in the report. When I did a four-part series earlier this year on that 2008 Report I noted that there were several billion dollars lying in “Static Accounts.” Among these were two rather significant sums: one in Account #201210 EPDS – Buy Back Programme with a balance of $560.9 million and the other in Account # 201360 with a balance of $2.617 billion. The total of these two accounts of $3.177 billion had been lying idle, in the first case for more than ten years more and in the other, for six years.

Here is a background to these accounts taken from the 2008 Report:

Account № 201210 – This arose out of a 1998 grant agreement funded by the World Bank for a “commercial debt” buy-back programme. When the programme came to an end in 1999, the Bank of Guyana which had administered the programme opened a special account in the name of the Government of Guyana with this sum.

Account # 201360 – The amount of $2.617 billion was the proceeds of a loan from the International Development Association (IDA) in December 2003 for Poverty Reduction Support Credit in (a) investments in human capital under the health and education sectors; (b) strengthening of public institutions and improvement of governance; (c) expansion and improvement in the provision of basic services under the water sector; and (d) broad-based job-generating economic growth.

What troubled me was that in the corresponding table in the 2009 report, the amount does not appear and that only a total of $1.6 billion dollars was held in statistic accounts. This is explained by a statement on page 8 of the report that “The (unidentified) Head of the Budget Agency indicated that… accounts No. 201210 and No. 201360 were closed in July 2010.”

Lax controls
Forget for a moment that proper auditing methodologies would not accept a mere “indication” for even three million, let alone $3.2 billion, why are the amounts not shown in the table of special accounts at December 31, 2009, more than six months before they were supposed to have been closed? Audit is about verifying satisfactory documentary evidence, not acceptance of unsupported explanations or indications. Not even a junior auditor or someone with barely passing familiarity with banking and accounting would describe the disposal of dormant accounts with combined balances of $3.2 simply as “closed.”

My concern was partly assuaged when I saw Note 2 to the Statement of Current Assets and Current Liabilities that showed Total Inactive Accounts at December 31, 2009 with balances of $5.1 including the two that the Auditor General omitted in his report. Given the lax controls over bank accounts with no reconciliations having been done for several years, it is dangerous to the citizens of this country for billions of dollars to be left idle and unsupervised for so many years and for them to be casually closed. Think what the $2.6 billion could have done for the Women of Worth project recently introduced!

The Public Accounts Committee
Part of our problem is that the persons who have the duty to oversee the report do not understand finance and accounting. The Public Accounts Committee is chaired by a member of the opposition party in the National Assembly but the majority of the members of the committee are from the ruling party who seem, like most people, to have the capacity to grapple with issues involving a few thousand dollars but not the billions of dollars spent by the government.

We will not have proper accounting and accountability if we do not have a proper PAC that insists on better and more comprehensive audits by the Audit Office. NICIL which manages billions from the GGMC, privatisation, sale of government assets and dividends does not get a mention in the report. No wonder it can show such contempt for the law.

The information on the spending of $3.5 billion dollars from Lotteries proceeds since 1996, has been sketchy. For example, in 2009 $54.2 million was spent by the Ministry of Culture, Youth and Sport “to meet expenditure for PYARG adventure journey, Independence Anniversary etc.” and $1.2 million on the Dr Jagan Memorial football knockout tournament.

Conclusion
Unlike its approach to the 2008 report, Business Page will not examine in any detail the 2009 report which is unfortunately riddled with errors of various types. The extensive analysis on the 2008 report is posted on chrisram.net for those who are interested. Instead next week I will return to the issue of taxation.

Meanwhile this column shares with the Murray family its concerns about his illness and prays for his return to good health. He is absolutely indispensable to the debate on the finances of this country.

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VAT no burden? What does Jagdeo know

Introduction
In his press briefing on Friday, October 22, 2010, President Jagdeo said that he does not see the Value Added Tax as a burden and therefore there is no need to revise it with a view to lowering the rate. He sought to divert calls for a reduction in the rate of VAT by spinning the consistent increases in the VAT collection as a result of widening the tax net and because of the better performance of the economy over the years. This to me demonstrates how little respect Jagdeo has for the nation and its intelligence.

