Regional

Tax policy underlines difference between PNP, JLP — Shaw

BY GARFIELD MYERS Editor-at-large South/Central Bureau myersg@jamaicaobserver.com

Wednesday, May 15, 2013    

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MANDEVILLE, Manchester — Opposition Spokesman on Finance Audley Shaw says a "philosophical" difference between the ruling people's National Party and the Opposition Jamaica Labour Party (JLP) can be seen in the approach to taxation.

The JLP, he claims, was committed to reducing taxes in a bid to encourage the "productive sector" to reinvest surpluses in the economy, and at the same time, broadening the tax net to include many who do not now pay taxes. The end result, he suggests, would be economic growth and greater tax compliance leading to increased revenue flows to Government's coffers.

According to Shaw, the PNP Government has taken an opposite path by "ramping up taxes", which, he says, would prove a disincentive for potential investors and at the same time increase tax evasion leading to lower revenues for Government.

In a wide-ranging address to the Manchester Chamber of Commerce at the Golf View Hotel in Mandeville recently, Shaw cited the situation with property taxes as an example of short-sightedness on the part of government.

"Take property taxes; lots of people were struggling at the old rate, and now we have gone and increased property taxes by 160 per cent. There are people who used to struggle to pay $9,000 and they say 'Mr Shaw is now $30,000, how I gwine pay?'

"I know a lady was struggling at $30,000 (for annual taxes). Her bill is now $150,000. Her choice now is (to) pay $30,000 or don't pay anything at all," said Shaw, who served as finance minister between 2007 and the JLP election defeat in late 2011.

Shaw claimed it was obvious that in such circumstances that the tax compliance rate is "going to go down".

In February, Finance Minister Dr Peter Phillips announced a tax package worth $15.9 billion embracing a broad range including customs fees, stamp duty, transfer tax, property tax, dividends, and a surtax on the taxable income of large unregulated companies.

Phillips said then that the tax package was an essential prerequisite for the country to secure an agreement with the International Monetary Fund (IMF) as well as access funding from other financial institutions and to ensure the country met its obligations. Agreement for a four-year Extended Fund Facility (EFF) from the IMF, worth US$958 million, was announced on May 1.

However, according to Shaw, the Government's structuring of the tax package was flawed since it had removed the incentive for the "productive sector" to "produce, produce, produce". Energetic endeavour in all areas of the economy was the only way Jamaica would achieve the levels of economic growth required to remove the problems that had taken the country to the IMF in the first place, he said.

IMF projections of economic growth of four per cent or just over [that] over the four year period of the agreement would not be good enough, Shaw said.

"I am saying we cannot stick with the IMF programme alone; we have got to chart a course that is going to take us far and beyond the boundaries established by the IMF, and we can do it. There are things we are going to have to do, far and beyond the projections of the IMF, things we have to do that go beyond the quarterly tests of the IMF...," he said.

"What is happening now is that we are on a path of fiscal compression, where the expenditure budget is cut sharply but at the same time taxation has been ramped up ...unfortunately (it is) bad for business and bad for growth in the economy because with tightness and fiscal compression we are likely to (meet) fiscal targets but don't get the growth... but if we not growing, then we are stagnant (with) bang belly economy...," said Shaw.

Shaw criticised the Government's approach to General Consumption Tax (GCT). He claimed the continuation of exemptions to GCT on basic items, purportedly to protect the very poor, was flawed and served no useful purpose.

Instead, he said, Government should reduce the GCT rate while applying it across the board and at the same time protect the poor through an enhanced welfare programme.

"Move GCT down from 16 to 10 per cent and let it apply to everything, and in terms of the very poor and marginalised you come up with an enhanced programme of conditional cash transfers that you put in a better welfare programme," said Shaw.

He argued that "the wickedest attack on poor people is the devaluation of exchange rates which drives up the cost of basic foods the worst". Devaluation, he suggested, was itself the result of flawed Government policy.

Shaw repeated previous suggestions that finance ministers should have hands-on experience in doing business to avoid errors he claimed the PNP Government was making. Phillips and Omar Davies, his predecessor in PNP governments of the 90s and early 2000s, hold PhDs and have strong backgrounds in academia.

In a brief reference to debt incurred by him to the Financial Sector Adjustment Company (FINSAC) as a result of business operations in the 1990s, Shaw said, "You know Jamaica needs more finance ministers who have been through the bunker of doing business. Because when you do business and have your payroll to meet and you have problems and you have to go and talk to the bank... you know the ins and outs and the frustrations of doing business.

"I do believe, I verily believe that is what helped to make me a relatively good minister of finance, if I may say so myself. The experience that (it provided)... that is one of the problems we have now, that we have people who are running finance who are basically academics. They are not business people. That is why such a raft of hostile acts in terms of tax policy have been meted out against business people and it is business people that are going to rescue this economy going forward," Shaw said.

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