More taxation will not help meet International Monetary Fund targets - Holness
With the primary surplus set to be increased to $126 billion for fiscal year 2015-16, Opposition Leader Andrew Holness has suggested that increased taxation will not be helpful to meet future targets under the International Monetary Fund (IMF) four-year economic support programme.
He said that passing the IMF's quarterly tests was good for the country, but the Government must maintain fiscal prudence simultaneously with stimulating the economy to achieve better economic growth.
"We are at out taxable limit," he said, adding that "taxation is not going to be an effective tool in meeting the targets in future tests".
Holness was addressing a press conference at the Jamaica Labour Party headquarters at Belmont Road, New Kingston, last week against the background of Jamaica's failure to meet the $121.3-billion primary surplus target under the IMF programme for fiscal year 2014-15, largely because of a lag in collection of taxes.
The primary surplus fell short by $4.1 billion, but an IMF team, which completed discussions on the eighth review under the programme last week, said it is still estimated at 7.5 per cent of gross domestic product (GDP), the percentage programmed under the agreement.
For fiscal year 2015-16, expenditure requirements are forecast at $462.98 billion. Juxtaposing the expenditure requirements against the forecasts for revenue and grants, including expectations from stronger compliance efforts, generates a primary surplus of $116.37 billion.
However, the primary surplus target of 7.5 per cent of GDP is equivalent to $126.72 billion, $5.42 billion more than the target for the last fiscal year, thereby leaving a gap of $10.35 billion, which is projected to be earned from new revenue measures.
Ironically, it was the less-than-budgeted collection of tax revenue, particularly company tax and general consumption tax (GCT) on local goods and services, which led to the underperformance and affected the primary surplus during fiscal year 2014-15.
lower tax intake
Those were attributed to, among other things, macroeconomic issues beyond the control of the government, including fiscal year inflation of four per cent, compared with 8.3 per cent expected by the Budget.
As Finance and Planning Minister Dr Peter Phillips outlined last week, the nominal or dollar amount for the primary surplus would have been worked out at the beginning of the year and in the last year, lower prices would have caused lower tax intake.
According to the Fiscal Policy Paper for 2015-16, in keeping with the commitment to undertake profound tax reform to
create a system that is efficient, fair and simple, as a key ingredient towards improved financial management, the Government has designed a reform package for implementation during this year.
The package is also underpinned by the need to ensure revenue adequacy to allow for more efficient and effective provision of public goods by the State. The package includes measures which are forecast to yield incremental revenue of $10.35 billion, or 0.7 per cent of GDP.
fiscal gap to close
It said the measures are expected to eliminate the fiscal gap and contribute to achieving the primary surplus of 7.5 per cent of GDP in fiscal year 2015-16 and to maintaining that level through fiscal year 2016-17.
The Government said that while it has been successfully satisfying key quantitative performance criteria and structural benchmarks under the IMF programme, it remained cognisant that it will be challenging to meet the 2015-16 fiscal targets.
"The ongoing tax reforms and volatility or uncertainty in the movement of world oil prices in particular, will continue to pose a formidable challenge to revenue forecasting," the paper said.
According to the Fiscal Policy Paper, grant receipts of $3.91 billion for the first nine months of the last fiscal year fell below the budgeted amount by $2.98 billion, due mainly to the delay in programmed budget support, inflows from the European Union, as well as lower disbursement for investment projects arising from the slower-than-planned execution of capital spending.
However, it said the lower grant intake for investment projects had not affected the primary surplus as there were corresponding reductions in capital spending, and that the delayed budget support inflows from the European Union are expected this fiscal year.