At one level Jagdeo is right, that he personally does not see VAT as a burden. Indeed he would have been just as right had he said he sees no tax as a burden. And for one very simple reason. He pays no tax in Guyana. Under section 13 of the Income Tax Act, his official emoluments are exempt from income tax. And section 6 of the Property Tax specifically makes that act inapplicable to the President while section 5 of the Capital Gains Tax says that if Property Tax does not apply, then neither does Capital Gains Tax.

Presidential tax planning
Because rental income is not official emoluments it was not tax efficient for President Jagdeo to lease his Pradoville One house, since the net rental would have attracted income tax at the rate of 33⅓%. So what did the President do? Instead, he reportedly sold the property for $120M that no more than two years earlier he had valued in a division of property matter with Ms Varshnie Singh at $10 million. On that transaction alone President Jagdeo saved in Capital Gains Tax approximately $22 million! If the property had been rented over a period of time to earn the same $120 million, then assuming that the maintenance costs were borne by the tenant, he would have had to pay $40 million in taxes.

In other words, the sale by President Jagdeo of his property, the land for which he received at a subsidised value from the state, has cost the tax system between $22 million and $40 million! See why everyone wants to be a president? And on a salary of $1.5 million per month, the state forgoes income tax of close to $10M each year.

In fairness to President Jagdeo, he did not write the tax laws of which he is now the major beneficiary. That was done by Mr Forbes Burnham, whom many describe in unprintable language. Despite their socialist claims, neither of the Jagans thought of repealing this generous piece of legislation. But what Mr Jagdeo has done is made what was a temporary, ex officio benefit into a life-long benefit. Below are the benefits under the former presidents legislation he signed.

Presidential burden
For the rest of his life, President Jagdeo – and all future presidents as well – will enjoy, at the expense of the state, a free and unlimited supply of water, electricity and telephone services to his Guyana home; unspecified numbers of clerical and technical staff, gardener, maid and personal staff; fully paid medical attendance and treatment for himself and family, without limitation; full-time personal security and services of the Presidential Guard Service; unspecified number of vehicles to be provided, all expenses and costs paid by the state; two first-class return airfares provided on the same basis as that granted to serving members of the judiciary.

Most of these benefits would be considered taxable for the rest of the Guyanese. But not for the President. And if you think this is bad, consider that under this act, he will never again have to pay capital gains tax or property tax in Guyana, not ever! The one good thing is that this legislation exists in an act which any later Parliament can amend or repeal. It is worth speculating whether Mr Jagdeo could take the country to court if the Parliament were to repeal this immoral and colossally expensive act. In fact, that is itself a burden.

Clearly then the President does not have to bother personally about the impact of taxes or even VAT. While Mr Jagdeo is a consumer and would therefore suffer VAT on some purchases, unlike other ordinary Guyanese, his take-home pay and his gross pay are about the same. For the average Joe, VAT at 16% would have to be paid out of income already taxed at 33⅓%.

Selling VAT
Not being subject to the country’s wide, deep and draconian menu of taxes, the President may have honestly felt that the VAT is no burden. But let us remember that for practical purposes, he is also the country’s economist-in-chief, is a big spender and knows something about money and the nation’s finances. He played a big role in selling VAT to the nation, the architect-in-chief of a VAT system introduced under his watch four years ago. Yes, we may have adjusted and adapted to VAT and its sister, Excise Tax, but let us not forget that they only came into existence on January 1, 2007.

Having pronounced on the non-burden of VAT, the President then makes what he considers a natural progression in his line of reasoning: there is no need to revise it to lower it. But here he is being disingenuous. He and his Finance Minister have been reminded about his own sweeping, unqualified and oft-repeated commitment to VAT being “revenue-neutral.” So memory lapse is not an excuse. The nation has helped to remind him even as the people plead for relief.

But it did not need an economist to know that VAT was almost instantaneously a burden. Ram & McRae had said in its Budget Focus 2008 that “at some point the law and the tax can become excessively burdensome.” The accounting firm added that “if this point had not been reached, we certainly are very close.”

Remembering GUYEXPO
There was however no need to consider what others said or felt. Just consider what the President and his Finance Minister have said and how they have danced in delicate step on the question of VAT. The President needs no reminder of his speech at the opening of GUYEXPO 2006 during which he repeated his government’s commitment to the revenue-neutrality of VAT when he announced: “We said from the very beginning that VAT should be revenue-neutral, we are not looking to increase the collection of taxes, increase taxes or the revenue base with the introduction of this tax.”

