In whose interest?
January 20, 2007
There is little to believe that the PNCR, if gifted with political power, will do any better than its dismal record of the past. Considering the hollow proposals that frequently spring forth from that party, it would be to the demise of this country if that party were again to be shouldered with the responsibility of leading this nation.
Take, for example, the PNCR's intemperate call for the country to be shut down for two days to protest casino gambling and the effects of the implementation of VAT. One would have expected that, for a party seeking to regain credibility and legitimacy as a political movement, the main opposition party would shy away from such vocal histrionics.
Why does the party want to shut down the country for two days? Is it because there is a door -- the leadership door -- within Congress Place that is constantly being flung open, and therefore this call to shut the country down is simply to deflect attention from the constant opening and closing of this door? Or is the PNCR simply being responsive to the interests that have historically benefited from that party?
I can assure the PNCR that those interests are most likely not going to be satisfied with a mere reduction in the rate at which VAT is charged.
The PNCR has called for the effective rate of VAT to be eight per cent without establishing how it arrived at that figure and on what basis it feels that an eight per cent VAT would establish revenue neutrality.
The VAT replaces consumption tax, on which in excess of four hundred items were taxed at 30 per cent. The fact that these items were taxed so high indicates that the bulk of the government revenues are concentrated around items that attract high rates of taxes. So that even though items such as fuel, alcohol, and cigarettes still maintain high taxation, there is also a considerable amount of government revenues that are gleaned from items that previously were taxed at 30 per cent for consumption tax purposes.
How then does the PNCR expect revenue neutrality by reducing the rate to eight per cent? Will the PNCR, in turn, support other countervailing measures, such as an eight per cent VAT on books and computer hardware as well as an 8% tax on all those items now zero-rated to help offset the massive losses in revenue resulting from an eight per cent VAT rate?
The PNCR is playing politics when it asks for VAT to be introduced at eight per cent. One suspects that, like so many other things, the PNCR simply arrived at eight per cent by halving the existing VAT rate of 16 per cent. While this may not be too scientific, it at least provides the party with a basis for calling for protests, even though in principle the PNCR has always supported VAT.
It is terribly ironic that the PNCR should find itself in this position. The problems that have developed with VAT are not directly due to the rate at which VAT is applied but, rather, the manner in which some businesses have adjusted their prices on what they claim is old stock.
The PNCR knows this fully well, since it was the PNCR that had urged that some consideration be given to importers with old stock.
Reducing the rate of VAT to eight per cent will not bring relief if businesses opt simply to add on the VAT to prices without passing on any reduction to consumers, as was the case in many instances when VAT was first introduced.
VAT has encountered hiccups, not because of the rate at which it was implemented, but because certain assumptions were made, including the assumption that businesses would pass on savings to consumers, assumptions that did not materialise.
What will an eight per cent VAT rate do, therefore, when there are so many imperfections within the market? It will simply mean that in those cases where the prices rose by 16 per cent, they would rise by eight per cent. This may be the lesser of two evils, but by no means would it give justice to consumers, many of whom did not expect that the prices of some items would have increased.
The PNCR's solution would not, therefore, solve the problem of benefits not being passed on to consumers.
The teething problems of VAT will eventually resolve themselves. Prices will gradually be reduced as more and more importers bring in new stock. Unlike many people, I am not convinced that old stock is entirely the problem.
I believe that large sections of the business community cannot live with VAT because VAT will mean that many who were not paying their fair share of taxes will now have to pay their fair share, and this is not something that anybody wants.
Parties like the PNCR and the PPP have always claimed that they were working class parties; but if you study these parties closely, you will understand just who benefits from their policies.
During the long socialist reign of the PNC, despite the pretensions of having a workers' state, the class that benefited the most from the PNC's stint in power was a class of rich families, who were always close to the government and to the party.
The PNC did not make the small man a real man. When the PNC was in power for twenty-eight years, a handful of small, wealthy families made a great fortune, which allowed them to buy up a great deal of property and land holdings in the country.
Citizens, therefore, must understand the class nature of political power. While the working class may feel that there is legitimate cause to march against VAT, they should also see the other side of the equation, and ask whose interests would be better served if VAT is vetoed.
Would it be the workers or the rich families that have historically reaped the benefits of the policies of the ruling class?