Business

Finally…a bold and visionary budget

BY DENNIS CHUNG

Friday, March 08, 2019

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As I sat and listened to the budget presentation (Revenue Measures) by the Minister of Finance, I thought to myself that finally, after my many years of writing and commentary supporting the reduction of taxes and particularly the removal of the Minimum Business Tax (MBT), I am now seeing it come to pass.

I don't think enough of myself to think that what I have been saying over the years is what has caused it, but am heartened to know that there seems to finally be some proper thinking around what encourages growth and development.

When the estimates of expenditure was presented I had commented that it was a very good budget, as one could see that there was a lot of emphasis on infrastructure development, security, and education. I was pleased with that emphasis and you can just imagine how much more pleased I am to see the thought process coming out of the revenue expenditures.

The Minister correctly stated that tax should be about encouraging private sector activity, and should not be distortionary. I have been saying for years that our tax policy has been an impediment to growth, and one of my primary areas of course has been the MBT, which I have always felt discourages small businesses to register. In fact I have known people who refused to register their ideas in the past because of the MBT. This tax I think was just not well thought out and I am happy to see it finally go as of April 1.

The Minister also correctly spoke to the impediment caused by the asset tax, and that it would be removed for non-financial institutions. This makes a lot of sense, because by having an asset tax in place it implies that businesses are being penalised for accumulating assets, which is what businesses should do to create wealth. I would have loved to see more though, and there should be a timeline laid out for the eventual removal of the asset tax on financial institutions also, as this would no doubt further reduce the cost to financial institutions and with increased competition this can be passed on to consumers.

This competition will definitely be increased with the measure to abolish stamp duty on mortgage refinancing, securities transfer, registering land, etc. This is to come into effect on April 1 also, and I think is one of the best moves I can remember to stimulate competition between financial institutions.

For too many budget presentations I have heard Ministers decry the need for financial institutions to reduce interest rates, while at the same time putting on new taxes on transactions to impede competition. This move to eliminate this tax and replace it with a $5,000 processing fee will certainly improve competitiveness and is similar to the move to allow for number portability. Now people can easily take advantage of lower interest rate offerings and should drive credit with the costs to transfer securities significantly reduced.

The move to also abolish advalorem stamp duty of property transfers will not only increase the amount of property transactions, but should also increase property value as this should increase demand.

With an increased demand we should also see greater encouragement for more real estate construction activity, which will lead to development of our housing stock. The reduction from 5 per cent to 2 per cent is to take effect on April 1. This is not to be outdone by the increase in the exemption threshold for stamp duty on estates from $100,000 to $10 Million on April 1 also.

Increasing the GCT exemption threshold from $3 million to $10 million is also a very practical move. Not only will micro businesses be able to focus more on business rather than administration costs, but it should also reduce the administrative costs for TAJ, as no doubt a part of the consideration was the cost of monitoring these small businesses, which may not have been worth the return.

The Minister says that the Government will forego $14 billion in revenue, but that is gross revenue, as the costs of administering these taxes will be reduced and in addition to the increased economic activity, will give a net return of well in excess of $14 billion, I believe.

The Minister started his presentation by focusing on the number of capital projects for security, education, health, etc. and increased PATH benefits. This is something that some of us have for years been promoting. It has always seemed logical to me that the way to grow an economy is to encourage expenditure and efficient capital allocation, which is what our tax policy over the years has discouraged.

As a result, as the Minister pointed out, in the great majority of years that we have put new tax measures on the Jamaican people ($130 billion net new taxes since 2001) we have not been able to achieve the revenue target. This was always the logical outcome, as if you take money from people then how do you expect them to produce?

What is going to be important going forward, is that the Government (whether this or another administration) continues the path towards removing tax and policy impediments and put faith in the private sector and citizens to grow the country, not just by words, which was always done before, but by deeds.

Government needs to do get out of the way and watch Jamaica grow.

We will all benefit from this, as we have seen the growth and economic activity that has happened as we reform our fiscal accounts and put more money in the economy through reduced debt servicing and move from direct to indirect taxes.

I would have loved to see Government move towards eliminating PAYE for all, as leaving 90,000 people on PAYE is really inefficient. But everything in time, so I am hoping that this will be the next step.

I hope that this budget signifies a change in the mind set of policy setting in Jamaica, and we start to understand that more money in the hands of the private sector and public means increased economic activity and growth.

Dennis Chung is the author of Charting Jamaica's Economic and Social Development AND Achieving Life's Equilibrium. His blog is dcjottings.blogspot.com.

Email: drachung@gmail.com


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