Or that on its introduction, the government was adamant that the rate of 16% was arrived at after careful consideration and that any concession to the pleas of the trade union movement, consumer groups and civil society would undermine the Value Added Tax. Finance Minister Dr Ashni Singh insisted in his mid-year report of 2007 that the tax was revenue neutral. In fact, if we go back some months before the presentation of that report, Dr Singh, rapidly demonstrating all the schemes and skills of a politician, and disparaging the members of the opposition for suggesting that there would be a windfall, made it pellucidly clear how the government had computed “revenue neutrality.”

On page 206 of the Hansard records of the February 15, 2007 sitting of the National Assembly dealing with VAT he said, “If we turn to table VI of the Estimates, we see that the actual collections from the taxes that were abolished with the introduction of VAT, generated a total revenue of $24.3B last year, and so if the actual collections for these taxes were $24.3B for last year, and the projected collection for VAT is $24.8B, I have great difficulty in understanding where, Mde Speaker, is the windfall? These are facts of the matter.”

Well, if revenue neutrality was the goal and commitment, Jagdeo and Singh have gouged the people of this country more than fifty billion dollars.

Dancing with the facts
Dr Singh had to slither a bit when the results for full-year 2007 became public. It showed that VAT and Excise Tax had exceeded budget by $12.6 billion, or 49%. In fact for VAT alone the excess was a staggering 76% but since the two taxes were linked by the government in its revenue neutral commitment, the correct measure was the 49% excess in the combined rate.

By then of course, both the President and the Minister of Finance were aware that the rate of 16% was in fact the result of a mistake which his government had discovered very soon after VAT’s introduction. But instead of correcting the mistake, the government, under pressure to modify the rate, extended a deceptive compromise by agreeing to monitor implementation and make adjustments as necessary to bring relief.

Pity the Poor
For consumers, this was no theoretical matter. VAT is a tax on them. If the tax is not properly formulated, it is a hugely regressive system of taxation because it is imposed on expenditure. The poor do not earn enough to save; they are more affected by VAT than those who earn enough to save. Let us forget for a while that the business class has also exploited the VAT and are the biggest VAT cheats. I have in my possession a single invoice issued earlier this year by a Berbice businessman that was not only in breach of the VAT Act but cheats the revenue of close to $100,000! And that is one invoice for one businessman on one customer.

Sorry about the digression. By the time of VAT’s introduction, the government had removed the lower rate of 20% for the first band of taxable income. The wretched poor and not so poor therefore found themselves in the same tax bracket as the better off folks, paying the same rate of personal tax on income – 33⅓% – and out of the balance were then forced to pay the incorrect, immoral rate of 16% on the VAT-able items of goods and services they consume, including the meal at the corner restaurant.

With all the cheats and cheating, VAT even with poor administration is a huge tax gatherer. And the IMF and the government tried their best and placed considerable resources in ensuring that the poor did not get away. Pity that the same effort was not placed against the VAT cheats that dominate our commercial centres and rural areas. VAT has continued to be a major revenue source and even in 2010 when we expect the economy to grow by less than 3%, VAT takings over the first half of 2009 were 9%. Despite this, the Minister expects the full year increase to be only 5%!

Table: Central Government Abstract Revenue by Head
G$ Millions

Source: National Estimates and Mid-year Report 2010

Conclusion
When the first year results of VAT became known, Ram & McRae confidently and generously said in its Focus on Budget 2008 after the size of the windfall became known that “it would now be immoral for the Government to renege on its commitment to adjust the rate of the tax to make it revenue-neutral.”

Since the year of VAT’s introduction, the economy has grown by 5.4%, 3.1% and 2.3% and for this year it is projected to grow by 2.9%. Compare that with the growth of VAT collection for the same years: 47.82%, 1.06%, 20.4% and close to 6%. But if you take what he said at GUYEXPO 2006, those things had nothing to do with revenue neutrality.

Once again President Jagdeo and Dr Singh have been caught out. I am not sure they care, however, well looked after as they are and with the peoples’ taxes available to silence critics and buy support. My own view is that VAT should be made into an election issue. I am prepared to consider casting my vote for a party that commits itself to correcting the dishonesty that has characterised VAT.

