Editorial: Frilly talk about income tax
People don't like paying taxes, especially when, as with pay-as-you-earn (PAYE) employees, the Government dips into their salary packets. It would be no surprise, therefore, if there is popular support for calls by private-sector leaders for Jamaica to follow last week's move by the Antigua and Barbuda government to eliminate personal income tax.
We urge caution and serious analysis of the potential impact of any such move on public finances. In this regard, it is probably worth noting that it is not first time that Antigua and Barbuda has gone down this route, as well as the countries it has joined in this venture. Three in the Caribbean - The Bahamas, the Cayman Islands and the British Virgin Islands - are renowned tax havens under scrutiny for alleged opaque banking rules. The others are mostly Middle East sheikhdoms that have, until recently, swum mostly in oil wealth - Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, United Arab Emirates, and Brunei.
In the mid-1970s, a previous Antigua Labour Party administration did the same thing, preferring to rely mostly on consumption taxes. Personal income tax was scrapped in 2000 by the United Progressive Party when the country had Greek-like debt ratios, its fiscal accounts were in shambles, and it needed an International Monetary Fund programme to help it through the crisis.
DRIVE ECONOMIC ACTIVITY
In announcing the income tax initiative last week, Gaston Browne, the Antigua and Barbuda prime minister, advanced arguments similar to those of Private Sector Organisation of Jamaica President William Mahfood, and the agency's CEO, Dennis Chung, that the income tax regime is difficult to manage and that leaving cash with people will drive consumption and economic activity.
"Not only will it put more money in the pockets of the people so that they can save or spend more for the benefit of the economy as a whole, it will help to re-establish our country as one of the most competitive in the Caribbean and beyond," Mr Browne said.
In Jamaica's case, there would be the small matter of replacing the J$76.5 billion - $71.3 billion from PAYE workers - or 19 per cent of total tax revenue the Government expects to collect on personal income this fiscal year. That would require more than doubling the take from domestically applied general consumption tax (GCT), increasing earnings from corporate profit by 67 per cent, or gaining more than 50 per cent more from all duties and levies on international trade. Alternatively, the Government could contract spending by an equivalent amount if it wishes to maintain its deficit targets, or go on another borrowing binge.
We do not suggest that lower taxes do not lead to increase consumption and investment, and thereby job creation and growth, but the balance has to be right between lowering rates and a government's ability to deliver services, without incurring unaffordable debt. It was not for nonsense, we believe, that the Joe Matalon-led Private Sector Working Group on Tex Reform didn't propose the elimination of personal income tax, but called for a progressive, two-tiered rate, as well as a reduction in the rate of GCT, while widening its application to most products.
A revived, thoughtful, data-driven discussion on taxes may be necessary.