The taxman cometh
Published: Monday | December 14, 2009
Jamaicans yesterday heard the chilling warning many had predicted as a result of the nation's impending receipt of a multibillion-dollar loan from the International Monetary Fund (IMF): Beware, the taxman cometh.
"We are going to have to reduce expenditure and we are going to have to increase our revenues, which means that we are going to have to find new taxes that can be collected," Prime Minister Golding said during a recorded interview aired on television and radio yesterday afternoon. He said the new taxes would take effect almost immediately.
"This year, up to the end of October, our revenues were running $17.8 billion below projection. We have tried to contain expenditure. We have tightened expenditure to the point where our expenditure is running $7 billion below projections, but then that still leaves you with a gap of $10 billion that needs to be addressed," the prime minister said.
"We are going to have to start closing that gap in this fiscal year. More taxes will have to come."
Last April, Government announced a $24-billion tax package. It was offset to $18 billion when the income-tax threshold was increased. Included in that package was an $8.75 special consumption tax on each litre of fuel.
Later, in a Supplementary Budget presented in September, Finance Minister Audley Shaw announced an additional $1.7-billion tax package. The money was to be sourced from a departure increase tax as well as the tax on telephone and telephone instruments and cards.
Yesterday, Golding promised that the Government would "try to spread that burden as much as possible." The prime minister, however, left little doubt that his administration was not about to increase the tax on interest on the holders of government paper.
"That was one way of deal with it. The problem with that approach is that there is no guarantee that it won't just simply find itself in terms of higher interest charges," Golding said.
He said that central to the programme with the IMF is the intention to lower interest rates, which would reduce the impact on the Budget. Government currently pays $175 billion of its $561-billion Budget in interest to its creditors.
While many Jamaicans may be on tenterhooks awaiting details of the new taxes, Golding has said that an area of the IMF programme will deal with the social safety net.
"They are actually working with us to see how we can expand those social programmes in certain areas, particularly in areas such as PATH, because the poverty line is not fixed," the prime minister said.
He added: "In times of stress, that poverty line moves up, which means that more persons fall below the poverty line and, therefore, it is going to be important to be able to respond."
Jamaica's best interest
Jamaica is seeking to borrow US$1.2 billion (J$108 billion) from the IMF, which could be signed later this week. The prime minister said yesterday that the proposed arrangement is for two years. He did not give specifics about the programme but noted that it would be in Jamaica's interest to reduce its debt and to grow the economy.
In thinly veiled comments on other conditions being demanded by the IMF, Golding said that debt reduction, balancing the books and divesting some entities were key issues.
"We are projecting to get that balance down to a balanced Budget over the medium term ... . The Budget is not going to be allowed to go above what it is this year," Golding said, as he lamented that Jamaica has been running Budget deficits too long. "The chickens have come home to roost," Golding said.
The prime minister, however, expressed optimism that the country could turn the corner.
"We have pretty much cleared the major hurdles and I hope that we will be able to conclude it this week," he said.