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Business Page statement derived from Bank of Guyana report

Mr Rajendra Rampersaud’s letter in Stabroek News, of October 27, 2010, ‘Ram’s analysis in relation to the exchange rate was flawed’ refers.

Citing data from the 2009 and 2010 half-year reports of the Bank of Guyana where Mr Rampersaud works, I wrote in last Sunday’s Business Page that the “exchange rate of the Guyana Dollar to its US counterpart depreciated by 0.25 per cent compared with an appreciation of 0.37 per cent at end-June 2009.” That came from their reports; it was not spun by me. And a single sentence that states that it is incorrect to measure a floating Guyana Dollar against only one other currency is hardly a harp – musical or otherwise – or self-serving – to whom or what I haven’t a clue.

I find it interesting that a country whose exchange rate management was practically dictated by the IMF for nearly twenty years is significant and unique enough to develop the concept of a “home grown, official” exchange rate. Mr Rampersaud should identify the experts in the Bank of Guyana and their reasons for deciding that the decades-old methodologies established by international financial institutions, central bankers and academics are inappropriate to Guyana. To use Mr Rampersaud’s word properly, both the IMF’s assessment and his reliance on it are a classic case of “self-serving.”

The statement in Business Page to which Mr Rampersaud refers, derives its support and basis from the June 2010 Bank of Guyana report, Table 9.2 (b) which shows that over the period December 2000 to June 2010 the Guyana Dollar depreciated against the US Dollar from $184.75 to $203.75 or 10.3%. In turn, over the period December 2001 to April 2010, the dates for which the Bank of Guyana provided figures, the US Dollar depreciated against the Canadian Dollar by 36.5%; the Euro by 33.8% and the Pound Sterling by 5.4% (Table 9.5). I can understand why Mr Rampersaud would wish to avoid such realities. What I cannot understand is why he would consider such statistics and analyses necessary in a newspaper column dealing with national accounts.

Let me put it another way. Based on the selling rates by Guyana’s leading commercial banks, at December 31, 2000, it took G$120.63 to buy one Canadian Dollar. Today it requires $191.27. That is a 58.6% change. At December 31, 2000, it took G$267.28 to buy one pound Sterling. Today, that will cost $298.57, a downswing of 11.7%. At December 31, 2000, it took G$185.65 to buy one US Dollar. Today, that requires $203.70, some 9.75% more, proving the point that the US Dollar has lost against those three major currencies. For the average Guyanese buying Canadian Dollars, official exchange rate stability is a mirage.

Finally, it may seem a small point, but as an economist with the central bank, Mr Rampersaud should know that the Bank of Guyana Act abolished cents since 1998. He should know as well that professionals and technocrats do the public a great disservice by being careless, incorrect or recklessly disregarding accuracy.

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Mid-year report and the Debt party (no pun intended)

Introduction
Almost invariably in discussing recent mid-year reports which the Minister is required to present to the National Assembly under Section 67(1) of the Fiscal Management and Accountability (FM&A) Act 2003, I have made two broad prefatory comments. The first is that it is always misdated.

The Act requires that the report be presented “within sixty days” after the end of the half-year. The second is that comparing it with the half-year report of the Bank of Guyana submitted to the Minister of Finance long before he completes his own report, is like comparing cheese with brick. In content, comprehensiveness and quality they are poles apart.

In 2007, the first full year of tenure of this Minister of Finance the mid-year report was not presented until late November. Subsequent years have seen some wide disparity, none of which however met the deadline, notwithstanding the mis-stating of the date on the reports themselves.

This year the Minister, who was cited by AFC MP attorney-at-law Khemraj Ramjattan for misleading the National Assembly in the small matter of the payment of $4 billion to GuySuCo, dates his report August 27, 2010 two days before the statutory deadline. Until I’m convinced, I shall withhold my congratulations for timely presentation.

As readers are aware the Speaker of the National Assembly Mr Ralph Ramkarran said he did not find a prima facie case against the Minister in the GuySuCo matter although he did find one against the Minister of Housing and Water, despite the Minister of Finance being at least an accessory if the accusation is in fact upheld.

However, it must also be said that the Minister does his reputation no good by the wide disparity between the dates he places on the reports and the dates on which they are tabled.

