Sun | Sep 24, 2017

Editorial | Needed: a smart tax policy

Published:Saturday | April 1, 2017 | 4:00 AM

The Jamaican Government has had to make some tough choices in its latest Budget. And there is growing consensus among the population that the election promise to raise the income tax threshold to $1.5 million is the big factor driving these difficult choices.

Jamaicans are fast learning that an idea that creates the false impression that it will instantly provide a solution could, in fact, imperil the economy. This is a crippling Budget, which has little incentive for stimulating the economy.

We firmly believe that taxes should be used to grow the economy by offering to the productive sectors pro-growth incentives that encourage expansion and innovation. The massive increases in property taxes will hinder many small businesses from moving forward. The tourism sector has already signalled that these increases will be disastrous for some operators.

Homeowners, many of whom are struggling to pay their monthly commitments, will be unable to pay these new taxes. And it also pushes the dream of home ownership farther away from young working people. The real estate sector is already reacting negatively to these new measures.

Officials of the National Land Agency have been trying to explain how the new property values have been calculated, but this offers no comfort to the overburdened and overtaxed homeowner.

Over the years, Jamaica has not had the benefit of a smart tax policy that seeks to spread the burden evenly. The last major tax policy reform was carried out in 1991, and even though expert minds have been put to work on new measures, there has been no significant move to adapt the bulk of recommendations.

 

TAXING CONSUMERS

 

Instead, there is continued reliance on consumption taxes, which means that persons who smoke cigarettes, consume alcohol, and buy fuel to operate motor vehicles are taxed repeatedly, year after year.

Sadly, despite this annual parade of finance ministers trotting out bigger tax packages, we have not seen the concomitant spike in growth-inducing measures or significant fixes, generally, to public infrastructure problems.

While sucking the lifeblood out of the consuming public, governments have only recently exercised the sort of fiscal discipline required to curb expenses and prioritise spending. There are, indeed, two sides to every ledger - the expense side and the income side. The practice in Jamaica has been one of borrowing more, so that the problem of debt repayment will fall to future generations.

It is predictable that people will protest new taxes. However, in general, citizens understand that taxes are a necessary fact of life because revenues are needed to provide all the services that they desire in their communities. But if they cannot pay and get away with it, there are many who will ignore their obligations. The question is, what is being done to get tax dodgers to comply?

As more people rail against the new property taxes, the Government is apparently listening. Information Minister Ruel Reid has said that based on the public outcry, Cabinet is going to take another look at the property tax regime, which is due to go into effect on April 1.

Once again, the population feels like it is being punished by a tax policy gone awry. Surely, we can build a new economy, but Government needs to be courageous and creative. Can Mr Holness' team summon this courage?