Sun | Sep 24, 2017

Editorial: Squaring the Budget and promises

Published:Monday | April 18, 2016 | 4:00 AM

Based on the raw bottom-line numbers that Audley Shaw presented to Parliament last week, the new Holness administration seems intent, as the prime minister has promised, on running as tight a fiscal ship as the country has become accustomed to over the past five years.

For instance, the Government's projected spending for the 2016-17 period is J$580 billion, which, when you subtract the previous fiscal year's late addition of J$165 billion - used primarily for the discounted buy-back of US$3 billion in PetroCaribe debt from Venezuela - means that Mr Shaw proposes to spend 10 per cent less than the previous administration's initial forecast for last year's Budget. But in real terms, the cut is even deeper, once you factor in inflation of around four per cent.

We welcome these initial signs. But we would be surprised if these numbers are telling the whole story. For they raise critical questions about the sustainability, in the context of the Budget, of the governing Jamaica Labour Party's key campaign promises that helped it win last February's general election, which the administration has been adamant it will honour.

The less problematic of these is the undertaking to eliminate auxiliary fees from the island's secondary schools - those payments head teachers ask of parents to help top up their insufficient subventions from the Government. By most estimates, the removal of these payments would require an offset from the Government of a minimum J$1 billion, but adequately J$4 billion, for the high schools to remain in the same position as before.

The education ministry's budget is indeed increased by J$3 billion, or three and a half per cent. But, with appreciated logic, nearly 90 per cent of that amount has gone to primary schools. In fact, spending in secondary schools, based on the Budget estimates, has fallen by four per cent, to J$31.2 billion.

We expect that Finance Minister Audley Shaw and Prime Minister Andrew Holness will, in short order, have an explanation for this apparent shortfall and a timetable for the implementation of this policy.

 

INCOME-TAX REFORM

 

The other area where the Budget numbers offer no guidance on the implementation of an election promise is on the blue-riband policy of income-tax reform, whose central plank is the elimination of personal income tax for people who earn up to J$1.5 million annually.

This year's Budget projects a $35-billion, or 8.5 per cent, increase in taxation revenue, to J$445.5 billion. This is not out of the realm of what has been achieved in recent years. But, in this case, there is a catch.

Based on the Government's estimates of J$78.7 billion, nearly J$2 billion more than the previous year's taxation revenue will come from personal income tax. A proposed increase, in the circumstance, seems counterintuitive. Nonetheless, personal income tax represents approximately 18 per cent of taxation revenue.

But the Government's proposed income-tax giveback is projected to cost a net J$8.5 billion, taking into account that the people earning over $1.5 million will be entitled only to the existing pre-tax threshold of J$592,800, and those earning J$5 million and over will have to pay the standard tax rate of 25 per cent.

However, that doesn't address the anomalies and issues of taxation fairness that will be thrown up by these measures, which experts say will require marginal relief, costing anywhere between an additional J$7 billion and J$17 billion.