As Guyanese analyse the Budget for 2013 it is useful to compare some of the numbers with how they are presented and received. There is no group which has welcomed the Budget more than the Private Sector Commission, one representative describing it as our (PSC) budget.
Let us take the apparently straightforward example of the reduction in the rate of personal income tax from 33⅓% to 30%. Readers will note that not only do individuals not have the benefit like dependents allowances while companies are allowed to deduct almost all their expenses, but the individual is still paying the same or higher rate of tax than non-commercial companies do, that is 30%.
If we exclude the personal allowance of $50,000 per month an individual’s nominal and actual tax rate is the same: 30%. Compare this with say GBTI whose nominal corporate tax rate is 40% but which enjoys a host of tax shelters. Its effective corporate tax rate for 2011 is 26.82%. Shareholders of GBTI pay no tax on dividends while its employees pay 30%. Even if we say that the company and the shareholder are the same – which it clearly is not – the shareholders’ tax rate is 26.82%. That is inequitable.
But let us get back to the benefits of the reduction in the rate of income tax and the increase in the rate of NIS, both of which impact on take home pay, or as the PSC says, spending power. In dollar terms, for each $10,000 earned by the worker the tax saving is $333. It means this: the worker who was earning $50,000 per month at December 31, 2012 gets nothing out of the budget; one who earned $60,000 per month takes home $333; one who earned $80,000 takes home $680 more, etc. The earliest point at which the increased take home pay exceeds $10,000 per month is for employees earning $380,000.
Note that I have not taken the projected inflation of 3.5% for 2013 into account. If that is done the income level at which there will be a net saving is for employees earning $296,000 per month. All persons earning below that income per month will actually be worse off.
The PSC is right: this is a watershed budget – but not for the poorer person.