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Much of bauxite levy earnings lost over four decades - Davis

Published:Wednesday | May 14, 2014 | 12:00 AM

Daraine Luton, Senior Staff Reporter

Jamaica has earned approximately US$4 billion from the bauxite levy and other variants over the past four decades, but key players in the formulation of the tax say the absence of strict rules for its management meant the country has not gained nearly as much from its imposition as it might have.

"Our mistake was not to have had the sort of fiscal rules (as are currently being crafted)," Dr Carlton Davis, a former chairman of the Jamaica Bauxite Institute (JBI) who was among those involved in the establishment of the levy, said during a Gleaner Editors' Forum held yesterday at the newspaper's North Street, Kingston, offices.

"Remember, we didn't have any IMF (International Monetary Fund) saying, 'Guys, this is what you have to do'," Davis added during the forum looking at the bauxite levy in its 40th year.

The Michael Manley administration imposed the controversial levy on bauxite production in 1974, as Jamaica made efforts to gain a greater stake in local bauxite production which reached a record high of 15 million tons. The move, however, had become more urgent after the 1973 oil crisis that impacted world economies as the price of oil rose from US$3 per barrel to nearly US$12.

Davis, who is now a special adviser to Prime Minister Portia Simpson Miller, said while the Capital Development Fund (CDF) was used during the 1970s to fund the free-education revolution in Jamaica, which saw every Jamaican up to the tertiary level being able to attend institutions without paying tuition fees, some bad decisions were made that have led to the depletion of the fund.

"A lot of it went into education, a lot of it, and it has been a problem with Jamaica until now ... . It was much more pleasant to the electorate to draw down on the levy rather than announce new taxes," Davis said.

He added that the technical persons at the Ministry of Finance were "no help in resisting".


Davis argued that if Jamaica had fiscal rules, which place strictures on the way funds like the CDF can be used, the depletion would not have happened.

"It was easy, the society found that agreeable - no new taxes - cheers and everybody salute," he said.

Jamaica, under its four-year extended fund facility with the IMF, has placed strictures on the minister of finance to ensure debt reduction and economic growth.

He said in addition to the US$4 billion collected by way of the levy and other variants, the bauxite sector has seen US$12.3 billion in retained earnings in Jamaica, which includes investment in plants and equipment, and wages and salaries.

But with the worldwide recession knocking the bottom out of the bauxite sector in 2008, the inflows dried up dramatically, and Jamaica was forced to take stock of the fact that it might not have been realising the potential of its sovereign wealth fund.

Jamaica, in fiscal year 2007-2008, earned $5 billion in levy and was projected to, in 2008-2009, collect $8.64 billion. But with the recession at its height, only $4.4 billion was realised. By the 2009-2010 fiscal year, the earnings from the levy dropped to $139.4 million, and hardly improved in 2009-2010, as only $421 million was collected.

The Government, last year, collected $1 billion from the bauxite levy.

The Ministry of Finance is projecting this year to transfer $17.9 million from the CDF to the Consolidated Fund, down from $1 billion last year.