Tax reform or tax shuffle?
Published:Sunday | January 15, 2012 | 12:00 AM
Gordon Robinson, Contributor
Once again, tax reform is front and centre on the national agenda. With a new Government in place, there’s the faint hope that a new look will be taken at this most crucial foundation of economic progress and the overly technical Green Paper No 1-2011 will be revisited. Hopefully, this time, a strong dose of reality will be applied.
I’ve no intention of knocking the Tax Reform Committee’s or the previous Government’s work because, considering the limits of the thought box within which they imprisoned themselves, they did a reasonably good job. Also, it’s obvious their hearts were in the right place.
But the entire exercise proceeded on the basis of number-crunching within the parameters of what already exists without recognising that a return to fundamentals and a belief that those fundamentals could drive essential change were required.
What are those fundamentals? The overriding principle, as a series of finance ministers should know but act as if they don’t, is that laws don’t collect taxes. People pay taxes if they’re so motivated.
Accordingly, first and foremost, we must understand why people voluntarily pay taxes. Second, as I wrote on October 11, 2011 (‘The truth about taxes’), we must stop fooling ourselves and appreciate that ‘tax reform’ without revenue enhancement is national suicide. Third, we must factor in the undeniable reality that current tax payers are overtaxed. These premises are self-evident, immutable truths, impatient of debate.
Wasted time
As such, former Finance Minister ‘R.U.’ Shaw wasted too much time bullying and blustering at taxpayers, calling them “tax cheats”. Let’s accept, for argument’s sake, that some who pay actually pay less tax than they should. Does that make them “tax cheats” properly so called? Who are they cheating? Out of what is anyone being cheated? Where are citizens’ tax benefits? Where is free health care? Free education? Proper developmental infrastructure, including decent roads? Senior-citizen care?
Let’s get this straight once and for all. Taxes aren’t paid to government for government or to pay external debt borrowed for recurrent expenditure. Taxes are paid to government as a trustee of tax funds to be spent for citizens’ benefit.
Laws don’t collect taxes. Citizens pay taxes voluntarily because they see specific collective benefits from taxes. Only the most Christlike among us are purely charitable. The rest of us act in the collective interest if we see how that equates to our own individual interest. Tax rates are important, but the fundamental force driving tax compliance is the age-old question, ‘What’s in it for me?’
UK tax rates are among the world’s highest, but the taxes are happily paid by high-, middle- and low-income classes alike because of the specific, tangible benefits returned to citizens by their government as trustee of those taxes. The super-wealthy will always avoid taxes because they don’t need the benefits.
A British reader, formerly an expatriate working in Jamaica, sent me the following comment on my October 11 column to explain why he elected to pay UK, as well as Jamaican, taxes even though he could’ve chosen to pay only one.
“... In the UK, the payment of tax is seen as personal insurance and protection. The benefits that result from the payment of tax don’t vary according to how much you pay. A person paying thousands a year will get the same benefits as a person paying hundreds. Benefits are for life and start when you are young and end with a funeral allowance when you die. The main benefits are:
Let’s get this straight once and for all. Taxes aren’t paid to government for government or to pay external debt borrowed for recurrent expenditure. Taxes are paid to government as a trustee of tax funds to be spent for citizens’ benefit.
Laws don’t collect taxes. Citizens pay taxes voluntarily because they see specific collective benefits from taxes. Only the most Christlike among us are purely charitable. The rest of us act in the collective interest if we see how that equates to our own individual interest. Tax rates are important, but the fundamental force driving tax compliance is the age-old question, ‘What’s in it for me?’
UK tax rates are among the world’s highest, but the taxes are happily paid by high-, middle- and low-income classes alike because of the specific, tangible benefits returned to citizens by their government as trustee of those taxes. The super-wealthy will always avoid taxes because they don’t need the benefits.
A British reader, formerly an expatriate working in Jamaica, sent me the following comment on my October 11 column to explain why he elected to pay UK, as well as Jamaican, taxes even though he could’ve chosen to pay only one.
