Withdrawal tax revolt and politics

Ian Boyne

The rage and hostility of the Jamaican people over the proposed bank withdrawal tax is the most incendiary since Bruce Golding experienced his Christmas Rebellion some years ago when he came with his unpalatable tax package. Golding had to bow to the pressure of the people's explosive rejection, and by Thursday, the Ministry of Finance issued a release in the face of volcanic opposition, saying the minister was reviewing the tax measures.

When people talk glibly about the lack of courage to take hard, tough decisions and ask how we reached a position of nearly 150% debt-to-GDP (gross domestic product) ratio and nearly 20 years of fiscal deficits, just think of people's emotions on this issue. It's easy to talk about fiscal discipline and having the stomach for bitter medicine, but try administering it nationally and see how long you survive. In the final analysis, politicians will be politicians, irrespective of their party banner.

INEVITABLE TAXATION

But whatever Peter Phillips finally decides to do and wherever the taxes finally land, make no mistake about this: That hole in the Budget is going to be filled through taxation of some kind. And there will be a squeal anywhere it falls. But Phillips might have to choose another type of macka! If the people's anger does not subside, and if the Opposition makes good on its threat to "resist it", as Andrew Holness said, the Government might have to be pragmatic.

Mark Wignall is no People's National Party (PNP) sympathiser, but he wrote a commonsensical column in the Observer on Thursday in which he asks, "Seriously now, do we really believe that if The JLP (Jamaica Labour Party) was in power and it was faced with the same financial strictures that exist at present, it would have avoided a tax package that was painless? Come on, now, let's get real." Mark went on: "The IMF (International Monetary Fund) is in charge ... . While our prime minister has placed Peter Phillips in the seat of purgatory ... the finance minister has to carry out the immediate dictates of his IMF bosses. The JLP knows this, but it has to posture and preen as though it has all the answers ... ."

The finance minister, in his Budget presentation, was at pains to stress that, "I want to emphasise, and I doubt that everyone gets it, that this is our programme - this is Jamaica's programme if we are to guarantee our nation's survival and prosperity for the future." Peter Phillips is clearly committed to getting the economic fundamentals right. But the pace of adjustment is dictated by the IMF. That burdensome 7.5% primary surplus target is an IMF imposition. Now it could be argued that the severity of our debt crisis demands extreme measures. But others could argue equally or more impressively that the medicine is worse than the ailment. And might end up killing the patient.

Emotions aside, there are some tough, commonsensical questions to be asked. If more than $3 billion is not to be garnered from the bank withdrawal tax, where is it to come from? Tax GCT-exempted items which poor people use every day? Tax petroleum products, electricity or hike income tax? Merging entities won't give you that $6.7 billion needed, unless you are going to have a massive retrenchment of public servants. Would the JLP support that? And where will Government get the money in this tight fiscal situation to pay redundancies this year and still pass International Monetary Fund (IMF) tests?

Going after tax dodgers, as this and past governments have attempted to do, will give you no assured means of getting that $6.7 billion to close this year's hole in the Budget. Imposing taxes on items consumers can reduce expenditure on will only mean that government revenues will continue to fall short and we will fail our IMF targets. No need bawling over our condition. We are in a debt trap and the IMF is our only available saviour at hand. That is our sorry state. And it will remain so, whoever is in Jamaica House.

ALL BARK, NO BITE

Politicians can talk up a storm as much as they want; it is our bankers, the IMF, who run things. The two parties are busy trading blame and engaging in point-scoring and political jousting, but both of them are house slaves to their IMF masters. We, the field slaves, are feeling the heat and bearing the brunt of the oppression, but those house slaves have no more effective freedom than we do. Just that they are on the inside and have certain privileges and favours.

I understand why Andrew Holness had to deliver the largely political and polemical Budget presentation he did last week. He had to try to resonate with the Jamaican street. After all, he has been accused of being too soft and afraid to 'tek it to Portia'. He has to appear tough, hard-hitting, going for the jugular. He did not 'ramp' last Thursday. "All this talk about we love the poor and people power has no meaning to anyone. If you listen carefully to the Government, they are saying we care more about the IMF and passing their test. The Government is now saying it is not the people who have the power; it is the IMF that has the power."

So the JLP would tell the IMF to go to hell and keep their money while we adopt expansionary policies and autarky? Would we repudiate our debts? But that type of talk rings well in bars and on verandahs. And certainly, on the street. And it's the right moment for that kind of talk. It resonates powerfully. "The people feel betrayed. They were promised milk and honey, but what they are now being served is poison."

Audley Shaw was also polemical, but he combined that with a far more challenging and empirically rich presentation than the opposition leader. The quality of Audley's research was highly commendable and he gave one of the most reasoned treatises on the exchange rate I have heard from any politician except Edward Seaga. The finance minister will have some serious work to do when he comes to reply to him on Wednesday. Phillips' research people had better be up to the daunting task Audley set down. Very laudable work, Audley.

In his generally well-reasoned presentation, the opposition finance spokesman challenged the Government on the macroeconomic variables it has been touting, asserting with figures that those economic fundamentals did better under the previous JLP administration. Audley rigorously challenged the finance minister's optimistic casting of our devaluation, pulling from a 2013 paper casting doubt on devaluation's benefits.

SOMETHING HAS TO GIVE

Said Audley: "When a country is as highly indebted as Jamaica is, with massive amounts of foreign debt, the best strategy is a stable currency. If the country had no, or very little, foreign-currency debt and its singular focus was on stimulating exports, then maybe, only maybe, I would concede the devaluation argument." But Audley knows that a government's artificially propping up the exchange rate without increases in productivity eventually backfires. You might have to have high interest rates to help keep down the demand for foreign currency. It's an involved dialogue, but Audley has made a very serious and worthwhile contribution to the discourse. But when all is said and done, either we stick with this IMF programme or continue doing what we have always done - delaying the hard decisions and kicking the can down the road. And then the next five years we are here again - only the adjustment will be worse then.

Ian Boyne is a veteran journalist. Email feedback to columns@gleanerjm.com and ianboyne1@yahoo.com.