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Editorial: Clarity needed on JLP tax policy

Published:Sunday | February 14, 2016 | 2:00 AM
(From left) JLP leader Andrew Holness with his spokesman on finance, Audley Shaw, and economic advisor Augyn Hill at a press conference last week.

The devil, they say, is in the details. Which is why Andrew Holness, the Jamaica Labour Party leader, has a job of exorcism to do if discerning people are to be convinced that Beelzebub isn't hiding in opaque numbers.

Perhaps the most exciting element of Mr Holness' general election platform is his promise to lift the personal income tax threshold by more than 65 per cent, from J$592,800 to J$1.5 million, if his party forms the government after the general election of February 25.

"So, nurses, policemen and women, teachers, public-sector workers, and young people starting out, the Jamaica Labour Party will give you a break, because we know you need one," Holness said in a broadcast a fortnight ago. But his declaration was absent of details - of the cost of undertaking, or how it would be funded, especially in the context of Jamaica's tight fiscal circumstances and the agreement with the International Monetary Fund to run a primary balance of seven per cent of gross domestic product.

Not surprisingly, the finance minister, Peter Phillips, declared the proposal as unworkable, saying that its effect on the national Budget would be "catastrophic". By Dr Phillips' estimate, the initiative would remove by nearly three-quarters - more than 226,000 people - from the tax roll at a cost of around J$30 billion, or 40 per cent of the projected earnings from personal income tax this fiscal year. The consequence of this give-back, Dr Phillips insisted, would be exacerbated by another J$70 billion of JLP spending promises.

So, when Mr Holness and his economic team responded to the Government's attacks on its proposal, most people, this newspaper included, expected an in-depth forensic analysis of its numbers. What was delivered fell short of expectations.

 

 

NOT MUCH SPECIFICITY

Mr Holness projected the cost of his give-back would be no more than J$16 billion at the outer limit, but more like J$12 billion, according to his key economic adviser Aubyn Hill, which would be paid for by the removal of tax-free income for people earning J$5 million or more, improved tax collection, greater efficiency in government spending, and economic growth. There, however, was not much specificity.

Indeed, weighting the income bands used in the 2012 report by the Private Sector Working Group (PSWG) on tax reform - which Mr Hill said was also consulted - this newspaper extrapolated the gap created by the give-back at around J$34 billion was not far outside the Government's figure and not too dissimilar from what would be arrived at using the PSWG's 2012 rule of thumb that for every J$100,000 hike in the income-tax threshold, the opportunity cost to the Government would be J$3.5 billion. By that formula, the accumulated cost of Mr Holness' hike would be J$31.5 billion.

On the face of it, the Government would be certain of recouping only J$3.5 billion from the people earning $5 million or more, who would now have tax on all their income. But there are potential anomalies in the proposal, given its absence of exemptions. For instance, an employee earning J$1.5 million would not be subject to income tax. But his supervisor earning, say, J$1.6 million, would have an income-tax liability of J$251,800, or annual post-income pay of $1,348,200 before other deductions. There is work to be done on this policy.