EDITORIAL - Phillips' reasonable path
This newspaper had hoped for a far more aggressive approach to tax reform by Peter Phillips when he last week unveiled his revenue measures for this fiscal year.
We, for instance, feel that the finance minister would have been better served by cutting deeper than one percentage point into the applicable rate of general consumption tax (GCT) and clawing back more of the forfeited revenue by casting a wider GCT net. All exemptions and zero ratings should have been eliminated and compensating subsidies transferred directly to the society's most vulnerable.
We would have preferred, too, that Dr Phillips had come close to adopting the Private Sector Working Group's proposal on personal income tax. And while an 8.5 percentage-point reduction in corporate income tax - equalising it with that for individuals - is a welcome move in the right direction, Dr Phillips might have been braver on this front.
A combination of additional discretionary income in the pockets of workers, and more free capital in the hands of firms, would likely have led to greater levels of consumption and investment and, therefore, more economic growth and jobs and, ultimately, more taxes for the Government.
In the short term, Dr Phillips would have offset the income given up in corporate and personal income tax to a far more robust compliance regime and an acceleration of the elimination of discretionary waivers.
But these shortcomings notwithstanding - and they do not represent all of our concerns with the minister's package - we believe that the general direction upon which Dr Phillips embarked is right.
Importantly, we are encouraged by the refreshing frankness with which he spoke about Jamaica's economic situation, especially in pointing to the "mirage" being pursued by those who fantasise about a big government stimulus to drive growth.
The truth is that Jamaica's debt, at J$1.7 trillion, or 131 per cent of GDP, is unsustainable. Its servicing already consumes too much of the country's resources, and, as Dr Phillips bluntly pointed out, no one is willing to lend us any more, or at a rate we can afford, until we show that we have done things to put our finances in order.
Moreover, multilateral financial institutions such as the Inter-American Development Bank and the World Bank, as well as bilateral partners, won't release new resources to Jamaica until they see the International Monetary Fund's (IMF) imprimatur on the Jamaican economy. Concluding a new agreement with the IMF is, therefore, as essential as it is urgent.
Tax reform is among the things the IMF wants to be assured that Jamaica is pursuing ahead of finalising a deal. Dr Phillips has started what he says is a three-year programme. We are mindful of the political navigation that he must perform, even among his Cabinet colleagues. It is nonetheless our view that the overhaul of the tax system must be accelerated for full implementation by the next Budget, but hopefully before.
The other structural reforms, including reorganising the public sector and its pension arrangements, are also urgent and politically prickly. But it is an undertaking from which the Government cannot resile if it is indeed serious about breaking the long cycle of anaemic growth.
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