The contentious bauxite levy 40 years after

Thursday, May 15, 2014    

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HIT by the first oil price crisis of 1973, the Michael Manley Government at the time felt that the only prospect for earning more foreign exchange and tax revenue for Jamaica was from the bauxite/alumina industry, controlled since its inception in the late 1950s by American and Canadian multinational corporations.

Mr Manley made the very daring, some say foolish decision to take on the multinationals by forcing them to negotiations, conducted by a team comprised entirely of Jamaicans and supported by an international diplomatic campaign masterminded by him.

Jamaica was successful in the conduct of the negotiations but did not reach an agreement on taxation and eventually had to impose new taxation in the form of the bauxite levy 40 years ago.

Mr Manley commented: "The Jamaican people, at the moment when I announced the production levy in the sovereign Parliament of our country, knew what it was to be citizens of a sovereign, independent nation."

He also announced that the purpose of the levy was to finance investment, and as such the proceeds would be put into the newly created Capital Development Fund (CDF). Mounting debt and the political timidity to impose new taxes or increase existing taxation rates led to the practice of raiding the CDF to transfer funds for general budget expenditure.

The free education of the 1970s was funded out of bauxite earnings and is probably the only lasting legacy of the decision. Many Jamaicans are still thankful for that development.

We do not here engage in the futility of counterfactual historical analysis, but we too wonder if successive governments have not squandered much of the tax revenue. Undoubtedly, if more of the funds in the CDF had been used for investment in infrastructure, housing and education, Jamaica would have been in a much better position to achieve sustainable economic growth and would have less national debt, much of which went into road construction.

Many of us have a proclivity to blame our "persistent poverty" and our paltry economic performance on external institutions and external global processes — from slavery, to colonialism to imperialism. But we need to accept that our underdevelopment is mainly due to our own bad decisions and wrong policies.

One such misguided policy is our consistent failure to invest sufficient amounts. That our level of investment is not high enough is not due to some vicious circle of poverty. It is because we have not invested the funds which we have. The inadequate use of the US$4 billion from the bauxite levy is a prime example.

As a people we do not seem to be learning from the mistakes of the past, because draining the CDF for recurrent expenditure is poor economic management and a bad habit which has persisted for over 40 years. Even at this stage, it behoves Jamaica to heed the words of Ministry Paper 51 of 1974 on the CDF that it would be "prudent that the major proportion of the income earned from this asset should be invested in such a manner as to create future income to replace bauxite income".

It is not only where people have no vision that they perish. It is also where people have a vision but do not implement that they also perish, remain poor or get poorer.





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