Thu | Oct 19, 2017

Hard, cold facts on economy

Published:Sunday | June 28, 2015 | 12:00 AM

Leadership on the Jamaican economy is vital at this time. The Jamaican economy is in dire straits. The economy is not growing at the rate it needs to, the employment rate is way too high, and debt still consumes too much of our national revenue. The list of woes continues ad nauseam.

In a newspaper column that could command extensive coverage on any one aspect of our economic woes, I need to give a broad overview of why the position of the finance minister is hard and must remain so on the public-sector wage claim.

For the better part of 40 years, we have all lived on borrowed money. The money must be repaid now. For every J$1 of the value of goods and services produced, we owe J$1.40. At the start of the IMF extended fund facility for 48 months, we were paying 60 cents of every dollar to service debt. We were paying 21 cents of every dollar to pay wages. This left a grand total of 19 cents to fix roads, build and maintain schools, maintain hospitals, service and provide fire equipment, build and maintain security services, and do everything else. For all intents, we were bankrupt.

These figures have been made marginally different over the last two years. Debt now takes 40 cents, but public-sector wages now take 31 cents. It increased because in actual dollars, the public-sector workers received 26 per cent pay improvement. This was in the form of retroactive, previously contracted payments; the increments; the one-off payments, etc. To say public-sector wages have been frozen for five years must come with the notation that nominal salaries were frozen, but money that they take home has risen over the period.

The terms of employment for the public sector are most generous. Tenured teachers still get long leave. Teachers get sabbatical. Public-sector workers get time and money towards their own personal, professional development from the Government, yet the national productivity level for 40 years-plus has not averaged one per cent per annum. Produce the same or less and get paid more.

The country's debt related to public-sector pension benefits is high. It is only some members who are new to the public service and who make a contribution to their pension. We do not need 140,000 public-sector workers and some 200 government companies.

There is the cry to adjust the 7.5% primary surplus to free up money for growth inducement and wages. This will push up the debt-to-GDP ratios. This will fuel inflation, which most recently was some four per cent per annum. A low not seen in 40-plus years. If inflation takes off again, the gap between the rate in our largest trading partner, USA, and ourselves will cause the exchange rate to race to US$1:J$125 or more. Who gets hurt? The fixed-income earner, pensioners, and those without the skill to significantly impact their earning ability.

 

stay the course

 

We are two years on a journey where the first rest stop is still another two years away. We must stay the course. We all must grow the economy. The question is, where is the funding to be had to facilitate the growth agenda?

Flat-rate tax on consumption. This must be fairly linked to cash transfers to those who would be disproportionately hurt, those at the bottom of the wage scale. The flat-rate tax would be applied to EVERY transaction for goods and services. NO exemptions. Since we are all consumers, all of us would be in the tax net. Buy a used car, it would be taxed. Buy a box of matches, tax it. Buy a cow, tax the transaction. Supermarket for groceries, including cornmeal, flour, sugar, salt, etc., tax it.

You would be right if you said that the person making J$6,000 per week, since they need to consume most of their income for food, shelter, clothing and transportation, would be disproportionately affected compared to those making J$100,000 per week. We can compensate for that by cash transfers from the government to those most badly affected.

Lula da Silva, former leader of Brazil, perfected this, which led to major transformation of that country. We do cash transfers now in the form of PATH. Expand the payments, but only after the mechanism has captured each transaction in the society. No more informal economy. No more significant tax evasion. It would be easier to collect the tax from every tax office, company, bank, insurance company, taxi licensee. Everybody.

 

get rid of income tax

 

Get rid of the income tax; only PAYE persons are forced to pay it now. Herein lies an illustration: The retail clothing person on the sidewalk gets their merchandise from an importer, who gets it from Aruba, Panama, Curacao, China and USA. Apply the flat tax when it is imported. Government collects the revenue from the Customs Department.

When the street trader sells to the consumer, who will wear the dress or shirt, the tax is then collected. A motor vehicle could not be licensed without the tax on the selling price. Right at the tax office, it would be collected. Cash transfer cards loaded with however many dollars as determined would be issued every month. Use it wherever, but not to be converted to cash. Buy food, gas, clothes, pay rent, all taxable.

This would provide the Government with the money to fund the development Capital A budget to spur growth. We need a new set of thinking, but for our own sakes, do something new. Doing the same old thing the same way is not working.

- Ronald Mason is an immigration attorney and Supreme Court mediator. Email feedback to columns@gleanerjm.com.