EDITORIAL - Slogging to the next test

It became clear last week that Jamaica had met the targets for its third review under its current economic reform programme with the International Monetary Fund (IMF). The authorities are optimistic about the fourth, which is around the corner.

But as the public-private sector group that attempts to keep the Government honest on the IMF agreement has warned, this is no time for celebration. There is still a hard slog towards the March test, after which, presuming we are successful, there are still a dozen more, under formal IMF tutelage, over the next three years. A critical short-term requirement of the project is the widening of the tax net and the Government doing a better job of collecting what is owed, while creating an environment that is more conducive to investment and economic growth.

It is important, therefore, that the administration, as well as private sector and civil society, remind the nation why we are where we are, and that tougher, painful actions are required if Jamaica is to be extricated from its fiscal and economic crisis.

Indeed, Jamaica's fundamental problem is the Government's debt, which is nearly one and a half times the value of the country's output of goods and services. Not only is it difficult to service in a no- or low-growth economy, but it siphons capital away from the very investments required to induce growth.

The administration's challenge, in the circumstances, is how it borrows less, spends less and collects enough in taxes to meet its obligations, including servicing the debt - and doing so at a pace that leads to its lowering. Under the IMF, that translates to running a primary surplus of 7.5 per cent of GDP.

ON TARGET

So far, the administration has been ahead of, or on target with, its fiscal obligations. But the recent results indicate this will become increasingly difficult - unless we do better at collecting taxes.

The point is that while taxes, up to December, were ahead of the previous fiscal year, it was nearly J$11 billion, or approximately four per cent, below projection. The administration was able to mildly overshoot its target for the primary balance of J$61.6 billion by a J$16-billion, or five per cent, reduction in expenditure.

The Government is to be congratulated for its discipline in managing the fiscal accounts. However, with the primary surplus target increasing by J$50 billion at the next test, it is obvious that spending containment won't be sufficient for it to meet its obligations. It will have to collect more taxes.

This has to be accomplished in a sluggish, even if improving economy, where corporate and personal income taxes, as well as customs duties, have lagged. The tax authorities, we are told, are optimistic.

There is, in this newspaper's view, no doubt that the shortfall is available. Indeed, there are numerous studies that indicate that a mere handful of registered firms pay corporate income tax and that most self-employed professionals escape the tax net.

The tax authorities, up to now, have not demonstrated a capacity to tap these, and other groups, of non-compliers. Hopefully, things have changed and these and other reforms will cause the targets to be met. If not, the pain of adjustment will be prolonged.

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