Editorial | The NHT tax trade-off
We are hardly surprised, as was revealed by this newspaper yesterday, that the Government may be on the verge of walking back on its undertaking not to tap the National Housing Trust (NHT) for cash to fund its Budget. Over the past four fiscal years, starting with the previous People's National Party government, J$45 billion has been siphoned from the mortgage agency to the national treasury.
The funds from the Trust were crucial to Jamaica meeting its obligation of a primary surplus target of 7.5 per cent of gross domestic product under its agreement with the International Monetary Fund (IMF). But in opposition, the Jamaica Labour Party (JLP) branded this contribution as a "raiding" of the Trust. It vowed to end the practice if they returned to government.
The promise was repeated by Prime Minister Andrew Holness and his finance minister, Audley Shaw, when their new administration presented its first Budget last April. The withdrawals would stop when the four-year authorisation for the payments expired at the end of the current fiscal year.
There are, however, good and practical reasons why Messrs Holness and Shaw are having second thoughts. It has to do with the second tranche of the administration's give-back on personal income tax, which, from April, will raise the threshold from J$1 million to J$1.5 million, having been previously increased from J$592,800.
When the JLP made the income tax rebate an election promise, they assumed that it wouldn't require new taxes. It could be paid for from existing levies on petrol. They, however, got their sums wrong, severely under-counting the J$30 billion cost of the proposal.
The upshot: the administration only partially fulfilled the promise during the current fiscal year. But it raised J$12 billion to pay for it. For the new fiscal year, another $16 billion will be required - assuming that offsetting taxes from last year performed as projected. It is expected that the bulk of the new taxes will be higher levies on property.
To be clear, this J$16 billion is separate from the J$11.4 billion that would be forgone if the contribution from the NHT is scrapped and, Therefore, had to be found elsewhere. Access to the NHT's coffers is, against that backdrop, logical. It is also likely to be more politically palatable than having to dip directly into taxpayers' pockets.
NHT CAN MANAGE
Moreover, with assets of over J$220 billion, annual inflows of around $20 billion and shelter/mortgage commitments of a similar amount, analysts say that the NHT can manage this support of the Budget.
But the Government cannot be expected to be allowed uncritical access to the Trust's resources.
We believe that before it raises new taxes, the Government should divest state-owned assets, which it has been too slow to do. Further, the Government should clear the billions of dollars it owes the NHT on its three per cent payroll contribution for public-sector employees.
On the broader issue of the NHT's future, the administration should engage a serious discussion on not only how the Trust should operate in the mortgage market, but also the proposal by the Caribbean Policy Research Institute (CaPRI) to halve the employees' contribution to one per cent of salaries, while the payroll levy on employers should be reduced by a third, to two per cent. CaPRI estimated that this would generate up to $20 billion of consumption annually in the economy.