Wednesday, January 06, 2010


FINANCIAL analyst Dennis Chung says that Jamaicans have been taxed an additional $115 billion over six years to grow the debt and not the economy.

He told the Observer's Monday Exchange that these new taxes only fuel government's ability to borrow for succeeding fiscal years.

"The budget imposed an additional $115 billion in new taxation cumulatively over six years (between fiscal years 2003/4 to 2008/9). Has that generated any growth or development? No. What it has done, however, is ensure that we borrowed an additional $234 billion in debt," he told journalists and economists at the Observer's Kingston head office on Monday. "And I put it to you that the only reason we were able to collect that $115 billion was because we borrowed that money to put in the economy."
The cumulative taxes represent a similar amount, which the government hopes to borrow from the International Monetary Fund (IMF) this year.

Chung's argument is that new taxes within an already declining Jamaican economy are more likely to shrink the economy and lead to lower tax revenues rather than increase it.

"Everyone knows I am against additional taxation. The very nature of tax is non-productive, I can't imagine anywhere else in the world where you're trying to develop the economy, a shrinking economy, and you throw more money out of it."
His analogy was a half-empty glass that leaks from the bottom but is also skimmed from the top "and you expect it to be full. It cannot work".

Empirically, the evidence does not support a taxation model, he reasoned.
"Certainly when the US tried this approach in the 1930s it led to the Great Depression. Other countries which have come out of the recession have not come out through increased taxation, but reduced taxation," adding that governments have increased public spending and deficits.

Chung who is the author of Charting Jamaica's Economic and Social Development -- A much needed paradigm shift wrote in his column that the economy needs to be stimulated rather than taxed.

"Unless that is done then I am almost certain that we will be speaking about the same issues next year, only from a worse vantage point. A year ago I had told all who criticised me for saying we need to look at restructuring the cash flows re the debt that we would be talking from a worse position a year later," he said.

Chung who is also an Observer columnist, added in his Christmas day article that "if the rate of taxation were to be reduced by two per cent, at a multiplier effect of four, then the government could in fact collect marginally more tax than is currently the case".

The logical solution, he wrote, was to withdraw the government's influence on the economy in the form of taxes and the bureaucracy; and second, improve the multiplier effect by introducing fiscal measures that will increase confidence and the economic outlook.

Prime Minister Bruce Golding announced his fourth tax package for the year on December 23rd. Government is seeking to raise $21.8 billion -- annualised -- to close the gap in the budget as a result of the economic downturn affecting small and large economies worldwide. Budgetary support of US$1.3 billion is also being sought from the IMF, and the Opposition has suggested that the new tax measures were part of the IMF conditions.

Included in the new tax package is increased GCT from 16.5 to 17.5 per cent, but for goods and services supplied by the tourism sector GCT will increase from 8.25 to 10 per cent effective April 1, 2010.

Golding said that individuals earning incomes above $5 million annually will be charged increased rates of income tax from January 1, 2010, to March 31, 2011. The new rates include: no tax on salaries under $441,168; 25 per cent on salaries up to $5 million and 35 per cent over $10 million.

Also Jamaica Public Service (JPS) residential customers, effective January 1, were to pay 17.5 per cent GCT on electricity usage that exceeds 200 kilowatt hours per month. The measure was expected to earn the Government revenues of $1.2 billion.
A reviewed package was announced days later requiring the JPS customers to pay a special 10 per cent GCT on whatever electricity they use in excess of 200 kWh each month. The adjustment is now expected to yield $1.45 billion.

Subsequently, JPS notified the public that it would not be able to collect the tax until its billing system could accommodate it. They are targeting a start-up date in March to implement the tax.


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