EDITORIAL - Dr Peter Phillips and his tax-reform magic wand

Published: Friday | May 4, 2012 Comments 0

Perhaps Peter Phillips, the finance minister, will, at some point, pull a rabbit out of the hat.

But Dr Phillips and the Simpson Miller administration should know that this newspaper does not believe in magic. A better bet is miracles. Which, at this stage, is what it seems will be necessary.

For, on the face of it, the recommendations in a draft report by Parliament's tax-reform committee will do little to either steer the Jamaican economy on a path towards competitiveness, or to close the looming fiscal gap in the Government's 2012-2013 Budget.

But more critically, the illusion being perpetrated by the parliamentary committee will materialise as a painful burden on the poor. We fear, too, for the prospect of Jamaica finalising, anytime soon, an agreement with the International Monetary Fund, for which credible tax reform is a prerequisite.

Contradiction

The flaccidity of the committee's approach and, ultimately, the outcome it has spawned, is revealed at the outset of its report in its declaration that it did not see its function as being to "establish (tax) rates", but to determine basic policy positions based on proposals contained in a government Green Paper. It, however, appeared to contradict this stance by recommending that the threshold at which Jamaicans should pay income tax be raised to $507,000, and then $624,000.

Of course, the committee's limpness regarding recommending rates is really a fudge on the matter of the general consumption tax (GCT), around which the political debate on tax reform has centred.

The standard GCT rate is 17.5 per cent. The Private Sector Working Group (PSWG) proposed that it be lowered to 12.5 per cent, but broadened to cover the slew of goods that are now exempt from the tax, from which rich people are, by far, the greatest beneficiaries. To compensate for any adverse impact on the poor, the PSWG suggested $2.5 billion in direct transfers to the poorest 40 per cent of Jamaicans, allowing them to maintain consumption at current levels.

Populism easier to sell

Populist politics, however, says it's easier to sell the continued exemptions than the real gains of reform, so the committee recommends that GCT exemptions be maintained on a list of select items that are supposedly consumed by the poor. And it presumes to suggest that a dysfunctional system that delivers a subsidy to the poor, but which gives the rich twice as much, is an "effective transfer mechanism" that addresses "the needs of the most vulnerable".

It compounds the nonsense with an utterly vague proposal for "differential treatment" of another group of products and services. Nor is there clarity on its views on, or recommendations for, the removal of discretionary tax waivers and other market-distorting incentives or the lowering of headline corporate income tax.

What emerges is a hodgepodge rather than a visionary, structured, programmatic outline that would, over time, encourage investment, growth and job creation and, in the short term, help to close that nearly $50-billion financing gap Dr Phillips is facing in the next Budget. That is not good for Jamaica. And certainly not good for the poor.

But maybe Dr Phillips is really David Copperfield, with the Cabinet as audience, wanting to believe in the illusion.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.

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