As consultations continue between the Government and stakeholders in the tourism industry regarding proposed tax measures for the sector in the next fiscal year, concerns have again been raised about the timing of their implementation during what is still expected to be the recovery phase from Hurricane Melissa. Similar concerns have been shared elsewhere among consumers and other businesses which have been impacted by the first tranche of tax measures which took effect during the first quarter of the current fiscal year.

Preserving Fiscal Responsibility

The Government has insisted that the measures are aimed at preserving fiscal responsibility by ensuring that the country’s debt-to-GDP ratio resumes its downward trajectory in order to meet the legislated target of 60 per cent by the revised deadline. This is now set to be FY2029/30, having been extended by two years in keeping with the fiscal rules enshrined in the Financial Administration and Audit (FAA) Act. The government has foregone additional borrowing which may derail the attainment of this target, instead financing the fiscal deficit with revenue from added taxation, helping to keep yearly fiscal balance targets in check.

While bipartisan efforts at debt reduction over the past 15 years have yielded tangible results, the necessity of additional taxation measures in the immediate aftermath of a severe economic shock to maintain Jamaica’s positive debt trajectory has highlighted a noteworthy limitation in the country’s fiscal rules. This provides a further opportunity to strengthen them for future crises, while also potentially eliminating any need for tax measures so soon after a major economic disruption.

The FAA Act was amended in 2014 with a provision for suspending the rules for a maximum of two years in the event of an economic decline which exceeds 1.5 per cent of GDP according to Section 48C of the Act. This clause has been activated twice since then – after the initial shock from the COVID-19 pandemic in March 2020 and later Hurricane Melissa in October 2025. However, it ignores the differentiated nature of economic shocks – in the absence of measures to accelerate post-disaster economic output, steeper declines will likely need a longer recovery period and a further suspension of the rules to meet the debt target, and vice versa. Currently, all shocks above the stated threshold, regardless of the magnitude, will trigger the same length of suspension. For both COVID-19 and Hurricane Melissa, the size of the decline in GDP exceeded 7 per cent in the first quarter following the event — well above the 1.5 per cent limit.

As such, a proposed amendment to the fiscal rules to include a tiered system which makes the length of suspension proportional to the magnitude of the economic shock, could be an appropriate and mutually beneficial solution to all stakeholders in the aftermath of future crises.

Larger declines in economic output, which may take a longer time to recover barring measures to stimulate growth, would benefit from additional breathing room. This may also lessen the burden of any additional taxes to meet fiscal targets and possibly provide space for tax revenues to rebound organically instead. A further extension of the deadline to reattain the debt target would also offer further flexibility while maintaining fiscal prudence in accordance with the law.

Taxes, Fiscal Restraint and Economic Resilience

While legislative and policy adjustments are important as part of Jamaica’s ex-ante response to disasters, perhaps even more crucial are developments in the real economy which provide additional buffers to navigate national emergencies. Despite significant improvements in revenue administration and tax reform during Jamaica’s fiscal consolidation over the years, efforts to continue to naturally grow Jamaica’s low and narrow tax base will become even more critical in order to augment resilience for future crises. This would enable the country to increase its ability to absorb anticipated revenue shortfalls with minimal or no added tax measures.

While widening the tax base invariably includes ongoing attempts at incentivising compliance and formalisation, the greater share of the effort should be underpinned by an aggressive thrust to boost economic growth beyond Jamaica’s long-run growth rate trend of 1-2 per cent through real increases in production, consumption and trading activity, without the need to adjust existing tax rates or categories. Owing to more efficient collections, Jamaica’s tax-to-GDP ratio has consistently hovered between 20 and 30 per cent over the past few years as the country inches closer to parity with its developed country counterparts, despite tax arrears at over J$250 billion exceeding the recommended global benchmark of 10 per cent of total tax collections, which stand at nearly J$1 trillion.

Through its unprecedented and rapid debt reduction, Jamaica has addressed one aspect of resilience and provided more fiscal room than the country had during past crises when debt levels were higher as a percentage of GDP. A lack of previous sustained and meaningful economic growth, however, has imposed further constraints during recovery and makes budgeting a greater exercise in fiscal restraint for the foreseeable future. This vulnerability has become more exposed as tax revenue shortfalls relative to budget during the first quarter of the current fiscal year have had to be accompanied by a downward revision of expenditure to keep fiscal balance targets within reach.

At an average growth rate of 1-2 per cent, revenues only increase approximately in line with the rate of inflation annually. In other words, revenues do not grow in real terms and the government can only afford to maintain what it currently spends on each year. Consequently, it becomes more difficult to consistently meet public expenditure needs with increased demands on each budget line item every year. This lack of space to significantly increase spending in real terms is compounded when unexpected deficits materialize owing to a divergence of revenue projections and actual intake. As a result, previously planned expenditure must either be delayed or abandoned, with later implications for growth and development. This situation is worsened during economic shocks.

Hurricane Melissa has further emphasised the importance of continued prudent public financial management as part of maintaining resilience in the aftermath of crises. Increasing this resilience must also be complemented by robust economic growth prior to the event that affords the country greater space during recovery periods.

Keenan Falconer is an economist with experience in the Jamaican public and private sectors and the multilateral financing space.