Breaks and gaps
Since it is routine for reports to be lodged with the Parliament Office between recesses, the Minister would be well advised to lodge the report as soon as it is completed, and issue a press statement to that effect. He can add that “unfortunately, the contents of the report cannot be released until I have had the opportunity to lay it in the National Assembly.” He must also not issue any instructions to the Bank of Guyana or the Bureau of Statistics to withhold their own publications until his report is tabled.

To place in some context what the report should include but does not, I can only draw attention to the concluding part of my commentary on the 2009 mid-year report published in December 2009. I noted there that the mid-year report required more than the year-to-date execution of the annual budget. It requires the report to set out the prospects for the remainder of the year. It also mandates the inclusion of a revised economic outlook for the rest of the year, a statement of the projected impact of the trends on the remainder of the year, and very importantly, a list of major fiscal risks for the second half of the year with likely policy responses that the government proposes to take to meet the expected circumstances.

It was clear then and is more egregious now that the report presented by the Minister falls very short of the requirements of the Act. The result is a report of very limited use and, for any serious reader, when compared with that of the Bank of Guyana, of no practical use.

The best and the brightest
As if to prove that one can fool some of the people all the time, some time in early July, the Parliamentary Sectoral Committee on Economic Services suggested in its fifth Periodic Report that it was likely to recommend that the National Assembly extend the deadline for the submission of the mid-year financial report by the Finance Ministry.

The report suggested that a recommendation be made to the National Assembly that the FMAA be amended to allow for the extension of the deadline for submission to October 9 to coincide with the end of the parliamentary recess. In fact, the committee noted that all the data necessary to compile the mid-year report would not be available by the end of June/early July. Well how much more misinformed can a parliamentary committee be! The deadline is the end of August, not June or July and the committee must have heard of the billion dollar software (IFMAS) in which the government has invested that allows for considerable real time data availability.

And while that ill-informed suggestion would have been music to the ears of the Minister, it is clearly not reading from the same song-sheet as the Chairperson of the Public Accounts Committee Chairperson, Ms Volda Lawrence, who in relation to the 2007 report called the delayed report scenario “gross disrespect” for the people of Guyana and said that it was time people stopped taking such behaviour sitting down.

For purposes of this column and for reasons mentioned in the first paragraph, this column relies on the report of the Bank of Guyana rather than that of the Minister, although it must be said that unlike 2009, the two reports agree on the GDP growth statistics.

Growth
The economy showed what the Bank of Guyana described as modest growth of 2.8 per cent during the first half of 2010. Significantly, the government has now revised the budgeted growth in 2010 from 4.4% to 2.9% for the full year. This would represent the lowest rate of growth in the economy since 2006. In his report, the Minister gave no reason for the significantly lower growth projections, a lacuna that pervades his entire report. And to ensure that they rhyme this year, the Bank of Guyana also projects a 2.9% growth for full year 2010 without indicating whether this is its own estimate of merely a repetition of the Minister’s.

The National Income Accounts was last year rebased to 2006 and until some pattern has emerged it is difficult to assess any one of those indicators.

It would have been useful for the Minister to comment on the impact of the rebased national accounts on the growth statistics particularly in the light of the attention and issues raised by Professor Clive Thomas in his recent columns under captions such as ‘Magnification or manipulation’ and ‘Statistical illusion or real changes’ in the Sunday Stabroek of October 3 and 10, 2010 respectively.

The growth in the economy was attributed to improved performances in the agriculture and services sectors. The livestock and bauxite industries experienced a decline in output while a stable performance was registered in the manufacturing sector.

Bitter sugar
For the first half of the year sugar output was 81,864 tonnes, 1.8 per cent lower than the level at end June 2009 – the year of the turnaround plan – and represented 29.0 per cent of the 280,000 tonnes targeted for 2010. The Bank of Guyana explained that the adverse outturn was due to unfavourable weather conditions in the first quarter of the year which affected cane transport, replanting and irrigation of planted canes.

From an original 2010 target of 280,000 tonnes, the Minister of Finance has announced a revised target of 260,000 tonnes, which would confuse the GAWU members who are being told that their target is 264,000 tonnes. This is not the only confusion in the industry. While the Minister of Finance announces that “works continue on the turnaround plan which would see the realisation of increased acreage under cultivation and improvements in the cane to sugar ratio, the President is expressing fears about the future of the industry due to the failures of “a few individuals.”

