Once again the people of Jamaica have been asked to bite the bullet as the government rolled out a $21.8 billion tax package to meet the fiscal deficit (the difference between what governs earns and spends) in the Budget, for the current financial year. The time of reckoning has come.

The increase in the standard rate of the General Consumption Tax from 16.5 per cent to 17.5 per cent on a large number of items widely used and the removal of exemption from a wide range of goods will yield $3.6 billion; expansion of the number of items under GCT will bring in $6.2 billion; removal of exemption of electricity will fetch $l.2 billion; re-introduction of the add valorem (a duty levied on the invoiced value of certain imports) $9.4 billion; and the increase in the Special Consumption Tax on cigarettes $l.41 billion. Rice and flour, a staple diet, especially for the poor, have escaped the tax axe. Business people with projected sales below the $3 million GCT threshold will not be required to collect, but some will, based on what happened in the past, no doubt “try a thing” because the public may not be aware of their status.

Dr Omar Davis, Opposition spokesman on finance, sometime ago proposed that the tax on government paper be increased from 25 per cent to 33 per cent. Golding’s response was that this is not an advisable approach to take – taxing high interest rate income is not going to reduce the interest rate, which is critical to production. I know that people invest in government paper and live off the interest, so an additional tax of eight per cent would be a big blow to them..

The country’s fiscal and economic decline has been coming for a long time, but neither the People’s National Party administration during its 18 1/2 years, nor the Jamaica Labour Party government which has been in office just over two years, took adequate measures to stop the economic slide. The JLP’s action to stop the slide has come rather late and at a huge cost to the people. Surely, the global financial meltdown helped to push the decline dramatically, but Jamaica was not in a position to deal with it. The country’s financial standing was weakened by its own meltdown in the mid-1990s which cost taxpayers $140 billion and the accumulation of debt totalling around $1 trillion.

The result is that the servicing of the debt this fiscal year, which ends on March 31 next year, totals $325.4 billion while revenue is estimated at $3l6 billion. The high cost of servicing the debt wrecked the country’s financial base. The cost this financial year will be a whopping 103 per cent of the total revenue and grants. The high interest policy by the PNP administration shot up interest rates to between 40 per cent and 90 per cent. This stifled the productive capacity of the country. The past PNP government and the present JLP administration were afraid to cut expenditure to any appreciable degree. On the contrary, they increased expenditure and borrowed to meet the fiscal gap in the budget. Both governments were afraid that the significant reduction which was necessary would affect the social services and a political fallout was bound to follow, but clearly it was not in the best economic interests of the country

No one should blame the International Monetary Fund for the heavy taxes the government wants to squeeze out of the people to meet the fiscal deficit. The IMF has in effect said the country is living beyond its means: if you want a standby loan of US$l.2 billion, then put your house in order and increase taxes to meet the fiscal deficit. How you do it is your own business.

Finance Minister Audley Shaw, in his statement to Parliament last Thursday, summed up the situation when he said. “We cannot in perpetuity live beyond our means where the cost of servicing our national debt continually exceeds the earning capacity of the country. It is a prescription for persistent poverty and social and economic chaos. We cannot live in a fool’s paradise and believe we can borrow our way into prosperity. We will have to begin to work our way, earn our way and pay our way.”

The only problem is that governments in Jamaica have always been full of talk with little action. What is needed now is for the government to put in place teams to monitor the implementation of the plans, in order to reform the economic landscape fundamentally, as Shaw said. The plans include decreasing the fiscal deficit over the next fiscal year, comprehensive tax reform, fiscal responsibility framework, establishment of a central management system, containment of recurrent expenditure on utilities, purchase of goods and services and a debt management strategy that seeks over time to continue to reduce interest cost.

Although it helped to bring the country to the desperate fiscal situation, the Opposition would not be doing its duty it if did not blast the widespread application of the increases. This is the way of politics. It was concerned about the effect the increased GCT rate would have on the poor and middle class. Davies and former Prime Minister Portia Simpson Miller have been harsh on the government. Most people want to know what comprehensive action they would have taken to meet the fiscal deficit, given the inevitability of going to the IMF.

I do not wish to sound like a Scrooge, but Jamaicans should spend moderately this Christmas and tighten their belts because the next four years or so are going to be tough.