Shortly after Dr. Jagan's return from the USA and Canada where he tried to obtain loans to be used as developmental capital, anti-government forces, particularly the UF, openly urged owners of businesses and the upper class section of the society to withdraw their savings from local banks and send them abroad. This happened because these people believed the UF propaganda that the "communist" PPP would seize all their property and savings.

To halt the flow of money out of the country, the PPP Government was forced to enact a law prohibiting the export of liquid assets, and controls were established over the changing of the Eastern Caribbean dollar, used in Guyana, into foreign currency. The political opposition and its press immediately denounced this action as dictatorial.

The financial problems brought about a crisis between the Government and the civil service employees. Most civil servants were generally conservative in outlook and they were easily influenced by the anti-communist propaganda and, therefore, were not sympathetic to the financial problems that the Government was encountering.

The Civil Service Association (CSA), which organised the higher paid civil servants, had asked for salary increases even before the 1961 elections. In response, the British Government had appointed the Guillebaud Commission to investigate their demands; it shortly afterwards recommended substantial salary increases amounting over $2.5 million. The Government delayed its acceptance of these recommendations because it did not have the money to pay. However, after negotiations with the CSA which threatened strike action, the Government conceded but modified some of the proposed increases. This naturally caused resentment in the ranks of the unsympathetic CSA.

The Federation of Unions of Government Employees (FUGE), representing the lower paid Government employees, also demanded wage increases to which the Government agreed, but the FUGE and the Government could not reach an agreement on the date to which the increases would be retroactive.

Both the CSA and the FUGE were members of the TUC whose President was Richard Ishmael, a rabid anti-communist. The TUC was bitterly opposed to the PPP Government since many of its leaders were closely connected to the PNC and the UF. Shortly after the 1961 electoral victory, a TUC leader had travelled to New York to meet with AFL-CIO leaders, including Serafino Romualdi of the AFC-CIO International Department and George Meany, to plan attacks on and to overthrow the PPP Government. (It was revealed later that both Romualdi and Meany were associated with the covert operations of the CIA to destabilise the PPP Government in the early 1960s).

On the 31 January, 1962 the Government introduced in the House of Assembly a budget to provide the money needed to meet the wage agreements with the CSA and the FUGE (amounting to about $4 million). The budget was also aimed at strengthening the country's financial position. The Government announced that no action would be taken on the budget until 12 February so that the public would have enough time to study it.

In addition, the budget planned to raise money to finance an industrialisation programme to help solve the urban unemployment problem. Roughly, the Government needed to raise about $110 million to help meet this need.

The budget proposals were based on the recommendations of the Cambridge-educated economist and tax consultant, Nicolas Kaldor, whose services had been obtained by the United Nations. Kaldor had advised the Governments of India and Ghana, among other developing countries, on the restructuring of their tax systems. The proposals of the budget were aimed at preventing the unnecessary outflow of capital; blocking loopholes in the tax system; preventing the evasion of tax payments; and improving the balance of payment position.

The tax proposals included:

1. A net wealth tax at the rate of 0.5 percent of net wealth above $50,000;

2. A gift tax to prevent evasion of death duties;

3. Introduction of a scheme on compulsory savings on earnings in excess of $100 per month, or 10 percent of incomes and profits made by self-employed persons and companies, respectively. The money was to be invested in Government bonds bearing 3.75 percent interest annually and was to be tax-free and redeemable after 7 years;

4. A direct tax on luxuries and semi-luxuries which were mainly imported, and also on tobacco, alcoholic drinks and beverages.

In addition to these main proposals, a law was enacted which assumed a minimum profit of 2 percent on total sales turnover. This was aimed at those persons who evaded income tax by making false accounts and perpetually showing losses.

The budget won approval in many circles. The New York Times said in an editorial that the budget was courageous and economically sound. The London Times in a leading article observed: "The immediate problem for the Prime Minister, Dr. Jagan, is how to win some acceptance for his economic proposals which are courageous and certainly not far from what Guiana must have."

Despite such praise for the budget, it was immediately attacked by the opposition which claimed that it was "anti-working class" and "communistic" and would place a heavy tax burden on the working class. However, the increase in the cost of living as a result of the proposals would have been very minimal. This would have been offset by far by the benefits the development programme would have granted to the people.

But what really caused alarm was when the merchants and other businessmen raised their prices for commodities and blaming the price increases on the proposed taxes. Many of these merchants and businessmen were supporters of the UF and they planned to oppose the capital taxes by determining not to pay them.