Thu | Aug 24, 2017

Editorial | Careful with investments, health

Published:Monday | March 13, 2017 | 3:10 AM

We hope that Ricardo Nuncio was merely being hyperbolic with his warning about the danger posed by the Government's latest tax on alcohol to planned investments by his firm. Hopefully, Prime Minister Andrew Holness has, by now, reached out to the Red Stripe boss and other business leaders worried over the revenue measures unveiled last week by Finance Minister Audley Shaw.

What is surprising is the seeming surprise by captains of industry to Mr Shaw's plans, and pre-Budget agreements appeared not to have been arrived at prior to the minister's presentation to Parliament on Thursday. If that was, in fact, the case, it would run counter to the Government's declared focus on economic growth and the undertaking by its special task force to have GDP expanding by at least five per cent per annum by 2020.

Among Mr Shaw's measures, aimed at an additional J$17.5 billion in revenue, is one that hikes the special consumption tax on pure alcohol by around 10 per cent, or J$110 per litre. This is expected to earn the Government J$403 million, or a little over two per cent of the projected increases in taxes.

But according to Mr Nuncio, the decision is not only "a big surprise" to his company, but places at risk planned investments of upwards of US$20 million (J$2.6 billion) in plant upgrade and modernisation. The context here is that Red Stripe, owned by the Dutch brewers, Heineken, has recently been enhancing its facilities, leading to the repatriation to Jamaica of its production for export. Indeed, six months ago, Mr Holness was at the Red Stripe plant waving off a first shipment of beer to the United States.

Red Stripe's bullishness on Jamaica is, in part, because of the macroeconomic stability achieved over the past five years and a more competitive environment - and not only for Red Stripe. Indeed, market analysts recently ranked J. Wray and Nephew's rums among the few expected to grow substantially this year. But that company's Managing Director, Jean-Philippe Beyer, like Mr Nuncio, is concerned about the likely effect of the alcohol tax.

 

Exaggerated dangers

 

It may well be that these officials have exaggerated the dangers, but for an administration that has talked much about a growth agenda, pre-Budget discussions should have long ago ironed out disagreements so as to prevent tensions that might slow down projects.

Another surprising aspect of Mr Shaw's Budget is his application of 16.5 per cent general consumption tax on group health insurance.

A survey conducted for this newspaper last October found that only 32 per cent of adult Jamaicans had health insurance. More than half of that group (53 per cent) said their coverage was by way of workplace schemes. Health insurance companies reported having 368,000 people on their books, approximately a third of the working population, or 14 per cent of all Jamaicans. Of the people on the rolls, 43 per cent were dependents of the primary insured.

The point is that Jamaica has a low level of health insurance coverage and most people who are not covered say it is because they can't afford it. Usually, workers rely on workplace schemes, but not too many employers provide those. This tax will cause firms to think twice about establishing health schemes, or to crimp benefits to cut costs.

That could impair the health of workers, which is not good for the economy.