Fri | Jun 23, 2017

Martin Henry | Budget, taxes, and positive steps

Published:Sunday | March 19, 2017 | 3:00 AM
Martin Henry
Audley Shaw, minister of finance and public service, delivering the opening presentation of the Budget Debate on March 9.
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Audley Shaw has had a difficult week between the opening and the closing of the useless Budget Debate. Serves him right. There are better ways to proceed with the annual Budget.

Nobody likes taxes, old or new. When the disorganised poor are sufficiently roiled up and 'organised', usually by political forces, they block roads over unpopular tax measures. Thankfully, there was none of that this time. Even with a gas tax increase. Usually the most flammable tax!

Unionised workers call upon their leaders to push for rollbacks in tax or 'rollforwards' in wages. Unions representing public-sector workers have 'tun up the volume' but quietly know very well that their positions are too weak and precarious to defend. They won a small victory with a phasing in of pension payments.

The rich and powerful suited delegations organise to apply muscle to the finance minister behind closed doors to protect their sector and interests from the tax axe, while using their media power to warn the country of impending economic doom if they don't have their way.

Why can't the Expenditure and the Revenue sides of the Budget be presented together? The Standing Finance Committee of Parliament, which is the entire House of Representatives, Government side and Opposition side, would then do its work vigorously and rigorously taking ultimate ownership of the Budget and voting it. The Budget 'Debate' would be part of the work of the Standing Finance Committee, where it could exert real influence on outcomes, rather than being this odd and useless 'kotch-on'. It would then be less of the Finance Minister's Budget. Not only would the Minister's arms be less sore from the special interests' arm-twisting, it would be a better Budget.

The $13.5-billion tax package ($17.5 billion if property tax is factored) presented by Shaw makes up only 1.8243243 per cent of the $740 billion 2017-2018 Budget. This compares very favourably with Dr Peter Phillips' last Budget, 2015-2016, which saw $10.5 billion of new taxes in a $640-billion Budget, that is, a 1.640625 per cent increase. The cry of 'unconscionable' and 'devastating' from the Opposition and its spokesman on finance is just such vapid political posturing as per Opposition. Mr Shaw has had his time as opposition spokesman.

The country is overtaxed. A lot of tax revenue goes uncollected. The PAYE taxpayer is particularly overburdened. Governments have developed the bad habit of having more expenditure (to deliver services to the people) than revenue with which to do so without debt.

A deep, broad-based, systemic reform of the tax system is long overdue, but the country has to continue to operate while this is done. The end result of this tax reform should be to maximally broaden the tax net to equitably include all adult citizens, make the mesh ultra-fine to block avoidance and evasion, lower rates across the board, and take collection as close to 100 per cent as possible, shift taxation from income and profit to consumption, with income taxes trending to zero.

The upping of the income tax threshold to $1.5 million, despite the hiccups in implementation, is a positive move in a very right direction. And so is the downing of property tax rates with the intent of enforcing compliance. For the life of me, I can't see why it is so difficult to collect property taxes. Land is the most fixed of fixed assets. It cannot be moved at all. It has titled registration, or should. And ownership can be forfeited.

 

MORE TAX REDUCTIONS

 

Mr Shaw and the Government must keep faith with the Jamaican people, and as the macroeconomic numbers continue to improve from one administration to the next and the necessary tax reforms kick in over time, reduce tax rates, particularly on the income side.

The Government should attach fees to every state service for which a fee can be reasonably imposed and collected to recover costs, plus 10 per cent. The 'political' removal of user fees from the health services and ancillary fees from secondary education was quite stupid and counterproductive. The poor should be properly identified and assisted by the direct delivery to them of social welfare benefits.

Calling upon public servants to finance their own pension plan is a major step in the right direction, despite the loud bawling at inception. Birth is painful. In any case, the state maintenance of the Public Service Pension Plan is actuarially untenable.

The Government is on point in pushing to review the off-Budget special funds in which billions of dollars of public money sit. But rather than simply raiding the funds as is now the habit for the NHT, the law setting up each special fund should be reviewed and amended to allow rescoping and repurposing.

Had the NHT, for example, really been successful in its mandate of providing housing solutions for contributors, there would have come a point at which the Trust would be almost redundant. We hear that annual demand for housing is somewhere around 20,000 units. Providing 20,000 houses per year over the 40-year existence of the NHT would have delivered a total of 800,000 units - a number far above any national demand.

And that perfect financial transactions tax which Dr Phillips as finance minister abandoned under irrational public pressure is waiting to be quietly introduced. Low rate (0.1% was proposed, which is 10 cents per $100), virtually no pain, wide net, unavoidable and cannot be evaded, easy and cheap to collect, and very certain.

I am absolutely delighted to see that despite the budgetary constraints and the substantial public hostility to the project, the Government has taken a major concrete step towards the erection of a new Parliament building as part of a Government Offices Oval Zone project with a national museum included at National Heroes Park. The area around the Oval is to have mixed-use commercial, residential and service zones. The Urban Development Corporation has signed an MOU with China Construction Company of America. The Chinese, as we know, get things done when we don't stand in their way.

The project, the prime minister said at the signing, will be a catalyst for the wider redevelopment of the downtown Kingston area. The vision is not to put up multi-storey square boxes, but "to build buildings that represent the future of Jamaica. Buildings that show the aspiration of the Jamaican people; structures that when we look at them, we can say we are leaving legacies for future generations. And when you put them all together, you can say that we are building communities," the prime minister said.

Some money has also been found, a little bit really, to start up the Jamaica House Fellowship Programme, which I have been watching to see start ever since it was first announced. True to our reputation for samples, only eight bright, young and accomplished Jamaicans have been inducted as fellows to provide project support in ministries, departments and agencies of Government. It is not eight that we need; it is 80 for a good start, to have a serious impact across Government and to start building the meritocracy that the prime minister wants to see.

- Martin Henry is a university administrator. Email feedback to columns@gleanerjm.com and medhen@gmail.com.