A Weak Hand Poorly Played

Published: Sunday | December 20, 2009
Kevin O'Brien Chang

In domino terms, Prime Minister Bruce Golding has drawn an economic hand with six doubles, meaning he has very few options on how to play his cards. After all, Jamaica entered the global financial crisis with a net government deficit of 113 per cent, the fourth highest in the world, leading Forbes magazine to list it as one of the world's ten hardest hit economies - and this was before bauxite collapsed and remittances plunged.

In all probability, the raft of tax increases announced by finance minister Audley Shaw on Thursday was largely dictated by International Monetary Fund (IMF) conditionalities. We can weep and wail and gnash our teeth and abuse the heartless IMF to 'kingdom come', but deep down we all know Jamaica is reaping the bitter fruits of decades of borrow-and-spend government, and the chickens have now come home to roost.

Beggars can't be choosers, and borrowers can't dictate terms from lenders. It's not like the IMF is an invading army holding guns to our heads and saying, "Take this money or else!" We are the ones pleading for a loan. The IMF is merely saying, as all bankers do, "You want money to borrow? Well here are my conditions. Take it or leave it." And given the gigantic hole in the budget right now and the fact that nobody else will lend us any more money, Jamaica has two choices - negotiate an IMF agreement, or declare national bankruptcy.

stuck in a deep hole

So, in domino terms, Golding is basically matching his doubles as the game unfolds and cussing the lousy hand in front of him. Anyone who can add and subtract knows Jamaica is presently stuck in a deep hole dug by Omar Davies and Derick Latibeaudiere, under whose stewardship Jamaica averaged less than one per cent economic growth and over 10 per cent inflation from 1994 to 2007. Has any other finance minister and central bank governor pairing, with such a dismal record, ever been given such an extended run?

Yet Golding knew what he was getting into when he begged Jamaicans to vote for him in September 2007. True, no one predicted the current global financial crisis. After all, the Bear Sterns' folks who used to advise our government on global financial matters were so ignorant about what was coming that their company went totally bankrupt.

Indeed, many Jamaicans elected Bruce Golding and the Jamaica Labour Party (JLP) in 2007 precisely because he convinced them that the People's National Party (PNP) had Jamaica on an unsustainable path, and that he could set the country straight. So yes, we understand things are tougher than you figured, Bruce. But it's time to stop whining about what the PNP did and show us that you are the 'big-time driver' you claimed to be and not some learner who bought his license.

Now, despite a handful of doubles, there is one card Golding has full control of, and that is managing public perceptions. But instead of reading the game closely and paying full attention to the state of play, he seems to be guessing and spelling in his communications with the nation. He must have known that the package unveiled would be hugely unpopular all around, especially with the less well-off, whose food basics are going up by 17.5 per cent. A soon-to-be hungry man is a 'hangry' man.

So, in addition to demonstrating technical financial expertise, it is imperative for this Government to convince the nation that the pain is not being disproportionately felt. So far, it has failed miserably in doing this. This tax package is widely being perceived as loading the burdens on the backs of the poor, and letting the rich off scot-free.

measures to protect vulnerable

The Government has put in some measures to protect the most vulnerable, such as expanding the school feeding programme and the Programme of Advancement Through Health and Education. It has also increased the income tax threshold from $320,000 to $441,000, which will mean more take home pay, and raised the income tax threshold for pensioners.

But it's a basic principle of implementing austerity measures that you must not only be seen to be protecting the poor, you must also in some way be seen to be soaking the rich. That's why Britain's April 2009 bud-get raised the tax rate for earnings over £150,000 to 50 per cent. The stock market may not have liked it, but the British working class enjoyed some "at least those fat cat bastards are feeling the pain too!" schadenfreude. All the Jamaican masses are feeling right now is "The rich get richer while the poor get poorer!".

Opposition Leader Portia Simpson Miller is right in her diagnosis that the burdens are not being equally shared by all, but her solution smacks of dangerous populism. A special tax on government bonds would be a classic "penny wise, pound foolish" move. Arbitrarily altering a previously contracted risk-reward return is a sure way to spark capital flight. Jamaican bond ratings have already fallen to CCC+, meaning "vulnerable to default". Any government interference would cause a further downgrade, and push up borrowing rates for the country. The costs would vastly outweigh the benefits. Defaulting, technically or otherwise, can only be contemplated when everything else has been tried.

'share the pain' policy

A more feasible 'share the pain' policy would be an increased tax rate for high-income earners, by say taxing earnings above $6 million at 33 per cent and earnings above $15 million at 40 per cent - which would still be below Britain's 50 per cent top tax rate. When Golding bestowed the Order of Jamaica on Usain Bolt, he pointed out to "but-he's-too-young!" critics that Britain had given similar honours to some of its young athletes. Why shouldn't this 'good enough for England, good enough for Jamaica' logic also apply to tax matters?

Another 'fair to all' tax measure would be a percen-tage-of-valuation calculated annual vehicle registration fee. How about a $10,000 base, with a sliding 0.1 per cent rate increase for every $100,000 valuation, up to a maximum rate of one per cent? This means 0.1 per cent for a $100,000 car totalling $10,100; 0.5 per cent for a $500,000 car totalling $12,500; one per cent for a $1-million car totalling $20,000; one per cent for a $5-million car totalling $60,000.

tax luxury vehicles

Furthermore, there all but seem to be more luxury vehicles in Jamaica than income taxpayers. The authorities should ensure that those driving BMWs, Escalades and Range Rovers, etc, are making tax payments commensurate with their lifestyles. Getting more from those who are clearly not paying their fair share must be better policy than trying to squeeze those who can barely make ends meet.

This JLP regime has been a big disappointment in many respects. Nobody can blame them for the world economic crisis. But they have been as ineffectual in dealing with crime as their PNP predecessors, and have been no more convincing about protecting the public purse.

From the very beginning, many people viewed this administration as a 'rich, uptown, brown-man Government'. Its actions so far have done nothing to prove them wrong. If the Labourites want to commit political suicide, well that's their concern. But let's hope this 'let the masses carry the load' tax package does not lead to social upheaval.

Feedback may be sent to hangkob@hotmail.com or columns@gleanerjm.com.



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