Taxation: Sharing the burden for collective benefit
Colin Bullock, Contributor
People are not generally enthusiastic about paying taxes. This is not peculiar to Jamaicans. Taxes mean that the individual, household and company have fewer resources for consumption, saving or reinvestment.
While we do not like to pay taxes, there is a tendency to see government resources as a 'common pool' from which we expect to extract benefits for ourselves. We want better schools, an effective health system, a business-friendly environment, food, shelter, security and yes, "we want justice!"
People bonded together in primitive society to enhance production, and for mutual protection against other potentially hostile groups. Leadership was required to organise production, to protect members and their property from each other and to oversee the defence of the group against external hostility. The resources provided individually or collectively for these functions represent taxation.
While Jamaica of today is more complex than primitive society, the essence of government providing goods and services on the basis of taxation remains the same. The evolution of money now makes it easier for governments to spend more than the tax revenue and to borrow the difference from other entities that are more financially prudent. When this is no longer an option, government may get its central bank to lend it money through 'printing' more of the national currency. By causing exchange rate depreciation and inflation, this reduces the purchasing power of financial assets and fixed incomes, effectively transferring wealth from poor to rich.
The only option
Jamaica is now so much in debt that our external benefactors and creditors are no longer prepared to put in more money unless we, as a nation, show more responsibility in moderating expenditure and paying more of our own way through higher taxes. Budgeted non-debt expenditure is already likely to buy less than it could in the previous financial year. With further expenditure cuts being improbable, the only remaining non-inflationary option is a sharp increase in taxes.
The characteristics of tax systems are expected to include fairness, administrative simplicity, revenue effectiveness and facilitation of economic activity. Fairness requires that people who are equally well off should be equally taxed and those that are better off should pay more. This should inform the distribution of the incremental tax burden.
Jamaicans must now go beyond expecting more and paying less. Without individual acceptance of a 'fair' share of the burden of incremental taxation, we shall all be worse off, individually and collectively.
Colin Bullock is a former financial secretary and now a senior lecturer in the Department of Economics at the University of the West Indies.