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TEF, CHASE, Civil Aviation revenue bound for Consolidated Fund

Published:Thursday | May 18, 2017 | 12:00 AMMcPherse Thompson
Finance Minister Audley Shaw

The decision to divert revenues from the Tourism Enhancement Fund (TEF) into the government's main account is part of a new structural benchmark under the International Monetary Fund (IMF) standby agreement conditionality with Jamaica.

That benchmark requires the government to submit to parliament all necessary legislative changes to direct all earmarked revenues from the TEF, Jamaica Civil Aviation Authority and the Culture, Health, Arts, Sports and Education or CHASE Fund to the Consolidated Fund by June 15.

In April, Finance Minister Audley Shaw indicated that he would take to Cabinet a proposal that the government consider using money from the TEF to help finance its initiative to exempt from income tax persons earning $1.5 million or less.

At the time, the Jamaica Hotel and Tourist Association warned that diversion of the funds would be detrimental as it would mean that the Jamaica Tourist Board would lose 75 per cent of its budget and critical promotions to bring visitors to the island would have to be discontinued.

However, according to IMF's staff appraisal, contained in the April 2017 country report on Jamaica, the gradual and systematic shift of earmarked tax revenues and fees from public bodies into the Consolidated Fund will improve the government's ability to prioritise and allocate resources.

The report noted that the Government is developing a policy framework to bring earmarked revenues that are partitioned in various public bodies into the Consolidated Fund.

As a first step, it said, funds from three entities will be permanently de-earmarked in fiscal year 2017-18, a new structural benchmark for June 2017. The Ministry of Finance explained, in response to Financial Gleaner queries, that this means revenues previously under the full control of those public bodies now become surrenderable to the Consolidated Fund.

"This will improve transparency and spending prioritisation, consistent with the broader public financial management reform," the IMF report added.

IMF staff also suggests that the broader effort to reduce the number of public bodies will improve governance and transparency, and mitigate fiscal risks. Better monitoring and reporting by the major public bodies is essential to ensure that the Ministry of Finance has a centralised view of all payments due to external suppliers, the report said.

In an assessment of public bodies' earmarked revenues and cash balances, the report noted that Jamaica currently has 181 public bodies, with about 70 classified as self-financed, that is, generate at least 50 per cent of their funding through earmarked taxes and fees, and commercial activities.

Among the self-financed public bodies, six collect earmarked tax revenues and 18 collect fees. Those vary from a set percentage of payroll tax for HEART, special consumption tax for the National Health Fund, a levy on international phone calls terminating in Jamaica which goes to the Universal Service Fund, to a standard tourist entry fee, the TEF.

The report said that in fiscal year 2016 the combined collection was about $65 billion, or more than 14 per cent of central government total revenues, and nearly four per cent of GDP, while the world average is about three per cent of GDP.

"If these revenues were included, Jamaica's (already high) tax burden would reach nearly 30 per cent of GDP," the report said.

It noted that while current laws and statutes provide significant autonomy for public bodies, especially those self-financed, their proliferation impedes effective public-sector financial and cash management.

It added that the outflows in many entities are smaller than their yearly inflows, generating cash surpluses.

"While these balances generate interest income for the public body, the current budget practices and PFM (public financial management) structure allow little flexibility to reallocate these resources to the central government's high-priority areas," the report said.

The Fund said the proliferation of public bodies could potentially distort resource allocation because of earmarked public revenues and entrenched funding designated decades ago, and are misaligned with current policy priorities such as crime and security.

"Jamaica has a significant number of public bodies created over many decades which now match the central government's size in both revenues and expenditures," the IMF said, noting that public bodies hold cash balances of about $10 billion, while central government borrows or levies new taxes, adding to an already high tax burden.