PM defends revenue-neutral tax package
Prime Minister Andrew Holness yesterday maintained the Government’s hard line on its 2017/18 tax package, which has been severely criticised by the Opposition and has elicited strong disapproval from key players in some sectors of the society.
Holness argued during his budget presentation in the House of Representatives that opponents of the $13.5-billion tax package announced two weeks ago failed to recognise that the measure will result in no change in the amount of revenue which will go to the Government’s coffers.
“The net effect on the revenue of the Government is zero,” Holness told the packed chamber. He said the Government had heard the concerns raised about the de-earmarking of direct funding to some public bodies, particularly those expressed by the hospitality industry about the Tourism Enhancement Fund (TEF).
However, the prime minister argued that “it is not a matter that we take lightly… the truth is that segregating public finance creates a big fiscal problem. In fact, a part of the reason why we have the fiscal problems that we have is because the Government does not have control over all its revenues. If a quasi-government, local government, or a statutory body fails, its debt becomes central government debt, so it is really a false dichotomy to believe that you really have insulated funds”.
He stressed that whatever is raised in taxes must be managed frugally, and this has to be done through the proper management of the funds allocated to public bodies.
Holness said this management of the country’s fiscal affairs through a central treasury was originally conceived in the Constitution. Pointing to the Government’s 200 public bodies which, he noted, are more than those of economies several times the size of Jamaica, Holness said currently licences, taxes and fees which are collected by central government on behalf of these public bodies and remitted to them were as much as $74 billion in 2015, or 20 per cent of the then central government’s revenues, even though the expenses of these entities at the time was $54 billion.
“In an ideal world, the best public financial management principles support an efficient allocation of public resources where all revenues first flow to the Consolidated Fund, with the central government allocating to each, depending on the needs of the day. The advantages of this approach are: public bodies are not, by definition, fully included in the macro fiscal plans and cannot present unexpected demands on the budget. In fact, tens of billions of Jamaica’s debt arose as a result of several public bodies that found themselves in difficult times,” the prime minister told the House.
He said central government did not want to have its resources “locked up” in these bodies’ accounts, and wanted to be able to allocate funds efficiently. But the tourism stakeholders, in their arguments against the pooling of TEF resources into the Consolidated Fund, are apprehensive that the sector could find itself in a situation where these funds are used for other priority areas.
In his wide-ranging speech, Holness also defended the Administration’s $1.5-million personal income tax relief, which has been classified by critics as a political ploy that the Government is now forced to fund with burdensome taxes. He said personal income tax was an unjust, unreliable mechanism and in order for the Government to implement a fairer system, indirect taxation was inescapable.
Holness stressed that Jamaica has to climb out of its economic dilemma on its own. “There are no benefactors for Jamaica. There is no printing press for money; those days are gone,” he stated.