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EDITORIAL - Get on with tax reform

Published:Sunday | April 29, 2012 | 12:00 AM

This newspaper confesses its deepening fear that policy impotence on the part of the Simpson Miller administration could result in a new, benign stand-off with the International Monetary Fund (IMF) and a meltdown of Jamaica's fiscal accounts.

Our concern is not that ideas do not exist, for there are many. Rather, we sense Prime Minister Portia Simpson Miller's inherent populism as a constraining factor on the implementation of tough reforms and may be leading to the isolation of Finance Minister Peter Phillips in the Cabinet.

Should anyone demand evidence, we commend them to the Government's, particularly Mrs Simpson Miller's, general silence on the matter of tax reform, a critical prerequisite for Jamaica to conclude a new agreement with the IMF.

In so far as the Government's populist proxies have addressed the issues, theirs has been an effort to undermine the reform proposals put forward by the Private Sector Working Group (PSWG). Their imputation is that the PSWG's effort is a promotion of self-interest. The critics, however, offer no, or few, counterproposals.

The need for tax reform and fiscal adjustment ought, we believe, to be obvious. After decades of loose fiscal management, Jamaica has a national debt near J$1.7 trillion, or more than 130 per cent of gross domestic product (GDP). The cost of servicing that debt consumes more than 80 per cent of Government's revenue from taxes and grants.

The upshot is that the Government borrows to meet its basic expenses, including paying the salaries of its employees. This spiral of debt, as several European countries, including Greece, Portugal and Spain, have discovered, is unsustainable.

public debate

Indeed, fiscal reform as a means of addressing the debt problem was the underlying pillar of the previous administration's US$1.2-billion standby agreement with the IMF. The agreement foundered on the former Government's inability - although it opened a public debate on the issues - to deliver on undertakings to reform taxes, state pensions and the public sector.

Significantly, the PSWG has provided the only comprehensive set of solutions to the finance ministry's ideas on tax and pension reforms. It called for a lowering of the general consumption tax (GCT) from 17.5 to 12.5 per cent, removing all current exemptions, and giving cash grants to the poorest Jamaicans to offset the impact of higher prices on their basket of basic foods.

The group would also remove special tax waivers for businesses, but lower personal and corporate income taxes among its measures to drive the competitiveness of the economy and create jobs.

The populists appear not to like the PSWG's ideas, especially the suggestion for the removal of GCT exemptions. Little attention is paid to the offset component.

The Government, with the exception, perhaps, of Dr Phillips, has hedged. If anything, Dr Phillips' colleagues seem prepared to feed him to the jackals should they come howling.

The bottom line is that the PSWG's proposals are just that - proposals. If the Government has a credible set of measures - it may choose from myriad tax-reform studies of the past - it should implement them, once the goals of reducing expenditure, increasing income, and providing a safety net for the poor are accomplished.

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.