Rice output was 168,267 tonnes, 4.6 per cent more than the corresponding 2009 level and represented 49.0 per cent of the 343,373 tonnes target for 2010. The improved performance has to be seen however against the significant amount of “government assistance,” a euphemism for subsidy to the sub-sector, to cushion the effects of the dry weather spell.

Bauxite, another industry that receives wide and valuable government support, saw a decline in its performance which helped to produce in the mining sector a 4.1 per cent decline in growth in real terms. The Bank of Guyana explains that the outcome reflected the decrease in bauxite and diamond output, due to the fall in demand and the “decline in motivated workers.” One cannot but help notice the contrasting attitude of the government to rice/sugar and bauxite, although the government would stoutly challenge any suggestion that ethnicity and politics play a part.

Gold and dollars
Gold again remains an outstanding contributor to the economy and but for its performance the real economy would more than likely have experienced negative growth. Yet, the government continues to hem and haw and dilly-dally on recognising that gold-mining is a key sector that warrants serious attention.

Total gold declarations increased by 8.1 per cent to 142,212 ounces and were 46.0 per cent of the 311,816 ounces targeted for the year. Gold remains by far the largest single export earner with export receipts amounting to US$146.7 million, 22.4 per cent or US$26.8 million more than the June 2009 level. The average export price per ounce increased by 26.3 per cent to US$1061.2 per ounce while export volume declined by 3.2 per cent to 138,242 ounces.

After a much-hyped improvement in the exchange rate of the Guyana Dollar to its US counterpart, the Guyana dollar, vis-à-vis the US dollar, depreciated by 0.25 per cent compared with an appreciation of 0.37 per cent at end-June 2009. According to the Bank of Guyana, the relative stability of the currency is supported by an adequate flow of foreign exchange to the market. It did not add however that the US Dollar itself has been depreciating against some major countries, so the comparison of the Guyana Dollar to the US Dollar is not an accurate measure.

A seemingly unrelated issue is the attraction to keep money in Guyana rather than converting and exporting it to another currency. Interest paid to holders of bank deposits decreased by 17.0 per cent in 2010, showing increases in domestic expenditure. This means that while depositors’ funds in the banking system are increasing their returns are decreasing. That cannot be good news either for the exchange rate or depositors, though it must be added that the extent of the decrease is quite surprising.

Other issues
The NIS also gets a mention by the Bank of Guyana but not the Minister under whose portfolio it falls. The National Insurance Scheme’s (NIS) receipts grew by 12.3 per cent to G$5,328 million as contributions rose by 9.7 per cent to G$4,633 million, and receipts from debtors grew by 91.3 per cent to G$437 million. While the decline in investment income by 10.8 per cent to G$259 million gets a mention, nothing has been said of the increased benefit payments and the status of the 2008 financial statements and annual report. These are languishing on the desk of the Minister of Finance and not being tabled in the National Assembly as the law requires, an indirect casualty of the Clico debacle.

And the debt spree continues as both domestic and external borrowings continue into the stratosphere. The stock of domestic and external public debt increased by 13.2 per cent (to G$94,760 million), and 12.1 per cent (to US$966 million), respectively from end-June 2009 level. The former is attributed to an increase in the issuance of treasury bills to sterilize excess liquidity, while the latter is due to disbursements from the IDB and bilateral credit delivered under the PetroCaribe Initiative. Both domestic and external debt services were higher on account of higher principal and interest payments.

External debt service increased by a substantial 80.4 per cent to US$12 million from its end-June 2009 level, made up of principal and interest payments amounting to US$6.4 million and US$5.8 million respectively.

The cost of carrying GuySuCo and other public sector entities while the government itself engages in some seriously costly and wasteful expenditure, is borne out by the overall cash deficit of Non-Financial Public Enterprises (NFPEs), including the Guyana Power & Light (GPL) and the NIS. This increased to G$5,026 million at end-June 2010 compared with a deficit of G$721 million in June 2009.

The result of these is that current operating cash balances of the NFPEs moved from a surplus of G$2,298 million to a deficit of G$2,097 million at end-June 2010. This decline was mainly due to a 26.7 per cent increase in expenditure which more than offset a 14.0 per cent growth in revenue.

That perhaps, even more than over-taxing the people of this country, is the story of the financial management of the public sector of Guyana in the first half of 2010.