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Editorial: Gov't should grab the lifeline

Published:Thursday | April 14, 2016 | 4:00 AM
Richards Byles has invited the administration to rethink its election tax-relief promise,

The government is still at the edge of the cliff, but they aren't over it as yet. Hopefully, they will accept the offer of a lifeline, the latest one from Richard Byles, chairman of the Economic Programme Oversight Committee (EPOC). Mr Byles has invited the administration to rethink its election tax-relief promise, including, if necessary, engaging the Opposition on the matter, with the aim of ensuring a "soft landing" on any retreat.

The People's National Party (PNP), in the circumstance, could gloat a bit, but fundamentally, they couldn't oppose a change in a policy which they were against in the first place. Further, it would not be in their interest for there to be an undermining of the fiscal accounts and the collapse of Jamaica's agreement with the International Monetary Fund (IMF), the management of which was perhaps that party's crowning achievement during its four years in office.

That is the potential danger against which Mr Byles - as has others - has warned, if the administration proceeds with its income tax reform plan as it is currently structured: lifting by over 150 per cent, to J$1.5 million, the threshold before Jamaicans pay personal income tax, but keeping in place the current exemption of J$592, 800 for people who earn anything above that amount, but up to J$5 million. Anyone who earns anything over J$5 million would pay the standard rate of 25 per cent on their entire income.

But the policy development may have lack rigour. The Jamaica Labour Party (JLP) assumed the net cost of the give-back at around J$10 billion, but apparently did not factor in the anomalies and other labour market issues inherent in the plan. Fixing the anomalies with marginal relief, independent experts calculate, could cost between J$7 and J$17 billion.

The finance minister Audley Shaw has neither acknowledged or challenged these numbers, but has claimed that some of the money which he thought would be in the treasury to help cover the bill was, ostensibly unbeknownst to him, spent by his predecessor. The government, nonetheless, says it remains committed to the policy in the fiscal year, the final one of Jamaica's agreement with the Fund and the one in which the JLP government will own the outcomes of the IMF's quarterly reviews.

HARDEST CRITERIA

The most fundamental and hardest of these performance criteria is the one requiring the government to achieve a primary balance of seven per cent (it used to be 7.5 per cent) of gross domestic product (GDP).

"In normal times, it is a tough target to hit," Mr Byles said this week as he represented EPOC's monthly report on the government's finance and the state of the broader economy. "We have abnormal times with a commitment to tax relief. So, it's going to be doubly difficult."

Government's can always muddle through. But there is with that the risk of weakening investor confidence and the confidence of Jamaica's international partners. Moreover, there is a critical, among which are critical, trade unions, to which the administration can point for endorsement of a delay. It could then use the time to develop - and implement - a robustly analysed and phased programme of tax reform.

Creating bad policy is bad. Implementing it is worse.