Chairman of the Economic Programme Oversight Committee (EPOC) Keith Duncan says that calls for the Government of Jamaica (GOJ) to increase the personal income tax threshold, as first proposed by the Caribbean Policy Research Institute (CAPRI), should be welcomed, but after consideration of a number of competing priorities in the budget. CAPRI earlier this year called for the personal income tax threshold to be increased to $2.2 million.

Duncan, responding to the Jamaica Observer questions about the proposal during EPOC’s quarterly media briefing last week, shared that raising the personal income tax threshold should be a welcomed consideration.

However, he pointed out that the GOJ had to account for a number of increases in its expenditure over the last fiscal year that would offset the growth in revenues. Among them, he listed the review in the compensation of public sector employees and the rise in the budgetary allocation to capital expenditure.

“Remember we have a baked in public sector compensation increase and there may be some niggling public sector wage” negotiations left to be completed, the EPOC chair pointed out, adding, “We’ve been able to increase capital expenditure.”

“[But] if our tax revenues continue to grow and economic activity continues [to improve] then there may be room for the threshold [to increase],” he continued.

So far over the first six months of the current fiscal year — April to September — the Government’s tax collection has been exceeding projections for this year by $6.9 billion or 1.8 per cent. When compared with the same six-month period in 2022, taxes collected so far this year are higher by 17.4 per cent.

PAYE accounted for the largest tax collection over the half-year, surpassing budgetary estimates by $5.9 billion or 9.1 per cent.

While noting that improvements in tax revenue intake could provide the GOJ with more fiscal space, Duncan questioned where this surplus should be allocated.

“So now, how do you use that fiscal space? So you use that fiscal for the more vulnerable, as they did with the reduction in [bus] fares, or do you increase the threshold for middle-income and lower-middle income earners?” he asked.

Answering his own question, Duncan said he would recommend allocating funds to middle- and lower-middle income earners since both “have been impacted significantly because, when you look at it, cumulatively over the last three to four years inflation, is about 30 per cent…and, therefore, purchasing power has been eroded”.

“Therefore, increasing the threshold, if the Government has the fiscal space, will be welcomed by everyone,” the EPOC head stated. “I believe that one would be due.”

When asked further if there was a salary floor he would recommend, Duncan said he has not looked at the calculations and as such cannot do so. However, like CAPRI, he advised that the income tax threshold should be “reviewed with a certain level of frequency” because of the impact of inflation.

In May this year, CAPRI Executive Director Dr Damien King proposed to Minister of Finance and the Public Service Nigel Clarke a 47 per cent rise in the income tax threshold to $2.2 million in a presentation dubbed “Budget Breakdown 2023: An Analysis of the Government’s Proposed Revenue and Expenditure”.

King, a respected economist, said his recommendation is premised on the fact that the GOJ has reduced the country’s debt.

“Coming out of this we have two recommendations — recommendations that we encourage the Government to implement with its next budget. The first one is to correct for the erosion of the income tax threshold, which has moved a segment of the population which, seven years ago, we decided to release from the tax burden and only because of inflation…they have now been brought into the income tax burden,” he stated then.

The CAPRI head also recommended that adjustments to PAYE should be indexed to inflation.

In another forum, King indicated that the problem with inflation is not only that it reduces spending power, but also “pushes more people below the poverty line.”