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EDITORIAL - When the national home faces threat

Published:Wednesday | May 30, 2012 | 12:00 AM

Peter Phillips has an interesting analogy for the various interests that have, over the past week, expended much energy attempting to push back tax measures that affect them.

It is a bit, the finance minister suggests, like a family in a home, each member attempting to protect his individual room while the whole house comes crashing down. All are victim to the elements.

The immediate danger to Jamaica is its $1.7-trillion debt, the legacy of 40 years of incompetent economic management by the Gangs of Gordon House, the political parties that have alternated in government for more than 70 years. That debt represents approximately 130 per cent of national output of goods and services, and its repayment consumes more than 50 per cent of government spending. It enervates growth by siphoning resources that might have been invested to create jobs.

This failure in management has shown, as Dr Phillips noted, in Jamaica's meagre annual average growth rate for the past four decades of less than one per cent, and the fact that "average income per person today remains the same as it was in 1973".

Serious about reform

The good thing is that there seems to be emerging a genuine effort at serious economic reform, including breaking the cycle of debt and creating an environment for growth. That, in the short to medium term, will mean borrowing less, spending less, and collecting more taxes.

Herein lies the dilemma faced by potential reformers in attempting to shore up the national home. No one wants to contribute and few are willing or capable of showing alternative sources of income for the Government to meet its obligations. The important tourism sector is an example of one that may have been caught in this vortex.

In the revenue measures announced by Dr Phillips, tourism will maintain its applicable rate of 10 per cent for general consumption tax (GCT). That is six and a half percentage points below the general GCT rate.

However, commission and transportation will now be subject to GCT. Specific GCT rates will also apply to hotel rooms.

These measures, in addition to the modification of the rate for a special consumption tax that tourism enterprises pay on liquor, will raise about $3 billion. Tourism stakeholders suggest that in a competitive global environment, these could be the death knell of the industry.

Open your books

A not-unreasonable request by many is for the tourism sector to go beyond rhetoric to compelling argumentation for maintaining its special status, including the differential on GCT and promotional advertising by the Jamaica Tourist Board, which might be categorised as a subsidy. Tourism interests will also benefit from lower corporate income tax and other pro-business initiatives.

It is within reason, too, that in order to help the analysts to arrive at a conclusion about the protection required by the sector, the tourism operators open their books to disclose their profits, how of much of it is booked in Jamaica, and their effective tax rates.

Further, since tourism should be off-limits, they should say which sector should be taxed, or from what areas expenditure should be cut further.

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