Unmasking the deception
Marlon Morgan, GUEST COLUMNIST
Worse than bitter medicine, this is a lethal injection!
The civil-society group Citizens Action for Principle and Integrity was spot on last Monday as it raked the Simpson Miller administration over the coals for breaking its election promises and engaging in what it described as "barefaced deception". The administration, it argued, not only demonstrated contempt for the people of Jamaica, it gravely eroded its credibility - a virtue that is critical to governing in times of austerity.
With public outcry becoming increasingly louder, it is evident that Dr Peter Phillips' tax package has not gone down well with a number of sector interests and a vast segment of the population. Some members of the business community argue that the new tax measures will deal their sectors a devastating blow, while others posit the view that they have placed an unreasonable burden on those who can least afford it - the poor and the struggling small-business operator.
The truth is, we have been living way above our means as a country and have been racking up debt at a much faster rate than we have been raising revenue to service that debt. In addition to debt servicing, more money has to be found each year to do all that has to be done: fuel police cars, fix roads, educate our people and pay public-sector workers. With a $612-billion Budget to finance, we knew the revenue had to come from somewhere. We all braced for the tax axe. We hoped, however, that it would have fallen equitably across the society. That has not been the case.
Phillips' tax package has gone beyond bitter medicine proportions. It is bordering on lethal injection. On a whole, the tax package does not represent the most equitable and reasonable sharing of the tax burden.
conscience of many shocked
As a matter of fact, the tax package shocked the conscience of many, as they could not come to grips with the fact that it has come from an administration that positioned itself as pro-poor, pro-business and pro-development. For them, there is great difficulty in reconciling the new tax measures with the pronouncements of a set of persons who promised to: remove GCT from electricity bills, ease the burden on small businesses, stimulate the economy through counter-cyclical measures, restore hope to the hopeless, and, most important, balance people's lives.
The Government has done none of the above. In fact, its tax package flies in the face of the promises it made - promises upon which the people elected it to office.
I must hasten to indicate, though, that there are aspects of the revenue measures that I deem appropriate and quite reasonable. The 50 per cent increase in motor vehicle licensing fees and the imposition of a $60,000 flat tax on small businesses are two such measures.
Amid the widespread dislocation, one must empathise with taxi operators in particular, who, in addition to suffering from ever-increasing gas prices, will now suffer from the tax placed on ethanol, a fuel component. In the meantime, they are being told that they will not be granted a fare increase and will only be permitted to carry three passengers on-board.
By all indications, the finance minister squandered a glorious opportunity at comprehensive tax reform. The work done by the Private Sector Working Group, the Ministry of Finance which tabled a Green Paper on tax reform, and other stakeholders has amounted to very little.
Instead of putting together a mix of taxes in a framework that would remedy existing distortions, simplify the tax code and make it easier to comply, Phillips did what we have become accustomed to seeing: he simply ran through the raindrops.
It may well be argued that political considerations trumped the need to implement game-changing tax reform. It must be understood that Phillips' tax package was designed to give the appearance of relief to the poor and increased taxes on the rich and those who can afford a greater share of the tax burden. His revenue measures, disguised as measures that spared the poor and the small man, are already being unmasked and exposed for what they are. The small business operator, working poor, unemployed and underemployed are coming to the realisation that they are the ones who will bear the brunt of the taxes, whether directly or indirectly.
Rather than imposing a deceptive tax package, Dr Phillips should have focused on making the most optimal use of fiscal policy this country has ever seen. He should have used fiscal policy (government spending and taxation) in a manner that truly stimulates economic activity, protects the most vulnerable in the society, promotes investments, induces growth and encourages compliance.
That there's merit to reducing the income tax rate for unregulated businesses from 33.3 per cent to 25 per cent is undeniable. As opposed to merely bringing down the tax rate and giving a break for the sake of giving a break, the finance minister should have used the opportunity to optimise the benefits the country stands to gain from the tax break. For example, when a scholarship is awarded to a recipient, there is us-ually a stipulation that the beneficiary must maintain a particular standard (for instance, a B- average).
Inasmuch as a scholarship is awarded to a student on a defined basis, Phillips' tax break/incentive should have been accompanied by clearly established quantitative and qualitative benchmarks such as the creation of new jobs, retooling/modernising, research and development, increased use of renewable energy, increased corporate social outreach, and increased use of raw materials supplied locally.
You will recall that the emphatic announcement of the reduction in GCT from 17.5 to 16.5 per cent was met with resounding applause among government members in Parliament. It was orchestrated to grab the headline: 'Government reduces GCT'. What you were not made to understand immediately, though, is that the one per cent reduction in the GCT rate pales in comparison to the vast expansion in the number of items to which GCT will now apply.
It was unreasonable and downright deceptive to reduce GCT in such a minuscule way, yet apply it to such a large number of previously exempted items. This is because conventional wisdom, as well as the principles of fairness and burden moderation, had always dictated that if the number of taxable items were to be increased considerably, there should also be a corresponding reduction in the GCT rate - a commensurate reduction to about 10 or 12.5 per cent.
Regrettably, the finance minister added insult to injury by not just increasing the GCT rate from 10 to 16.5 per cent, he went on to argue brazenly that the 300kWh GCT threshold that would now apply to electricity usage, represented a promise kept. Now if that doesn't pass for deception at its best, nothing does.
The truth is, while one can identify with some of the revenue measures imposed, the net effect of Phillips' tax package will be devastating. It is incoherent and will do very little to boost economic activity and stimulate aggregate demand, which is what we should be aiming for in times like these. It will only contract the economy and leave us in protracted stagnation.
Businesses and consumers, notwithstanding the increase in the income tax threshold, will have much fewer resources at their disposal.
For the consumer, particularly the poor and fixed-income earners, Phillips' Budget has dealt a devastating blow.