Editorial | Mr Shaw's property tax conundrum
The Government's decision to modify an unpopular property tax regime will extinguish many of the flames of anger and outrage that have been fanned because of an unprecedented rise in rates that, in some cases, topped 1,500 per cent.
Audley Shaw, the finance minister, has wound himself into knots in his attempt to fulfil an ill-conceived vote-catching scheme to raise the income tax threshold to $1.5 million. The gig worked as that pre-election promise gave the Jamaica Labour Party momentum to pip the then ruling People's National Party in the February 2016 polls.
Andrew Holness had been warned that this would have thrown the Budget off kilter and resulted in more than $30 billion in new taxes. But he allowed the wisdom of economic spin twins Aubyn Hill and Fayval Williams to prevail upon him. Reality sobered them up to phase in that $1.5m tax-relief plan.
As it stands, Mr Shaw still faces two major problems. His original property tax framework aimed at raking in an extra $4 billion in the Government's bid to plug the Budget gap. With the realignment announced in Parliament on Tuesday, Tax Administration Jamaica will pull in a mere $2 billion, half the intended amount.
Mr Shaw is now trying to convince us that the rise in disposable income eventuated by the adjustment in the income tax threshold will spark a consumption binge by the public. This was the same naÔve reasoning that Aubyn Hill and Fayval Williams gave to Mr Shaw in Opposition as they crafted, and eventually implemented, this irresponsible plan. What's scarier now is that Mr Hill is an economic adviser to Mr Shaw, and Ms Williams is his state minister in the finance ministry.
It didn't work before, Mr Shaw, and that pie-in-the-sky hope won't work now. It is not inconceivable that the Government may have to come, tax hatchet in hand, later in the fiscal year to close the deficit or hack away at the budgets of other ministries to save face.
The other debacle facing Mr Holness' Government is similar to the one that influenced the administration to recalibrate its revenue strategy from direct to indirect taxation. The fact of the matter is that too few people are paying taxes.
As it regards property tax, 43 per cent of land owners are delinquents. That means that 57 per cent of property owners unfairly bear the burden of
funding road maintenance, the servicing of street lights, and garbage collection. But everyone benefits - though marginally - because many roads are in disrepair, hundreds of street lights do not work properly, and garbage collection is unpredictable.
Mr Shaw's immediate challenge is to keep current property tax payers loyal lest they join the ranks of delinquency. Should that cohort swell, the tax-juggling act will become even more fraught. He can best achieve this by getting tough on those who ignore their property tax obligations with impunity, thus becoming a burden to the State.
The finance ministry must deploy more tax agents to knock on doors and hunt down delinquents. Perhaps a framework of granting commission, not dissimilar to that practised in the insurance and sales industries, to those agents who convert delinquents into tax roll disciples would pay off. Other more aggressive measures, including the acquisition of land, and or tying state-dependent transactions to property tax compliance, may have to be among the strategies.