Furtherexamination of the 2017 Fiscal Policy Paper (which belatedly accompanied this year’s budget) reveals that taxation in Jamaica is already dominated by regressive indirect taxation, which puts more of the burden on the poor. For April to December 2016, only $85.5 billion was collected in direct taxes (income tax, corporate tax) against $236.7 billion for indirect taxes (production, consumption, international trade). Is there really any need to go further, penalising the poor even more?

Further

examination of the 2017 Fiscal Policy Paper (which belatedly accompanied this year’s budget) reveals that taxation in Jamaica is already dominated by regressive indirect taxation, which puts more of the burden on the poor. For April to December 2016, only $85.5 billion was collected in direct taxes (income tax, corporate tax) against $236.7 billion for indirect taxes (production, consumption, international trade). Is there really any need to go further, penalising the poor even more?

Reducing the burden on PAYE taxpayers may sound reasonable, but in fact such contributions amount to only about 15 per cent of total taxes collected. We know that promising to reduce this further was about winning an election (made possible only because those not paying income tax thought they would also benefit). Another likely reason was to make the unions more pliable in the coming wage rounds. And saying there would be only a tax break and no new taxes fits with the anti-tax ideology of these neo-liberal economic times, which becomes hollow when one tax is just replaced with others to create a tax-neutral budget as demanded by the International Monetary Fund.

It is often argued, in favour of indirect taxation, that direct taxes (income tax, corporate tax, property tax) are harder to collect than indirect taxes (production, consumption, international trade) because of evasion and avoidance. But the data in Table 3E of the 2017 Fiscal Policy Paper shows that for April to December 2016 direct taxes performed well, exceeding that budgeted by 10.4 per cent. Production and consumption taxes came in at only 4.8 per cent above target, local General Consumption Tax only 0.2 per cent above target, and international trade taxes 0.2 per cent below target.

Figure 3(ii) tells a similar the story going back to 2009-2010. For most years both types of taxes underperformed, but in the last two years direct tax collection surpassed its target by a greater margin than indirect taxes.

What about the argument that higher direct taxes are a disincentive as regards effort, innovation and also compliance? The academic evidence is mixed, but with a disincentive effect (if any) only becoming apparent at marginal rates above 60 per cent (far beyond our rate of 25 per cent – 30 per cent). In the booming 1950s and 1960s marginal income tax rates in many western countries, including the USA, were as high as 90 per cent — but that was before the Reagan-Thatcher attack on social democracy from 1980 onwards.

Since the budget was presented, many commentators have explained the regressive nature of indirect taxes hurting those on lower incomes who have no choice but to spend most of it on heavily taxed goods and services. The last two budgets have exacerbated this situation, giving an income tax break to those earning more than $1 million (now $1.5 million) at the expense of those earning less.

Even so, the other big question should be about the required amount of total taxation if we are to remain a cohesive, just and stable society, rather than a massively unequal collection of self-serving individuals and families plagued by crime.

In Denmark, a country with a high quality of life index, taxes amount to about 50 per cent of incomes. The challenge in Jamaica would be to make sure such tax money was spent effectively quite a challenge given the corruption that abounds.

Paul Ward represents the Campaign for Social & Economic Justice. Send comments to the Observer orpgward72@gmail.com.

Paul Ward represents the Campaign for Social & Economic Justice. Send comments to the Observer or

pgward72@gmail.com.