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EDITORIAL - Holness decent on tax reform

Published:Monday | April 2, 2012 | 12:00 AM

ANDREW HOLNESS, the opposition leader, is to be commended for not, despite the best efforts of some in his party, attempting to extract cheap political advantage from the tax-reform debate.

Last week, Mr Holness told this newspaper that his Jamaica Labour Party would not object to putting most products, including foods significantly consumed by the poor, under the ambit of the general consumption tax (GCT).

But he had a proviso: there has to be a safety net to support that group, which would face higher prices, so that they are not pushed deeper into poverty. Further, the wider GCT could not stand on its own.

" ... You have to look at that within the context of everything else that you are going to change," he said.

Mr Holness' position is quite reasonable and contrasts with the inflammatory suggestions by his party's acting chairman, Robert Montague, about the Government wanting to raises taxes and appropriating the pensions and savings of government employees.

Distortion of issues

The irony of grandstanding, such as Mr Montague's, is that the tax-reform discussion - including removing most exemptions and zero-rating under the GCT - has its basis in a Green Paper initially tabled by the Jamaica Labour Party administration that lost the government merely three months ago. Worse is his distortion of the issues.

The self-appointed defenders of the poor, whatever their reasons, have disingenuously framed tax reform as a haves-versus-have-nots debate with the proposed adjustment to the GCT the fulcrum of the discourse. What they do not say with any clarity is that exemptions and zero-ratings enjoyed under the current 17.5 per cent tax represent mostly subsidies to the wealthy and well-to-do.

It is true that the poorest 20 per cent of Jamaicans benefit by about $11 billion per year from GCT exemptions, but in order to deliver that benefit, the richest 20 per cent get more than twice as much because the subsidies do not discern between rich and poor.

Shared benefits

If the Government lowers the GCT rate to 12.5 per cent, as the Green Paper proposed, and the Private Sector Working Group supports, everybody, including the poor, will benefit. But poor people will, nonetheless, have to pay GCT on products that were previously exempt. In this scenario, it is estimated it will cost about $2 billion for the poorest 40 per cent to maintain consumption at existing levels.

It would be more efficient and cheaper to give that cash directly to those who deserve it, rather than allowing broad-based application of which the rich will get the most. It can't be beyond Jamaican expertise to devise a mechanism to do this, which probably just means tweaking the Programme of Advancement Through Health and Education.

While it is not the only contentious issues, GCT on so-called basic foods and other things used by poor people is the politically most sensitive matter in the tax-reform proposals. The fact that Mr Holness seems ready to work with the Government to frame a credible package is worthy, given the centrality of tax reform in Jamaica negotiating a new agreement with the International Monetary Fund .

We now look forward to Prime Minister Portia Simpson Miller using some of her political capital to support the process. She has been strangely silent.

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.