Google Ads

Tuesday, December 22, 2009

Say a prayer for Jamaica this Christmas

One of the ways in which the global recession is beginning to impact disposable incomes of people in the Caribbean is the fact that governments throughout the region have sought, or will seek, to raise taxes. With three days to go before the last Christmas of the first decade of the 21st century, it may have been a little unusual to see parliamentarians in Port-of-Spain debating legislation as fundamental as the major reform to the country’s system of property taxation. One of the points about the proposed property tax is that it seeks to provide the Government with a substantial new revenue plank at a time when the country’s revenue base has been challenged by the sharp decline in earnings from the country’s energy sector. The fact is that the Government forecasts that it will earn $37.9 billion in revenue from all sources in the fiscal year October 2008 to September 2009. This is a 39 per cent decline in tax revenue from the year before.

Based on an assumption of an oil price of US$55 per barrel and a natural gas price of US$2.75 per million cubic feet, the Government predicts that total revenue for the current fiscal year will amount to $36.6 billion. But while the decision by the Government to proceed with the new property tax has led to a great deal of heat, T&T nationals should consider the situation in which our neighbours to the north find themselves. In Jamaica, the Minister of Finance last week tabled in their Parliament the third set of revenue-raising measures for their fiscal year which ends in April. The Jamaican economy has been devastated by the sharp decline in its three main sources of foreign earnings: taxes on its alumina and bauxite resources, revenue collected from tourists who visit the island, and money sent to Jamaicans by friends and family members living in the US, Canada and the UK.

Jamaica has also been impacted by years of living beyond its means—by spending significantly more than it collects—with budgets over the years being balanced only because the country has been able to borrow from international and local banks at ever-increasing interest rates. But with three credit rating agencies downgrading Jamaica’s foreign debt to levels that indicate that there is an expectation that the country will not be able to service its debts, there are few commercial banks that would be brave enough to lend Jamaica money—even if banks the world over did not face liquidity concerns. As a result of global downturn and its own lack of fiscal prudence over the last three decades, the country has been forced back into the arms of the International Monetary Fund (IMF)—with which Jamaica has had a fractious relationship.

In preparation for the new stand-by agreement with the IMF, the Jamaican Government has been placed in the invidious position of having to announce a punitive package of new and increased taxes a little more than a week before that country celebrates Christmas. Among the measures that were announced in the Jamaican Parliament to be implemented on January 1 were an increase in the general consumption tax (GCT) from 16.5 per cent to 17.5 per cent and an expansion in the tax base of the GCT to include many food items such as fresh fruit and vegetables, ground provisions, sugar, salt, flour and cooking oil. Jamaica’s Minister of Finance also announced increases in the taxes on electricity and gasoline. Prime Minister Bruce Golding, who made an unannounced visit to Port-of-Spain last Wednesday as the country seeks to divest its national air carrier, made it clear in a statement on Sunday that he has no choice but to raise taxes.

“I urge the Jamaican people to understand that our choices are extremely limited and there is no easy way out. Our current revenues cannot meet our required expenditures and we cannot continue to borrow our way into an even worse crisis,” said Mr Golding. While we say a prayer for our brothers and sisters in Jamaica, we also need to learn from them the dangers of living beyond our means.

22 Dec 2009