“... In the UK, the payment of tax is seen as personal insurance and protection. The benefits that result from the payment of tax don’t vary according to how much you pay. A person paying thousands a year will get the same benefits as a person paying hundreds. Benefits are for life and start when you are young and end with a funeral allowance when you die. The main benefits are:
| 1. | Family allowance: Parents receive £15 per week for the first child and £10.50 per week for every subsequent child until the children are 16 years old. |
| 2. | Unemployment benefit: Should you fall out of employment, you receive a weekly payment which can be topped up by a housing allowance to ensure you have somewhere to live. |
| 3. | Health care: All health care that isn’t cosmetic is free. When you reach the age of 65, all prescriptions are free. |
| 4. | At the age of 65, you receive a state retirement pension. |
| 5. | At 65 years of age, you receive a winter fuel allowance of £100, rising to £300 at 80. |
| 6. | At 65 years of age, you receive a Christmas present of £10. |
| 7. | At 65, you can obtain a bus pass which allows you to travel anywhere in the country free of charge. |
| 8. | Should you fall ill and live alone, the Government will pay a caregiver to look after you. |
In addition to these benefits, society provides additional benefits for senior citizens such as reduced fees for theatres, football matches, even haircuts.”
Lip service
In approaching tax reform, unless Government eschews the lazy way out and analytically looks at how we can encourage taxpayers to pay more, we’re in for five more years of bluster, bombast and threats to hard-working young professionals who have absolutely no motivation to help any finance minister borrow and repay more external debt while paying only lip service to ‘love for the poor’ and respect for senior citizens.
We boast of no user fees in health care. But what about health care itself? Of what standard is it, and how has abolishing user fees affected that standard? Here’s a story from my British senior citizen correspondent:
“I recently had two small operations on my eyes. Each operation only took 20 minutes. The health-care people wrote to me giving me a choice of three different hospitals I could attend for the treatment. On each occasion, I was given a private room with one suite toilet, shower facilities and a television. After each operation I was served with tea and sandwiches, as was the person who accompanied me to drive me home. I didn’t pay one penny.”
The fundamental problem Jamaica faces is the absence of real individual benefits from paying taxes. This simple fact means that the taxation system is viewed as unfair and isn’t supported by the public. There’s no real punishment for offenders, as the judiciary seems unwilling to support an inequitable system. Bluff, bluster and threats can’t replace equity. The society will band together to resist bullyism. If Government is seen to be using taxes for ‘bandooloo’ purposes, the citizenry will introduce their own form of bandooloo as their order of the day.
Power of public opinion
In the UK, tax collection is driven by public opinion, not laws. The laws are there to punish those who don’t pay their share. Those laws are fully supported by the public and enforced without discrimination. In 1987, jockey Lester Piggott, a British national hero, was sentenced to three years’ imprisonment for tax evasion. Not one voice was raised in protest. The British public views non-payment of taxes as antisocial. Remember, UK tax rates are among the world’s highest.
On October 11, I wrote: “Broadening the tax base is an absolute necessity.” When looking at this aspect of tax reform, we mustn’t forget the currently vociferous ‘diaspora’ which seems intent on influencing local policy from afar simply because they send money home to Mum and Dad. My British correspondent explains how the UK government made it easy for members of the UK ‘diaspora’ to voluntarily pay taxes in two countries:
“When I came to work in Jamaica, under the Jamaica/UK tax treaty, I could choose to pay tax in the UK or Jamaica. I chose Jamaica because I was working and living in Jamaica, therefore it was only fair that I paid tax in Jamaica. What may amaze Jamaicans, however, was that having made that decision, I wrote to the UK tax department asking how I could retain my full UK tax benefits during my stay in Jamaica. I received a letter explaining that if I paid £6 a week voluntary tax contribution, all my rights would be protected. Thus it was that I paid tax in both countries.”
