Poor tax revenue intake fits weak economic growth
Last Friday, as I listened to 'Nationwide at 5' on the radio, two economic items topped the station's major newscast.
One was about the almost $9.7-billion tax collection shortfall for the period April to December 2014, with company tax of $6.6 billion being the worst culprit. The company tax underperformance in December alone totalled $2 billion.
Co-chair of the Economic Programme Oversight Committee (EPOC), Richard Byles, expressed disappointment with the tax revenue collection numbers, but repeated his upbeat overall assessment published in an article in the Financial Gleaner with EPOC's CommuniquÈ No. 21 earlier that day.
The EPOC co-chair was quoted as emphasizing that "inflation is very moderate, the trade deficit is closing up, employment is rising and tourism - a very important sector for Jamaica - is growing at a pretty good pace".
His comment that inflation is 'moderate' is true, for Jamaica's 6.4 per cent for the year, relative to Venezuela's 60 per cent, which is an important trading partner, but still high compared to that of the United States, another major trading partner, which recorded average inflation of one per cent last year.
In the second headline item in the newscast, Professor Archibald McDonald - the principal at the UWI Mona campus and a very experienced medical practitioner who joined the department of surgery at UWI in 1987 - gave a very biting assessment of sectoral poverty relating to medical students, with, according to my recollection, Prime Minister Portia Simpson Miller in his audience. I imagine she was seated in the front row, or on the platform with the professor, as he bemoaned the fact that many very bright Jamaican students are totally incapable of studying medicine at the UWI because they and their parents are too poor to afford it.
The Financial Gleaner article gave this quote as Richard Byles' summation of the economic quarter to December 2014: "So, generally speaking, I would say we are pleased with the performance of the economy and it is showing some recovery, after so many quarters of difficult struggle".
Those medical students to whom Professor McDonald referred as being unable to attend studies at his campus are not nearly as pleased as the people who represent the "we" in Mr Byles' comment.
The EPOC CommuniquÈ No. 21 lists some telling numbers which make the last quarter results mixed, at best. EPOC said the fiscal performance was "disappointing" because expenditures exceeded target by $2.5 billion, while revenues and grants fell short by $3.4 billion.
We have a very strange inefficiency disease in Jamaica in that we, time and again, cannot get our bureaucratic act together to claim non-interest bearing grants. Grants are money from taxpayers of other countries doled out to us for free by their governments - and we often refuse to do the paperwork and meet basic requirements to get the money!
Well, in December alone we failed to claim $1.8 billion in grants. The EPOC co-chair was clearly concerned, in that his team has asked the Ministry of Finance to account for the inadequate drawdown and essentially to pull up their grant-taking socks.
Grants are not the only free or cheap money we fail to draw down. Government entities like the National Water Commission fail, perennially, to draw down on low-rate IDB loans which are badly needed to fix our decrepit and very leaky public water supply and wholly inadequate sewer systems.
A major area of concern is the continuing underspending for the fiscal year to December. Recurrent expenditure was $6.8 billion below budget and capital expenditure underspend topped that at $8.3 billion for a total of $15.2 billion spending shortfall for the nine-month period. The EPOC report said "this more than compensated for the revenue shortfall and helped the Government to surpass the targeted primary surplus." The translation of that is: squeeze poor Jamaicans to pay them - 'them' being rich lenders, many based overseas.
One is not here suggesting that lenders are not to be paid; we did borrow the money. But the way the text is written, the effect on people and on economic growth of this shortfall in capital and recurrent spending is completely strained out of the prose.
Government has been taking 'unauthorised loans' from businesses and individuals for a long time and through almost the entire tenure of this administration. It is done by making inordinately long delays in paying suppliers, contractors and even government employees.
Well, the chickens have come home to roost. It is well known among people in business in Jamaica that they are extremely short of cash. One way to keep afloat until - we all hope - the economy begins to grow again is simply to follow the government's example and don't pay bills on time. In other words take an unauthorised loan to keep alive.
Some of the biggest bills are a multiplicity of taxes so they too do not get paid.
The government does not pay because it is short of cash; businesses and individuals fail to pay because they have no money to do so.
If the biggest player in the economy, the Government, continues to squeeze cash out of the system through more and more oppressive taxes, then doubles down on the economic negative by continuing to underspend by billions of dollars, then expect tax revenues to continue to fall below target.
When we put policies in place to grow the economy, increased taxable revenues and increased tax collections will result.
n Aubyn Hill is CEO of Corporate Strategies Ltd chair of the Economic Advisory Council of the Opposition Leader.