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EDITORIAL - Sharing the economic burden

Published:Wednesday | June 6, 2012 | 12:00 AM

In opening the parliamentary debate on how he plans to fund the Government's Budget, Peter Phillips praised the Private Sector Working Group (PSWG) for the slew of tax-reform proposals it placed on the table and for promoting serious discussion on the issue.

It was an example, he called it, of "patriotic commitment". Dr Phillips was right.

Indeed, when the finance minister comes to close the debate today, he may well have to repeat the accolade. He may even announce his intention to adopt initiatives proposed by the PSWG, in particular the suggestion for a payment holiday by businesses to the National Housing Trust (NHT), and funnelling that cash to the Consolidated Fund.

This idea is not entirely new. Variations of it have been raised in the past by others and supported by this newspaper. This time, though, the idea is not for the cash to go back to the business for investment.

What the suggestion represents, however, is a willingness of some, in the midst of a crisis, to search for workable solutions, rather than engaging all their efforts in shying away from sharing the burden.

In the absence of credible evidence to the contrary, the majority of Jamaicans could hardly be faulted for fingering the tourism/hotel sector, or a substantial segment of it, among the latter group.

Jamaica's debt of J$1.7 billion, or 130 per cent of GDP, is unsustainable. Few in the money markets are willing to lend us more and the International Monetary Fund (IMF) has demanded clear signs of a move to curtail the debt ahead of serious negotiations on an agreement and its seal of approval to take to the markets. Among its demands is that Jamaica run a primary balance this fiscal year of six per cent of GDP.

As part of the austerity programme, Dr Phillips has proposed a J$19.4-billion tax package, of which $3 billion will come from the tourism sector, which currently pays little in taxes. Tourism gets generous incentives that free it from most corporate income tax, enjoys a 6.5 percentage-point differential on the general consumption tax, and benefits from big taxpayer spending on marketing.

Its spokespersons now claim that for it to contribute more, that would kill the industry. Critically, they offer no alternatives on who should assume their slack.

HOW THE NHT HOLIDAY WOULD WORK

Conversely, the PSWG did not, in this go, achieve its proposed overhaul of the tax system, including a five percentage-point lowering of GCT and the widening of its net to all products. Dr Phillips' aggressive debt-containment strategy meant that he needed to raise around $16 billion more than the PSWG's programme contemplated.

It is in this context that the group has suggested the moratorium on the three per cent of wage bills that employers contribute to the NHT - similar to the payment holiday a firm might take when it has a fully funded pension scheme.

Concomitantly, the education tax on firms would be raised to cover the amount siphoned from the NHT, to raise about J$12 billion. With its net assets of more than J$100 billion, and capital inflows of around J$10 billion after the adjustment, this would not seriously affect the NHT's ability to provide mortgages to its employee contributors, if its resources were properly managed.

The PSWG's suggestion for a lower rate of GCT, below the current 16.5 per cent, across a narrower band of goods than those now exempt, is also worthy of consideration.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.