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EDITORIAL - The job now is to collect the taxes

Published:Sunday | May 20, 2012 | 12:00 AM

As was obvious from the deliberations by Parliament's Standing Finance Committee over the past week, crafting the Government's Budget for the current fiscal year couldn't have been easy.

Like Oliver Twist, everyone would like some more, like Daryl Vaz's moaning over the reduction in the allocation to the Constituency Development Fund, the trough in which politicians, of either hue, so love to splash.

But as Peter Phillips, the finance minister, told legislators as they jostled over the numbers, "We can't all be for more expenditure and at the same time be for the paying down of the debt."

The argument for bringing the debt under control is compelling. The nearly J$1.7 trillion owed by the Jamaican Government, or 131 per cent of national output, is unsustainable. It represents the single largest deterrent to economic growth. Its servicing siphons resources away from productive investment.

The debt, of course, is not the result of some immutable force of nature. It is the outcome of a lack of fiscal rectitude, over a long time, on the part of Jamaican governments. They spent far more than they earned and borrowed to close the gap.

The debt created its own momentum. It is that cycle which Dr Phillips, nudged by the International Monetary Fund, has told his colleagues must be broken.

In that regard, the finance minister showed admirable fortitude by holding planned expenditure for this fiscal year to J$612.4 billion. In the context of the past, and projected inflation, that means, in real terms, a flat budget. And when the one-third hike in debt-servicing costs, mainly for amortisation, is excluded, there is an actual decline in projected spending.

Enhancing tax collection

But that is the easy part. The more complex issue is ensuring, over the next 10 months of the fiscal year, that the Budget remains credible, which Dr Phillips suggested it will.

The process starts this week when Dr Phillips reveals how he intends to finance the Budget.

If the Government is to keep the lid on borrowing, while pulling the fiscal deficit down to around four and a half per cent GDP in a situation of projected weak growth, Dr Phillips is likely to have to bring new tax measures. But piling onerous tax burdens on the too-few Jamaicans who now pay, as the finance minister is well aware, is not the most efficacious solution to the problem.

Comprehensive tax reform is essential, but the form it will take is still being debated. In the meantime, the more practical and valuable route of meeting the target of perhaps an additional $20 billion in revenues is enhanced collection.

Of a workforce of more than one million, only 35 per cent are registered under the PAYE system, and only six per cent are registered as self-employed. Most workers are not in the tax net; only 10 per cent of firms file tax returns and only five per cent report taxable income.

It is not beyond the tax authorities to match people's visible assets to tax returns/payments and formulate assessments based on these. The real requirement here is concentrated effort.

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