In last week’s edition, the author put forward an interim – creative solution that can be considered to render some degree of financial relief to firms – small and medium sized firms (SMEs) in particular, and individuals affected as a result of the COVID-19 pandemic, coupled with the political impasse.
To this end, it was suggested that the Bankers Association, in partnership with the Ministry of Finance (MoF), Ministry of Business (MoB), National Insurance Scheme (NIS), and the Small Business Bureau (SBB), can establish a COVID-19 Relief Fund to the tune of about $10 billion.
The author wishes to dedicate today’s column to offer a critical analytical perspective in response to an article carried in the Guyana Chronicle on April 23, 2020 by Mr. Rawle Lucas, entitled “economic treatment by triage”. In that article, Mr. Lucas sought to address the economic impacts of COVID-19 on Guyana, which was a good read, save and except for his proposed solutions on how to address the pandemic, which he described as a national emergency. In this regard, Lucas suggested that the private sector with deep pockets should be part of the solution to rescue the economy by delving into their cumulative retained earnings in exchange for future fiscal and monetary benefits. Lucas went on to quantify this by arguing that a total of six such corporations’ cumulative earnings was equivalent to 40 % of the private sector’s deposits in the banks, using 2018 figures.
First, it is important for readers to understand that cumulative retained earnings do not necessarily mean that companies have that amount of liquid cash in the bank. In fact, retained earnings do not represent surplus cash remaining after paying dividends. Rather, retained earnings demonstrate how companies utilized profits earned.
Now, let’s contextualize Lucas’s proposal: In 2018, total private sector deposits were $284.5 billion; therefore, he is suggesting that private sector companies have 40% of this amount sitting in the bank, which is $114 billion. This is not the case. If one were to peruse the Bank of Guyana report, under the table with Commercial Banks’ total Deposits, there is a column with total private sector deposits, confirming this figure. However, this total deposit is made of individual deposits, which amounted to $218.2 billion, and private enterprises’ deposits, which amounted to $66.3 billion. Hence, this author is hard pressed to conclude that Mr. Lucas sought to intentionally mislead the general public and/or paint a disingenuous picture that the private sector has the capacity to bail out the economy during this crisis period. This is an absurd idea; and, moreso, that is the job of a Government. The private sector has already stepped up, evidently, in doing its part to help cushion the effects.
Second, if one were to peruse the Bank of Guyana’s Annual Report for 2019, income taxes paid by private companies for 2019 amounted to $40 billion, individual income taxes amounted to $29.2 billion, and withholding taxes amounted to $22.1 billion, giving rise to a total of $91.3 billion. This does not include trade taxes, which amounted to $25 billion, and VAT and excise taxes, which amounted to $96.5 billion.
The total Government revenue for 2019 amounted to $240.5 billion, of which corporation taxes and individual income taxes accounted for 29 percent of total revenues.
With this in mind, Mr. Lucas’s proposal is hugely impractical, and irrational when examined from the perspective of the uncertainty of the crisis and the potential gravity thereof, if the economy — and by extension the global economy — remains partially closed. This, in turn, will certainly affect international trade and the production of goods and services. At the end of the day, the private sector and individuals collectively pay billions of dollars in taxes, and therefore cannot be expected to do the job of a Government.
In next week’s edition, the author shall examine fiscal relief measures implemented by other countries around the world in response to the pandemic. This series will then conclude with a customized menu of options that can be adopted in the context of Guyana.
