EDITORIAL - A good first step on taxes

There are a number of things that must be acknowledged about the first phase of the Government's tax-reform programme which Dr Peter Phillips, the finance minister, will unveil to Parliament today and upon which we report elsewhere in this newspaper.

Not least of these, barring a last-minute change of heart that scuttles the package, is the courage of the present administration, especially given its populist base, in pushing through this package.

While Dr Phillips deserves credit for holding to and enunciating the conceptual lines that inform the programme, it is important to note that this could not have happened without the backing of Prime Minister Portia Simpson Miller.

Further, its implementation can't be successful without the continued support of the prime minister. No person in the Cabinet has the prime minister's popularity, empathy, or connection with the majority of Jamaicans to articulate, without significant political backlash, the critical importance of this project.

It is important that the private sector appreciate this fact. It is paramount, therefore, that it move with urgency, not just pay lip service to the value of the reforms, but to make practical use of the opportunities afforded by them. For, an absence of action and whinging for more by corporate Jamaica will not only weaken support for the current efforts, but will also undermine broader reform agenda. That will be to Jamaica's detriment.

High cost of doing business

There are many reasons why the Jamaican economy has shown little growth over the past 40 years. The Government's unsustainable debt is among them.

But Jamaican firms also complain of the high cost of doing business, including from costs imposed by the Government on capital and other inputs by way of capital. And whether there is relief, there is, for the most part, an absence of certainty.

These reforms address some of the issues. First, tax waivers are being removed from the discretion of ministers; they are to be lodged in a predictable, streamlined administrative process.

The clawback of payroll taxes and the reduced tax rates payable on dividends ought to significantly lower the tax-related cost of capital and the effective tax rate payable by firms. By some estimates, that rate would fall to as low as 17.5 per cent, which would be internationally competitive. The competitive positions of firms should also benefit from the proposed zero tariffs on capital goods and other critical inputs for manufacturers.

Reinvest and create jobs

But all this will mean nothing if companies do not reinvest and create jobs but merely distribute increased profits to shareholders. The Government will have foregone revenue, without room to undertake the other elements of tax reform, including lowering consumption taxes and increasing the threshold for personal income tax.

This would then feed into an unfortunate perception of public policy being skewed in favour of the powerful, thus reducing support for enterprise. Strengthened populists will, in the circumstance, restrain the capacity of government for deeper, transformative action.

But it is not only the private sector that has to be mindful of the consequences of action. So, too, must the political opposition. The Jamaica Labour Party (JLP) was in support of tax reforms, including action similar to those being undertaken. Unfortunately, it didn't get them done. Opposing them now would be merely seen as the JLP being politically opportunistic.

The opinions on this page, except for the above, do not necessarily reflect the views of The Gleaner. To respond to a Gleaner editorial, email us: editor@gleanerjm.com or fax: 922-6223. Responses should be no longer than 400 words. Not all responses will be published.