King

Should the Government levy GCT on a basic food item, such as bully beef, necessary for survival, consumed by poor, possibly unemployed, struggling single mothers? Yes.

And if you happen to be a struggling single mother, you should be all for it.

First of all, let's all agree at the outset that the Govern-ment has a duty to help the poor.

After all, there but for the grace of God ...

Rather, the issue we are going to address is efficiency. Efficiency is a straight-forward calculation of what proportion of your expenditure reaches the intended target.

Suppose, by way of a hypothetical example, the government decided to distribute baskets of food to alleviate poverty.

Misuse of public money

Let us suppose further that, after implementation, an audit of the programme revealed that for every basket that was delivered to the deserving folk in Southside, six baskets were inadvertently delivered to some rather less deserving residents of Cherry Gardens.

So if 700 baskets had been distributed, 600 of them ended up in the wealthiest households.

There would be widespread agreement that the programme was a massive misuse of public money. Everyone would call for its abolishment.

Only it's not hypothetical.

The revenue foregone from the GCT exemption on bully beef has exactly the same effect as our hypothetical example.

Data from the annual survey of living conditions reveals that, in 2006, the poorest 20 per cent of households consumed $87,000 of the food category that includes canned bully beef.

At the same time, the wealthiest 20 per cent of households wolfed down $550,000 worth of the stuff. To put it another way, for every can of tax-subsidised bully beef bought by the poor, the very wealthiest amongst us bought six cans.

The inescapable conclusion is that the GCT exemption has been mostly subsidising the consumption of the wealthy. Scandalous, you say.

But there is more. The exemption creates an opportunity for slippery merchants to hide imports and sales of taxable commodities under the guise of the tax-exempt ones.

The exemption facilitates tax evasion. Only the shopkeeper really knows how many taxable canned mandarin slices he sells compared to the amount of tax-exempt bully beef.

Inconvenient truth

A comparison of the total number of bags that enter the country as GCT-exempt 'school bags' with the actual bag needs of the number of enrolled students reveals an inconvenient truth: twice as many bags enter as the reasonable needs of the school population. If roughly the same level of corruption attends the importation and sale of food items, then the government is likely losing GCT on another $550,000 of foodstuffs that bear no resemblance to bully beef. None of this benefits the poor.

Altogether, then, for every $100 of revenue foregone due to the GCT exemption for bully beef, only a shade over $8 is benefiting the truly needy. That's not particularly efficient.

And how does the Government replace the wasted $92 of revenue? There are only two options. Either the tax is collected on something else or it is not collected at all. If not, the equivalent amount is added to the amount that government has to borrow every year to make up for missing revenue. So, you and I, rich and poor alike, are paying for subsidising bully beef consumption mostly by the wealthy and for facilitating evasion by the corrupt.

This argument could be made for any of the items exempt from GCT. The wealthy consumes more of all of them. This should come as no surprise, since the wealthy, by definition, can afford more. Consider, as another example, that the biggest beneficiary of the GCT exemption on computers is probably Scotiabank (big, profit-making, foreign-owned corporation).

The daily struggle

But do the poor necessarily have to suffer along with the rich when we remove the exemption? Not at all. The objective, remember, is to ameliorate the daily struggle of the poorest and neediest. Well, there are better ways to do that. Public health, public education, public transportation, and the PATH programme are all accessed overwhelmingly by the poor. So if that $100 of foregone GCT were instead used to expand the school feeding programme, providing breakfast at some of our public schools, almost all of that expenditure would actually reach the poor. No resident of Cherry Gardens has slipped into the PATH programme. Not even one.

So the poor should take to the streets in protest. Not because GCT has been put on bully beef, but because it is still left off so much else.

Damien King lectures in economics at the University of the West Indies

damienking@gmail.com