EDITORIAL - Collect taxes rather than add new ones

ASSUMING WE correctly deciphered Devon Rowe's verbal encryption before Parliament's Public Administration and Appropriations Committee on Tuesday, the Government is facing a $9.3-billion revenue shortfall on its 2014-2015 Budget. And closing that gap is important if the administration is to deliver a primary surplus of 7.5 per cent of gross domestic product (GDP), required under its economic support agreement with the International Monetary Fund.

The question now is how Mr Rowe, the financial secretary, is advising his boss, Finance Minister Peter Phillips, to go about making up the shortfall.

This newspaper hopes that it is not that he imposes new or additional taxes. For that, in the context of Jamaica's precariously perched and fragile economy, could undermine the nascent signs of growth and ought to be contemplated as an absolutely last resort.

EFFICIENT TAX COLLECTION

Indeed, we believe that the financing gap identified by Mr Rowe can be covered by more efficiently collecting what is owed, including bringing into the net Jamaica's large number of tax evaders.

It is important that we keep before us why the Government is burdened with the need for this extraordinary level of primary surplus.

For a long time, Jamaica badly managed its fiscal affairs, accumulated a debt that was nearly one and a half times GDP, which became a drag on investment and growth.

Being no longer able to survive on borrowings, and lenders demanding their money back, we are being forced to pay down on that debt. That demands earning more and spending less.

To be fair to the Simpson Miller administration, it has been doing a reasonable job at both.

Though the administration's revenue over the first nine months of the current fiscal year, up to December, was approximately $11 billion, it was more than $30 billion for the same period last year.

NECESSARY LIMITED SPENDING

The Government's limited spending is inherently contractionary, but necessary for the long-term health of the economy, if accompanied by appropriate reforms, some of which are in the works, even if not at the pace or with the aggression we would like.

In these circumstances, the burden of driving economic growth rests primarily with the private sector, in which there is a flicker of increasing confidence.

The 1.4 per cent growth in the third quarter should help to shore up that confidence. But given its fragility, that confidence could be easily stressed by a new tax package and the divisive political debate this would ignite.

While the situation may have improved a bit in recent years, our tax collectors have been appallingly bad at their jobs.

Outside of employees who operate on the almost automated Pay-As-You-Earn system, few individuals pay personal income taxes.

Only around six per cent of the workforce is registered as self-employed. Additionally, only 10 per cent of firms file tax returns and only five per cent report taxable income. One per cent of registered firms pay 75 per cent of corporate income tax and the Government only collects half of its property tax.

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