The PSWG wishes to commend the Government’s commitment to fiscal discipline in the paramount effort to reduce the stifling burden of Jamaica’s national debt obligations. We acknowledge the prudent targeting of a 6% primary surplus and recognise that such a target will have significantly limited the Government’s ability to implement the level of reform recommended by the PSWG in the short term.
The PSWG has noted the revenue measures recently announced by the Honourable Minister of Finance as well as the barrage of criticism that a number of these measures have attracted. Some of these criticisms are entirely valid. Other are less so and do not serve the national interest where they merely seek to “rubbish” measures as tabled or tout alternative measures which are clearly not viable as a panacea to our country’s challenges. The PSWG encourages healthy and respectful debate but, as exhorted by the Minister, any alternative solutions presented must be capable of providing the required revenues.
In this regard the PSWG recommends that the Government give careful consideration in the future to the following possible alternative revenue measures:
Employers Contributions to the National Housing Trust
Our understanding, from a preliminary review of the financial statements and operations of the NHT, is that the Trust has accumulated significant capital surpluses such that its ability to achieve its mandate would not be affected by a “contribution holiday” in respect of employers’ contributions for a defined period. It is critical to note that this would not involve any distribution transfer of funds from the NHT to the Consolidated Fund. The NHT’s resources would remain intact and the Trust would continue to receive employee and self-employed contributions during the holiday period. During the contribution holiday, the requirement for employers to make contributions to the NHT would be suspended and for the duration of this defined period, employers would be required to a corresponding increased amount of Education Tax. We estimate that such a measure would make additional resources of J$12 billion available to the Government, which could make a significant difference to its ability to implement comprehensive reform while ensuring that the Trust remains within established safety margins.
We are firmly of the view that these resources can be better utilized in accelerating the implementation of the GOJ tax reform agenda in this fiscal year. We note that the Government of Jamaica (Central Government) has enjoyed a cash contribution holiday for the last 10 years without any interruption of benefits to the public sector employees and note that the GOJ required contribution this year based on a wage bill of approximately $150 billion is $4.5 billion dollars.
We also note with concern that the NHT intends this year to embark on an accelerated program of subsidies on houses as well as housing grants to contributors. The amount of this benefit is $3.2 billion. We feel that expenditure of this magnitude, which amounts to non-refundable benefits to contributors, requires a more considered policy review given our scarce resources and the current inability of the Government to fund the basic needs of the population.
Reduced Rate of GCT on Basic Foods etc.
The Government has opted to initially reduce the GCT rate by 1% to 16.5% and remove a range of exemptions in order to yield an additional J$2.2 billion in annualised revenues. This contrasts with the additional J$5.6 billion in net tax revenues (over 150% more) which would accrue from the PSWG recommendations to reduce the GCT rate by 5% to 12.5%, remove most exemptions on goods, and immediately allocate a further J$2 billion to social intervention measures. This comparison underscores the cost of our current system of GCT exemptions when compared to the use of targeted social intervention measures to protect our most vulnerable citizens.
The Government has signaled its intention to reduce the GCT rate further and widen the GCT base over time as social intervention measures are strengthened. This is welcomed by the PSWG. In the meantime however, retaining the exemption for some basic foods while imposing tax (at 16.5%) on other basic foods (e.g. competing or substitute goods) creates competitive distortions among these goods and will adversely impact the prices of both. Furthermore, the imposition of additional GCT (which is not recoverable) on key inputs used in the production of GCT-exempt products by local producers will need to be passed on in the pricing of these products thereby making them more expensive to the consumer and less competitive against competing imported products.
Rather than a partial narrowing of the list of GCT exemptions announced, the PSWG recommends for consideration, as a stepping stone towards a single lower GCT rate across a broad base, the replacement of the current exemptions with a lower positive rate of GCT to be applied to a comprehensive but more tightly defined list of basic food items. Local producers of all these products would then be able to recover GCT on their inputs thereby enabling them to price their goods more competitively. Such a measure would also have the effect of softening the impact of reform on the most vulnerable.
Imposition of Tariffs on imports from CARICOM
It is our preliminary estimate that the Government of Jamaica, under the terms of its membership of CARICOM, and based upon 2010 import data, foregoes approximately $9.4 billion annually in import duties (Customs and ASD) that would otherwise be levied on imports from other Caricom states, most notably Trinidad & Tobago.
We believe that in Jamaica’s current circumstances these are revenues that we can ill-afford to forego, and particularly so in light of the acknowledged extent to which Trinidad and Tobago currently provides energy subsidies to it producers and throws up other “non-tariff” barriers in the way of Jamaican imports, all to the detriment of our local producers. Again, realisation of some of these foregone revenues on an annual basis would go a long way in providing the fiscal space necessary for meaningful and comprehensive reform as well as helping to counteract the competitive disadvantages currently faced by our local producers within the current CARICOM single market. It is recognised that this matter, relating as it does to international treaty obligations, will need very careful analysis and due consideration before any action is taken. However in Jamaica’s current circumstances we believe that all options should be “on the table.”
Finally, as the current budget debate proceeds to its conclusion, the PSWG is very pleased to have played a significant role in eliciting an unprecedented level of public debate and engagement around this very important national public policy issue. We understand that tax reform is a process and not a one-time event, and stand ready to engage constructively in the national interest to achieve implementation of a taxation regime that is equitable, promotes economic growth and job creation, is characterized by simplicity and fairness, and is administered in an efficient and effective manner.
For further information, please contact:
Violet Vassell (Miss)
The Private Sector Organisation of Jamaica
927-6238 ext. (o) 878-2819
2012 June 4