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Worried! - MPs demanding action to prevent swell in poverty following tax policy shift

Published:Friday | October 21, 2016 | 10:00 AMJovan Johnson
Henry

The Government's new policy shift towards indirect taxation is under more scrutiny as parliamentarians demand action to ensure that the number of Jamaicans living in poverty - approximately 550,000, or 20 per cent of the population - does not swell.

The Andrew Holness administration is phasing in an increase in the income tax threshold, increasing consumption-based taxes to fill the gap, which is part of a revised election promise.

Fourteen billion dollars in taxes has been created to fund phase one, which was implemented in July, while another $16 billion will be needed to support phase two next April.

On Wednesday, Dr Wykeham McNeill, chairman of Parlia-ment's Public Administration and Appropriations Committee (PAAC), echoed concerns of members, saying he was worried about the impact of the switch to indirect taxes without any increases, so far, in social-protection programmes.

"The question we as a committee must ask is whether we are going to have to recommend to Parliament that we have to move speedily to increase that safety net because if we leave things as they are, would we not expect to see an impact on poverty levels?" he said.

 

ANNUAL INFLATION RATE

 

The concerns came after Bank of Jamaica Governor Brian Wynter reported that inflation for September was 0.5 per cent, moving the annual inflation rate for the 12-month period at September to 1.9 per cent, 0.1 per cent more than the 1.8 per cent August figure.

Dr Wayne Henry, the director general of the Planning Institute of Jamaica, who was appearing before the committee, said social protection had been built into the current deal with the International Monetary Fund and would continue with the successor programme to be considered for approval next month.

"A key feature is that continued commitment to specifically enhance the social-protection system - specifically in broadening the coverage to the lowest consumption quintile. There are some specific measures there that I wouldn't speak out of turn [on], but I know it's to be discussed."

Henry, noting that Jamaica has received technical assistance from multilateral partners, said there has been a review of the social-protection programmes to graduate people.

"Social protection, at the end of the day, shouldn't be a perpetual handout, but the hope is to empower persons that they won't need in future such mechanisms," he told the PAAC meeting.

In the meantime, Financial Secretary Everton McFarlane said the Government cannot "compensate away all of the impact" of the shift towards indirect taxes by increasing benefits under social programmes such as the Programme of Advancement Through Health and Education.

 

MITIGATING RISKS

 

"What you can also try to do is to spend some money to actually give them an opportunity to earn better livelihoods to mitigate the risks," he said. "I wouldn't sit here and deny that it has the potential to be regressive, and, in fact, if we're not careful, it will be extremely regressive."

Continuing, he said: "But it's really a trade-off. The current personal income tax system is also highly regressive in the sense that it is the PAYE persons who pay the vast majority of the personal income tax, and that's a significant share of your direct taxes. In a certain sense, when you're shifting to indirect taxes, it kind of allows the burden to be shared more broadly across society, but it also improves the prospects for greater efficiency because your indirect taxes are easier to police."

jovan.johnson@gleanerjm.com