Fri | Aug 18, 2017

Imani Duncan-Price: Caring capitalism and Jamaican possibilities

Published:Sunday | April 24, 2016 | 4:00 AM
Imani Duncan-Price
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Successive Jamaican governments have not been able to provide good-quality free health care; quality free education throughout the life of EVERY child in Jamaica; loving care for our elderly; and unemployment support so that families don't fall off the cliff.

So we hobble along saying we have 'free' this and that while everyone knows that most of us pray not to get sick, or that our children will study hard and get into one of the few 'traditional' high schools so that they have a better chance at just about everything.

Now, don't get me wrong. Jamaica has made significant strides in many areas since Independence. While it's important to celebrate our achievements as a country, it's imperative that we look at where we need to go. Progress and prosperity are not the reality for the 1.1 million Jamaicans living in the lowest income brackets in our society - 40 per cent of our country's population as of 2011.

The fact is, governments are funded by taxes. If an economy grows, the tax base grows, and Government can subsidise more public services - better schools, more hospitals, etc. Three of Jamaica's issues have been persistently sluggish growth since independence, relative to the world; increased inequality; and widespread tax avoidance and evasion. With this awareness, how do we generate inclusive growth that provides a platform for a thriving society?

 

The Scandinavian Example

Scandinavian 'caring capita-lism' stands out as a model for creating more equal, happy societies. They have blended socialism with capitalism - a strong social-support system with a market economy. Speaking with some Scandinavian members of parliament during a trip to the EU Parliament last year, I got a better understanding of how they marry government stimuli and social solidarity on the one hand with open trade, innovation, and private entrepreneurship on the other.

One exchange revealed some insight. "As government, we don't pick winners. it ends up costing taxpayers too much because it is at the cost of the whole. Instead, we focus on making the business environment work for everyone so competitive small, medium and large businesses could thrive. After all, this is what pays for our welfare system to help make a 'good, balanced, caring society'."

Bingo! This statement brought me back to a PSOJ Forum in 2003 when Michael Fairbanks, global expert in cluster competitiveness in developing countries, said to the audience: "You need to get off the minister's couch asking for incentives and get on a plane or the Internet and find the markets that you can compete and win in. Jamaica has too small a market and every incentive distorts the system for someone else." Given the audience, I was very surprised at the overwhelming applause that statement received. Sadly, while many with the clout and control know what part of the problem is, behaviour has not changed.

 

JAMAICA'S TAX REGIME

A plethora of tax incentives, exemptions, concessions, and waivers have not produced growth for Jamaica. On the contrary, this selectivity, aimed at certain sectors or companies, has cost the country dearly and has resulted in high taxation rates on less-favoured sectors.

Furthermore, they narrow the tax base and form an avenue for corruption. With Jamaica's culture of non-compliance, a cumbersome tax system works perfectly to create loopholes and inefficiencies for tax avoidance and rule manipulation.

The 2012 Private Sector Working Group (PSWG) on Tax Reform provided recommendations for an overhaul of the tax system in Jamaica to make it a catalyst for economic development and the foundation of the necessary resources to enable the provisions of a good, caring society.

One of the hotbed issues in that proposal was the removal of GCT exemptions on a wide range of goods, including basic food items, an issue that Ian Boyne referred to in his Gleaner article on April 17, 2016, noting his disappointment with Garnett Roper and me. Understanding my alignment demands more than a cursory glance at the reforms and certainly requires context.

As an unapologetic advocate of social justice, part of my philosophy is that government should effectively provide support to those who need it and quality public services for all, not just those who can afford them. Such provisions by Government require money.

In looking at a comprehensive taxation system that is significantly less vulnerable to 'Anancyism', the PSWG put forward a myriad ways to deal with a range of exemptions and concessions, the goal being revenue generation and easier admistration less prone to manipulation.

If there were no GCT exemptions, the Government could collect approximately $22 billion. Of this amount, the cost to the more vulnerable in our society would be approximately $2 billion for some basic food items. The challenge, therefore, is how to remove this negative impact on this group.

 

BUILDING THE CARING SOCIETY

One intervention by the State is the Programme of Advancement Through Health and Education (PATH). This needs to be restructured. With technological advancement, it can now accommodate direct cash transfers for the $2 billion to bank accounts linked to debit cards, which are controlled by the caregivers of the target households. Stigma can be thus addressed - no one has to know.

Issuing meal cards to every student in school - not colour-coded to distinguish who is on PATH - can expand the impact of the Enhanced School Feeding Programme. Cards would be funded by parents who can afford to or by Government through progressive expenditure policy. With effective tax collection, we could support more of the population in need and widen basic benefits, including health care, transportation, and education support.

The majority of Jamaicans don't want to stay on PATH - they want to 'Step Up the Progress', they want 'Prosperity'; they want to be able to fend for themselves and their families. We are talking about a system that recognises the realities for a number of Jamaicans and allows for a just playing field so persons can move forward, becoming productive contributors to society.

Accordingly, the PSWG recommended utilising some of the funds from the broader tax base for expansion and better coordination of 'pro-employment' social-intervention programmes like 'Steps to Work' and the National Youth Service.

 

WHAT IS THIS $22B?

The overall opportunity cost - meaning the potential revenue the Government loses out on by having GCT exemptions, referred to earlier, was estimated in 2011 at $22 billion. This is because: 1. as an overall exemption, people of sufficient means also benefit when they could pay GCT on such items; 2. it leaves room for fraudulent misclassification of taxable goods at the point of importation; 3. it presents a further opportunity for tax evasion by suppliers of taxable and GCT-exempt goods (particularly in the retail trade) through the misreporting of respective supplies. The latter two points were noted by leading private-sector organisations themselves, indicating clearly that there is a problem.

Simplifying the system will enable the delivery of better social support to Jamaicans who need it and ensure it is done with dignity and no stigma - in Scandinavian, not USA, style.

With there being less opportunity to manipulate the tax system; a reduction in personal income tax; lowering GCT to 12.5 per cent overall; the tourism industry coming in line with tax rates; PLUS criminal penalties and sanctions (including jail time) against non-filing and tax evaders, I supported this plan to enable stimulation of the economy, reduce opportunity for abuse and corruption, and fund a robust, Scandinavian-style social-support system for Jamaica's growth. Together, we can create inclusive growth.

WE CAN address the situation of 'persistent poverty' and growing inequality in Jamaica, where the richest 10 per cent actually earn nearly 25 times the income of the poorest households. As Nelson Mandela said, "Like slavery and apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings."

- Imani Duncan-Price is a World Economic Forum young global leader and development consultant. Email feedback to columns@gleanerjm.com and fullticipation@gmail.com.