Budget thumbs up - IMF says Estimates of Expenditure consistent with agreement
The Budget for the fiscal year 2016-17 presented by Minister of Finance and the Public Service Audley Shaw is consistent with what was agreed between the Jamaican Government and the International Monetary Fund (IMF), according to Mission Chief Dr Uma Ramakrishnan.
Referring to the Government's decision to increase the personal income tax threshold from just under $600,000 to $1 million as of July 1, this year, and $1.5 million as of April 1, 2017, she said it "is a bold step to rebalance the tax system towards indirect taxation".
She added that the shift from direct to indirect taxes would reduce the marginal and average tax rates for the majority of income tax payers, improve work incentives, and encourage workers and employers to move out of the informal economy.
"The decision to take offsetting measures to safeguard revenues and avoid undermining debt sustainability was both bold and essential," said the mission chief.
However, Ramakrishnan said that prior to undertaking the second step in raising the minimum threshold for income tax, attention should be directed at strengthening conditional cash transfers and improving targeting in order to protect the poor and vulnerable from the shift from direct to indirect taxes.
Other reforms to further reduce distortive taxes such as asset taxes, stamp duties and transfer taxes will also help support private-sector growth, she told a press conference at the Ministry of Finance to mark the end of the 11th and 12th quarterly reviews of the IMF programme.
Within IMF expectations
Asked if the Budget, as presented, fell within the expectations of the IMF, Ramakrishnan said that the current Budget had been crafted in the context of the relaxation of the primary surplus target to 7.25 per cent of gross domestic product (GDP) in December 2015 and seven per cent for fiscal year 2016-17.
"You will notice that the primary surplus target remains at seven per cent of GDP, which is the resource envelope that has been agreed between the Government and the IMF. In order to make that happen, the tax reform that has just been announced is being done in a prudent and responsible way so that it is fully revenue neutral in order not to impact the primary surplus target that has been agreed," she explained.
"So yes, it is consistent with what we had agreed," she added.
Ramakrishnan said that the programme remains on track. All quantitative performance criteria for end-December 2015 and end-March 2016 were met, she said, adding that tax revenues reached the target - $411.98 billion - for the first time since the global financial crisis in 2007.
She said that the central government primary surplus for fiscal year 2015-16 slightly exceeded the programme target of 7.25 per cent of GDP.
Capital expenditures accelerated during December 2015 to March 2016, fully utilising the additional fiscal space for growth-enhancing capital spending that was approved at the 10th review, the mission chief said.
Structural reforms are broadly on track, albeit with some minor delays due to the February election and government transition, Ramakrishnan said.
The mission reached preliminary staff-level agreement with the authorities on a package of measures that aims to complete the combined 11th and 12th reviews.
Consideration by the IMF's executive board is tentatively scheduled for June 2016. Upon approval, SDR 56.7 million (about US$80 million) would be made available to Jamaica.