Editorial | After the Fiscal Commission

In the remaining days before the parliamentary elections, the debate, perhaps, no longer should be over whether the next government can fund income tax reductions without offsetting revenue elsewhere. Instead, it should be about if that would be the best way to utilise the fiscal space that seems to be opening up.

Put another way, the Independent Fiscal Commission (IFC), the watchdog of the Government’s adherence to the legislated fiscal rules, has confirmed that the island’s debt-to-GDP ratio is likely to fall to the benchmark 60 per cent by the end of this fiscal year, or two years ahead of schedule. The upshot: a future government will have greater freedom to spend on its priorities, rather than having to salt away more cash to achieve the level of primary surplus (5.1 per cent of GDP this fiscal year) required to maintain the pace of debt reduction. In that sense, Jamaica could enter a phase of debt maintenance, or a slower pace of debt reduction.

This is the result of the Statistical Institute of Jamaica’s (STATIN) introduction this year of the new (2008) global standard for measuring national accounts, resulting, according to the IFC, in the debt-to-GDP ratio for the 2024/25 fiscal year, which ended on March 31, falling to 62.4 per cent, against the 68.9 per cent of the pre-revision analysis.

“This notable reduction shows that the country has the potential to meet the debt-to-GDP target of 60 per cent or less at the end of the current fiscal year (FY 2025/26), two years ahead of the legislated timeline of March 31, 2028,” the IFC said in a statement on Thursday.

Effectively, the IFC – without intrusively inserting itself in the debate between the governing Jamaica Labour Party (JLP) and the People’s National Party (PNP) over their proposed tax proposals – suggested that either might be capable of following through on its plans without having to raise or impose new taxes.

FORMAL REFEREE

This debate, and the IFC’s tangential pronouncement thereon, again raises for this newspaper the question of whether the commission ought merely to be a reviewer/policeman of the Government’s fiscal programmes, as the law limits it to be, or if it should be the formal referee between contending proposals that could impact the national economy.

When the IFC was being designed, The Gleaner advocated for the inclusion of the referee’s job, similar to America’s Congressional Budget Office (CBO). Unfortunately, the policymakers and Parliament didn’t agree.

The crux of the income tax debate is the cost of the PNP’s plan to lift the threshold at which Jamaicans pay personal income tax (PIT), from the current J$1.7 million, to J$3.5 million, and do so without introducing new taxes or raising existing ones.

The JLP, supported by some business leaders, including banker Keith Duncan, who also chairs the IFC’s advisory board, says it can’t be done. IFC’s advisory board can’t instruct the commission on its actions.

The JLP’s alternative is a three-year adjustment of the threshold, to reach J$2 million by 2027/28, and a phased lowering of the income tax rate from 25 per cent to 15 per cent. The Government has given no timeline for this 40 per cent reduction of the tax rate, which the PNP has branded as a regressive policy that will favour wealthier Jamaicans. The Opposition also said that the scheme will cost close to J$70 billion, against the administration’s figure of J$25 billion to J$30 billion.

The PNP has said its own programme will cost J$55 billion, which would be met by reordering spending priorities and by causing the economy to grow faster than the one per cent a year over the medium term, projected by the current administration. Prime Minister Andrew Holness claimed in a debate Thursday night that the real cost of the PNP’s initiative is J$75 billion and could only be met without new taxes if the economy grew at more than eight per cent per annum.

LESS CRITICAL

Given the IFC’s statement about the sharp downward adjustment (by 6.5 percentage points) of the debt-to-GDP ratio in a single stroke, the matter of affordability of either programme, without having to impose new taxes, may, on its face, seem less critical.

Indeed, both the shadow finance minister, Julian Robinson and the Opposition leader, Mark Golding, have argued that the development would free around two per cent of GDP from the primary balance.

With nominal GDP projected to reach nearly J$3.5 trillion this fiscal year, that would translate to around J$70 billion. Whether the PNP’s assessment is correct should become clearer when the fiscal commissioner, Courtney Williams, presents his Statement of Fiscal Performance for the first quarter (April to June) of the current fiscal year.

But, taking the PNP’s assumptions at face value, there is still the question of whether, at this time, spending on a tax give-back would be the best use of the money. There is the possibility of Jamaica facing external shocks. Some might suggest, too, that it would be more prudent to put the money into education, healthcare, infrastructure, or perhaps innovation.

The Opposition insists, however, that it can, and will, do all of these things by a better allocation of existing resources, generating faster economic growth, reducing corruption and increasing efficiency in government. In any event, it claims, the island’s middle class has been hollowed out, and despite record low unemployment, a class of working poor has expanded. Its programmes, therefore, are aimed at giving these groups a lifeline.

The issue that should now be seriously debated is the prudence of these policies. For even before the fiscal commission’s statement, the real issue was not the cost of the proposals. Fundamentally, the crux of economics is choice and trade-offs. These are what face the parties.