International Monetary Fund (IMF) representative to Jamaica Dr Gene Leon believes that tax reform is an ‘urgent priority’ in facilitating economic growth on the island.

In a speech that touched on almost all of Jamaica’s ills, Leon outlined what he said could be the path to sustainable growth for the country, taking into consideration the roles of not only the government, but also the private sector and private citizens. He however stressed the need for urgent government-led reforms in the short term, among them the need for reduced corruption, an enabling environment and urgent taxation reform.

“A 2007 study by the Inter-American Development Bank estimates that 40 per cent of economic activity in the country is unregistered and untaxed, and that tax exemptions and incentives have eroded half the tax base,” Leon pointed out during his keynote address at the Jamaica Stock Exchange’s (JSE) Investments and Capital Markets Conference held last week at the Jamaica Pegasus Hotel in Kingston.

“Tackling growth today requires not only a comprehensive effort, but one capable of addressing some shorter run gains without compromising sustainability,” he added.

Among the shorter run gains that need to be addressed are galvanising all stakeholders around a ‘well articulated, shared, national vision’, minimising the culture of uncertainty that affects businesses and stifles investments, enhancing transparency, reducing corruption and resolute implementation of the growth focused policies, including tax reform, he said.

Last week, Minister of Finance Audley Shaw announced that some tax reform measures were imminent. Among the measures that Minister Shaw said would receive the most urgent attention was the removal of stamp duty on existing loans at financial institutions, and the removal of both the stamp duty and transfer tax on corporate bonds and commercial paper. However, measures that would broaden the tax base to include the informal sector would take longer and would depend on the modernisation of the tax administration system and the Customs Department. This modernisation should be funded by a $6.5 billion loan from the United States Agency for International Development (USAID).

In addition to the tax reform measures, Leon argued that the government must also focus on facilitating an environment for private sector led growth. He said the government must target at least an improvement in the aggregate and worst individual rankings by half on the ‘Doing Business’ and other global Indexes within two to three years.

The World Bank’s Doing Business Report for 2011 ranked Jamaica at 81 out of 183 countries for doing business, 173 with respect to paying taxes, 127 in enforcing contracts, 109 in registering property, 100 in trading across borders and 84 in getting credit. Jamaica is also ranked 87 out of 178 countries on the 2010 Corruption Perception Index, which measures the perceived level of public sector corruption. The investment in physical, social and human capital infrastructure, in particular building capacity, addressing poverty and poor social conditions are also on the short list of things to do by the government.

However, Leon did not rest the responsibility for growth solely at the feet of the government. He also pointed to the shared responsibility that is required to get Jamaica out of its low average growth, one per cent in the last two decades; high debt, almost 140 per cent of GDP; and chronic, persistent national savings deficit, 17 per cent of GDP in 2008/2009. Jamaica also has fiscal deficits amounting to 11 per cent of GDP in 2009/2010, compounded by falling exports and 13 quarters of declining domestic output.

He said that in the same way these negative results have affected businesses, households and the government, so too must the solution come from all three sectors.

“Although we tend not to acknowledge such, when a country’s financial and economic position deteriorates, this outcome itself is a shared responsibility, even if all units did not contribute equally,” argued Leon. “Therefore, generating growth is also a shared responsibility, but like an orchestra, institutional units need to play to the same music at the same key,” he said.

He argued that though each player is responsible, their roles will not be the same, though they should be complimentary as their activities will impact the economy in different ways.

The government’s role in the short term must be to build confidence in its systems, including governance, legal systems, enforcing the rule of law and containing crime, which along with corruption, inefficient government and bureaucracy and access to financing are listed as the most problematic factors for doing business in Jamaica, he said.

He added that the private sector needs to buy in to a ‘cultural re-orientation’ which includes developing businesses that are not directly in need of government support, facilitating international competitiveness and greater economic diversification in goods and services and new markets, and it must also support research and development partnerships with tertiary institutions.

The IMF representative also pointed to the need for a better educated workforce. In 2008, only a third of the employed workforce, had basic CXC qualifications. While in a Ministry of Labour study, 40 per cent of employers said less than 20 per cent of their employees were certified in a skilled area and about 80 per cent did not use high end technology or require high levels of education.

As a result, he said “households can help the growth process, although not in the short run, through embracing education and fostering a knowledge economy.”