Tax theory and reality

THE BUDGET Debate closed with a crescendo of puerile desk-banging by government MPs and yet another childish walkout by opposition MPs.

The sum total of the so-called ‘debate’ was nada. Zip. Zero. Nothing! A $17.5-billion tax package, imposed without consultation or representation, was untouched by the annual fiasco. Once again, it’s established. Jamaican taxpayers’ purpose is to be available for the annual fiscal mugging required to pay for election gimmicks. No choice, no rescue.

The tax package didn’t result in additional capital expenditure or any identifiable growth agenda. The proceeds of a farcical, hypocritical raid on the NHT went directly to pay down debt. The entire budgetary process ended up as an impotent political squabble about new taxes, with little discernible focus on any relevant national priority.

The PNP huffed and puffed about the taxes and encouraged a mediaimagined rumour (that the PNP would vote against the Budget) to circulate unanswered, causing, I understand, Derrick Smith to be at Gordon House, in a wheelchair, in case his vote became necessary. The PNP was so embarrassed at being unable to bluff Government into adjusting the tax package that it resorted to a petulant “Roll it back” chant followed by a contrived walkout, thus avoiding thorough exposure of its failed bluff. Vote against the Budget? Really? Seriously? The worst thing for the PNP right now would be a successful Opposition vote against the Budget. That would ensure an election, which the PNP would lose by street, lane, and village.

DEFENDING TAX PACKAGE

Young Andrew sought to defend the tax package and Government’s agenda in an impressive Budget speech during which he tried, insofar as a politician can, to speak the truth about Jamaica’s predicament. Unfortunately, he took too long about it and lost his audience to afternoon naps. But he made some good points.

He insisted that PAYE workers now had a choice, by their purchases, as to whether or not they paid new ‘indirect’ taxes. He argued that the tax burden was thereby shifting from those least able to pay to those most able, namely, those who consumed most. This is an attractive argument in theory; not so much in reality.

PAYE salaries significantly increased as of April 1. The new taxes took effect two weeks ago. Then, in a massive April Fools’ trick, they’ll find themselves faced with:

1. Gas tax of $7 per litre. Many PAYE workers don’t drive. Those who do, suffer a double whammy paying the ‘direct’ gas tax, plus its ‘indirect’ consequential price increases. Those who don’t drive can’t escape the indirect effects on the price of everything from flour to sardine. NO CHOICE.

2. GCT on electricity. Another ‘indirect’ tax that appears ‘directly’ on your light bill and ‘indirectly’ in price increases by businesses paying additional GCT. Many PAYE parents and schoolchildren MUST use more than 150kWh/month (and ‘fuel’) for study, cooking, and cleaning. NO CHOICE.

3. Tax on health insurance. This cuts deepest and could boomerang on Government’s already overworked public health system. Many PAYE workers have group health schemes their employers won’t be able to maintain. Those employers who can will simply pass on the additional costs to consumers. Again, POOR PEOPLE PAY. NO CHOICE.

The PNP’s best point during the debate was that the new taxes served no purpose but to pay for ‘1.5’, hence were an unnecessary burden on taxpayers. Let’s look at that dispassionately. Government obviously found itself, for whatever reason, unable to pay for ‘1.5’. Should Government have reneged on its election commitment? I submit this wasn’t an option. Why? The single-seat majority proved ‘1.5’ won the election. Breaking that commitment would’ve destroyed Government’s legitimacy and forced another election. In those circumstances, the PNP would be the likely winner. The promise had to be kept.

I’ll say this for the PM: Despite my disagreement with some of his decisions; my utter contempt for actions of some of his ministers, I give him full marks for his performance to date. Even where we disagree, his decisions are obviously made in good faith, with a view to improving Jamaicans’ welfare.

So, for example, although I differ fundamentally with his anti-crime policies, you can see in his body language that he’s sincerely trying. He desperately wants peace and safety and is so anxious to meet the demands, mainly from brainless tribalists, for short-term results that he’s resorted to Boynesian buffoonery. His NHT flipflop must’ve been excruciating for him, but he hasn’t obfuscated it, and, unlike his predecessors who preferred political bailouts with ‘what lef’’, he insisted that NHT benefits become the highest and most widespread ever.

Although his argument couldn’t apply to special entities like the NHT, his point about idle surpluses in public bodies generally rings true. He said, “The historical lack of fiscal discipline and accountability has undermined trust in central government and, therefore, as a society, we have preferred to warehouse funds in segregated entities.”

As he argued, it’s more efficient to consolidate these funds in central government and fund public bodies annually like any other government agency. But his admitted sine qua non of a rebuilt trust in central government spending isn’t in place and won’t be until our governance structure is changed from the bastardised Westminster currently in vogue.

ACHIEVEMENTS

Not once has this PM descended into rank tribalism. Things this PM hasn’t done include:

1. Declared that “constitutional rights don’t begin at Liguanea”.

2. Obstructed an international drug don’s extradition.

3. Declared he was associated with gunmen.

4. Declared “the law is not a shackle”.

5. Referred to a high incidence of associated corruption as “youthful exuberance”.

6. Acted churlishly after losing elections, refusing to offer timely concessions of defeat;

7. Chastised any of his critics, least of all me. He has NOT advised anyone that there are “five flights a day to Miami”.

8. Publicly threatened “blood for blood, fire for fire” as a political tactic.

9. Changed his constituency upon becoming JLP leader to guarantee his parliamentary seat. 10. Encouraged the garrison culture. All this was done (and NOT done) while managing a one-seat majority and a diverse front bench that I sense is still not 100 per cent behind him. Anyone who wants, for tribal or other reasons, to downplay Young Andrew’s achievements as PM need only note PNP’s manufactured walkout to avoid bumbling its way into forcing new elections. At any other time, a government that wrested a one-seat majority from the incumbent would be under so much parliamentary pressure that another election would soon have become necessary. But the last thing the PNP wants now is another election, and THAT has everything to do with Andrew Holness’ performance as PM.

This Budget exposed Government’s Achilles heel. By its all-encompassing focus on ‘1.5’, Government is in danger of losing sight of its real mandate to provide the sort of human development that can generate growth. This budget focuses too much on economics and too little on the national urgency of preparing Jamaicans for the future. I wonder if the PM realised how badly he exposed Government’s onetrack mind when he said:

“Jamaicans know we cannot spend more than the revenues we raise after paying debt. What’s available for Government to spend is far less than our needs ... in any one year. There are no benefactors for Jamaica or Big Brother country. There’s no printing press for money. There are no secret sovereign funds hidden away somewhere. As an independent country, we must be disciplined in managing our own fiscal affairs.

We can no longer finance our development by borrowing. The only way to bridge the gap between what we are able to spend and what we need to spend to bring prosperity to the people is to better manage the tax revenue we raise, plug the leaking revenues we don’t raise, and grow the economy”

Here’s the dilemma, PM: Fiscal responsibility is useless if we don’t train our youth to fit into a rapidly changing technologically driven world. As long as we only teach children how to pass GSAT, CSEC, and CAPE, we’ll fail in the education-for-life stakes, which is the real race.

I’ve written repeatedly that people grow economies; economies don’t grow people. With education’s recurrent budget up only 5.2%, its capital budget savagely slashed, with no sign of a policy to radically reform education, this Budget only ensures that we fall further and further behind in the race to produce suitable human capital to point Jamaica towards the future.

Peace and love.