IN April of 1992, I was working in the emerging market division of one of the City of London’s oldest merchant banks. I remember my Jamaican friends, also based in London, all talking excitedly about “The Butch Stewart Save – the – Dollar Initiative”. At the time, it struck me as an extremely patriotic act, and probably influenced my decision to return to Jamaica approximately one year later.

A similar type of initiative is badly needed today. It is therefore extremely timely to quote a recent conversation with Mr Patrick Lynch, Mr Stewart’s then and now financial guru, on the rationale for the 1992 initiative.

“The Butch Stewart initiative, as it was popularly called, forcibly reminds us of civic contribution, private sector contribution and the resulting groundswell. Such selfless acts at a national level lead to a sense of renewed confidence of a people in their capacity to do better for themselves. Like Butch Stewart, many members of the private sector are uniquely placed on many occasions to contribute to the national good, as, while they are outside the political process, they are close to the consumer and the markets and frequently have information that would enable them to make informed policy choices.”

There has never been a better time to harness the resources of the private sector, and civil society generally, to assist in the process of saving Jamaica in these very difficult times.

As Lynch correctly notes:

“In the same way that the Butch Stewart initiative was done with Jamaican’s long- term interests at heart, a broad cross section of private sector interests now need to rise up to help with our current challenges.”

Jamaica’s fiscal crisis has deep roots. The last serious attempt to fundamentally arrest Jamaica’s economic decline occurred in the late 1980’s, when for a brief period Jamaica saw the kind of economic growth, about six per cent of GDP, that can actually transform a country over the medium term. A key part of this short-lived improvement in economic performance was the revenue enhancing effects of a comprehensive tax reform, which occurred on January 1st, 1986.

The chairman of this successful tax reform argues that the reason their comprehensive tax reform proposals were largely accepted by the then Seaga government was that the committee had succeeded in identifying significant additional revenue sources eg withholding tax on interest. This enabled the government to largely go along with the committee’s proposal to reduce the rates of both corporate and personal income taxes, which led to a near doubling of revenue. The committee had proposed a rate of 25 per cent for both taxes but the government watered down the proposed reduction to 33 1/3 per cent.

Whilst the general consumption tax was not introduced at that time, the same committee had also prepared a study on the GCT. The introduction of the GCT in the early nineties by another courageous finance minister, Hugh Small, was a fundamental part of Jamaica’s fiscal improvement in the first half of the 1990’s, sadly reversed by the consequences of our home grown financial crisis.

The Final Report of the “Tax Policy Review Committee”, dubbed the Matalon Report after its chairman, was in many ways a true successor to the 1980s tax reform. It employed the same lead consultant, Professor Roy Bahl, who was by now an internationally acclaimed tax expert, and in many ways was an attempt to finish the job. The overall thrust of the report was to improve horizontal equity, meaning that the incidence of taxation on taxpayers at similar income levels should be the same. This was to be achieved by bringing tax relief mainly to the burdened PAYE taxpayer, largely through shifting the tax burden to consumption taxes, thereby capturing those in the informal economy not making a contribution.

Critically, Matalon had suggested that tax reform needed to be considered as a package and not simply as a menu to be cherry picked by the Government. His key suggestion was to substantially raise the threshold, and equalise corporate and personal tax rates at the lower individual level, to be financed by a one per cent rise in GCT and a tax on gas. It was thought that these measures would generate a very substantial compliance dividend, as occurred in the 1980s.

Despite the work on a social partnership that began in late 2003, and a report that was ready from October 2004, the moment was missed when the Matalon report was essentially cherry picked for its revenue measures (raising GCT by 10 per cent to 16.5 per cent) in the April 2005 budget.

One of the reasons for the cherry-picking was that the government at the time, which was just recovering from a fiscal crisis at least partly brought on by excessively high interest rates, felt unable to tax gas.

We are now facing a much deeper economic crisis than that of 2003. The unsurprising result is that tax reports have again been cherry-picked for their revenue raising measures at the expense of fundamental reform. Genuine tax reform has to be a critical part of getting Jamaica out of our dire economic mess.

In the New Year, all segments of the society need to agree to put Jamaica first, and work together to address the fundamental causes of our economic problems. Treating the issue of the IMF and tax policy as political footballs (rather than the basis for a social partnership) has been enormously costly so far, and will become costlier still if this approach is not abandoned. 

It is also not helpful, indeed stretches credulity, to imply that Jamaica’s economic problems would somehow be different under another minister of finance or

even government, pursuing essentially the same policies, in the same international economic environment.

The private sector and civil society must be engaged through the consultative structures that already exist, namely the national planning summit and social partnership, and the strongest possible economic and financial team must be put forward to come up with creative ways to deal with the economic crisis.

To quote Mr Lynch again “As in 1992, there would be a snowball effect in doing something in the national interest whatever government is in power. We need to see again the type of initiative that engages the grass roots, improves confidence, and combines both corporate and people power.”