We already know those ‘rights’ my correspondent was protecting were substantial. Imagine how much additional revenue we could collect from the ‘diaspora’, assuming substantial benefits were to be protected, by asking each member to pay, say, J$1,000 per week in voluntary taxes. Why not ask the Jamaican ‘diaspora’ to support government policies it’s so anxious to influence? Why should the ‘diaspora’, while enjoying full First World tax benefits, want to call the tune back home without supporting the Piper’s wages?
Concerted effort
So, real tax reform in Jamaica begins with a concerted effort to change public opinion. Currently, we’re in a vicious cycle which involves borrowing to finance government programmes because we don’t collect enough taxes to pay for them. Then we increase taxes to repay the loans. We’re running around in ever-decreasing circles until, eventually, we’ll certainly disappear up our national rear end.
Who’ll break that mad circle? It must be Government to bite the bullet and begin by investing in at least one meaningful benefit for taxpayers, say, substantial pension/medical benefits for all senior citizens, in order to spark that public opinion shift. Now there’s a developmental reason to ‘reallocate’ JDIP funds. Obviously, we can’t match UK benefits immediately, but let’s make a start.
IMF doesn’t care
And don’t tell me about IMF agreements. The IMF doesn’t care about Jamaica. It only cares about protecting its members’ investment in Jamaica. Portia Simpson Miller is one of Jamaica’s most beloved prime ministers. She has the political capital to spend on a fight with the IMF. She promised ‘the poor’ she’d renegotiate with the IMF within two weeks. Portia, Jamaica is behind you. Don’t allow the IMF to use our pensions to help pay external debt. Get up, stand up, and fight for realistic benefits for all senior citizens. For that, we’ll sacrifice. We’ll pay more taxes.
I’m waiting to see what tax-reform example this new Government will set. Will it continue handing out huge tax waivers to big businesses who might also be campaign contributors? Will it continue to give parliamentarians huge tax exemptions on expensive imported cars and other goodies, while sending bailiffs to seize citizens’ depreciated assets for non-payment of taxes?
Will it be business as usual? Or will this Government act as the trustee of citizens’ forced insurance premiums (‘taxes’). Will we have real tax reform? Or just a tax reshuffle?
Peace and love.
■ Gordon Robinson is an attorney-at-law. Email feedback to columns@gleanerjm.com.
So, real tax reform in Jamaica begins with a concerted effort to change public opinion. Currently, we’re in a vicious cycle which involves borrowing to finance government programmes because we don’t collect enough taxes to pay for them. Then we increase taxes to repay the loans. We’re running around in ever-decreasing circles until, eventually, we’ll certainly disappear up our national rear end.
Who’ll break that mad circle? It must be Government to bite the bullet and begin by investing in at least one meaningful benefit for taxpayers, say, substantial pension/medical benefits for all senior citizens, in order to spark that public opinion shift. Now there’s a developmental reason to ‘reallocate’ JDIP funds. Obviously, we can’t match UK benefits immediately, but let’s make a start.
IMF doesn’t care
And don’t tell me about IMF agreements. The IMF doesn’t care about Jamaica. It only cares about protecting its members’ investment in Jamaica. Portia Simpson Miller is one of Jamaica’s most beloved prime ministers. She has the political capital to spend on a fight with the IMF. She promised ‘the poor’ she’d renegotiate with the IMF within two weeks. Portia, Jamaica is behind you. Don’t allow the IMF to use our pensions to help pay external debt. Get up, stand up, and fight for realistic benefits for all senior citizens. For that, we’ll sacrifice. We’ll pay more taxes.
I’m waiting to see what tax-reform example this new Government will set. Will it continue handing out huge tax waivers to big businesses who might also be campaign contributors? Will it continue to give parliamentarians huge tax exemptions on expensive imported cars and other goodies, while sending bailiffs to seize citizens’ depreciated assets for non-payment of taxes?
Will it be business as usual? Or will this Government act as the trustee of citizens’ forced insurance premiums (‘taxes’). Will we have real tax reform? Or just a tax reshuffle?
Peace and love.
■ Gordon Robinson is an attorney-at-law. Email feedback to columns@gleanerjm.com.