ECON­O­MIST WARNS GOV­ERN­MENT TO DROP PAYE TAX OR THE NA­TION PERISHES!

Cuth­bert Di­dier, marine con­sul­tant with the gov­ern­ment of Saint Lu­cia.

The Star (St. Lucia) - - FRONT PAGE - By Cuth­bert Di­dier

Most Caribbean coun­tries, with the ex­cep­tion of Ja­maica and the Do­mini­can Re­pub­lic, have small pop­u­la­tions. Con­se­quently, the small na­tional mar­ket, high in­put and trans­porta­tion costs as­so­ci­ated with be­ing an is­land of­ten make it dif­fi­cult to de­velop a sig­nif­i­cant in­dus­trial sec­tor. The small eco­nomic bases of th­ese coun­tries are crucial bear­ing in mind that for gov­ern­ments re­duc­tion of unem­ploy­ment has to be a pri­mary goal. This unem­ploy­ment sit­u­a­tion in the Caribbean coun­tries in­creases the po­ten­tial sig­nif­i­cance of tourism when com­pared to other sec­tors that are not vis­i­ble on a large scale.

There is a great chal­lenge within the in­de­pen­dent Caribbean to sup­port the full ma­chin­ery of gov­ern­ment. Most gov­ern­ments are bur­dened with huge ex­pen­di­tures that are be­com­ing in­creas­ingly dif­fi­cult to re­duce, with de­ci­sions hav­ing to be made with re­spect to fis­cal poli­cies that ad­dress the sit­u­a­tion. Most of the gov­ern­ments turn to the lead­ing sec­tors, and in the Caribbean re­gion this is of­ten tourism. How­ever, there is now a threat that tourism can be­come over­taxed due to grow­ing debt and an over-re­liance on a sin­gle sec­tor!

But in this haste the fis­cal poli­cies of most of the ad­min­is­tra­tions to date fail to en­er­gize key sec­tors which can stim­u­late em­ploy­ment. A re­de­fined fis­cal pol­icy can lead us away from de­pend­ing solely on the tourism sec­tor which, by the way, we are also start­ing to over-tax.

Few ad­min­is­tra­tions, whether United Work­ers Party or the Saint Lu­cia Labour Party, have ap­pre­ci­ated one sim­ple fact of eco­nom­ics: Taxes dis­cour­age pro­duc­tion! The in­creases in di­rect and in­di­rect tax­a­tion over the last fif­teen years are now a clear and present dan­ger for our small vul­ner­a­ble econ­omy. The re­cent re­duc­tion in VAT is a first step but, par­al­lel to this step, the gov­ern­ment must re­view its present per­sonal in­come tax poli­cies. If we truly want to see the econ­omy start to breathe and show signs of ex­pand­ing, we need to place dis­pos­able in­come in the hands of our coun­try’s hard-work­ing tax­pay­ers. Re­mov­ing Pay As You Earn taxes on in­come up to $6,000 a month, and ap­ply­ing a flat 10% on any in­come above $6,000, will put money in cir­cu­la­tion in our co­matose econ­omy. The money which would be paid as monthly taxes will be saved as cap­i­tal—to be in­vested or spent on con­sump­tion within the econ­omy. Tax­pay­ers presently are taxed out; there­fore there is no money cir­cu­lat­ing in the econ­omy: con­sumers are not spend­ing at our restau­rants, cafes, cloth­ing stores, elec­tronic out­lets, malls and so on. If the pub­lic has no money to spend, then the con­se­quence is a slow death for the econ­omy.

Once the change is done, top per­sonal in­come taxes is done, the In­land Rev­enue De­part­ment will be freed up to con­cen­trate on ar­rears of cor­po­rate taxes, ar­rears of land tax and the ar­rears of in­come tax. The present tax regime can­not get op­ti­mum ef­fi­ciency from the In­land Rev­enue De­part­ment. More money in the hands of work­ers will en­cour­age more spend­ing in the lo­cal econ­omy and, by ex­ten­sion, the pri­vate sec­tor will have breath­ing room and be able to ex­pand, em­ploy, and be more ef­fi­cient in pro­duc­tion. It is with­out doubt that the monies be­ing col­lected by gov­ern­ment via PAYE will be bet­ter spent with the lo­cal econ­omy and will show quicker real-time re­sults. Monies spent in the econ­omy from this tax re­lief will ben­e­fit the lo­cal agri­cul­ture sec­tor via a buy-lo­cal cam­paign for na­tional pro­duce, and boost the lo­cal man­u­fac­tur­ing sec­tor. Both of th­ese sec­tors need to show ex­pan­sion and growth!

A cer­tain amount of taxes is re­quired to carry es­sen­tial gov­ern­ment ser­vices and projects. But th­ese taxes should be rea­son­able and not hurt or sti­fle pro­duc­tion ex­pan­sion within the pri­vate sec­tor. The larger the per­cent­age of na­tional in­come taken by taxes, the greater the de­ter­rent to pri­vate pro­duc­tion and em­ploy­ment. When the to­tal tax bur­den grows beyond a tol­er­a­ble size, the prob­lem of de­vis­ing taxes that will not dis­cour­age pro­duc­tion is fur­ther ex­ac­er­bated, if not al­to­gether ir­re­solv­able. When VAT was in­tro­duced, I fully ex­pected a re­view of per­sonal in­come tax pol­icy. VAT taxes a large base, true, but to keep the two work­ing par­al­lel will have deadly con­se­quences on the econ­omy.

With­out an in­flux of new per­sons par­tic­i­pat­ing in our econ­omy; with­out new projects and in­vest­ment of cash cir­cu­lat­ing in real es­tate, re­tail and man­u­fac­tur­ing, this econ­omy will die a slow death. Look around; we are al­ready at that point. If we are not very care­ful the one sec­tor we de­pend on heav­ily will be the next ca­su­alty.

Re­move Pay As You Earn now!

Econ­o­mist Cuth­bert Di­dier says taxes should be rea­son­able, and should not hurt or sti­fle pro­duc­tion ex­pan­sion within the pri­vate sec­tor.

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