PETER PHILLIPS SEH JLP TAX PROPOSAL WILL KILL DEM IMF DEAL

Jamaica would again sink into deep waters with the International Monetary Fund (IMF) if a plan by the Jamaica Labour Party (JLP) to adjust provisions under the Pay As You Earn (PAYE) system of income tax is introduced, Minister of Finance, Planning and the Public Service Dr Peter Phillips has said.
Speaking with the Jamaica Observer on Friday, Dr Phillips again tore into the plan articulated by Opposition Leader Andrew Holness in which the JLP top man, among other things, put forward the objective of increasing the income tax threshold from its current $592,800 per annum ($49,400 per month), to $1.5 million yearly ($125,000 monthly), beginning on April 1 – the start of the 2016-2017 fiscal year.
Phillips insisted that such a move would not only cause undue pain and harm to the Jamaican economy, it would also derail the present four-year Extended Fund Facility (EFF) that the Administration has in place with the multilateral lending agency headquartered in Washington, DC, United States. The EFF programme is scheduled to end in 2017.
Jamaica is gearing up for its 17th General Election on February 25 and the incumbent People’s National Party is locked in a fierce battle with the JLP for control of State apparatus.
Phillips told the Sunday Observer that Jamaica stood to suffer a huge setback if the proposal being put forward by Holness and the JLP is implemented.
“First of all, we have, for three times in the last four years, raised the threshold to provide that relief for low-income earners. The question becomes, at what pace can you implement it and whether the pace at which you are implementing it is going to disrupt the hard-earned stability and the foundations of our economy and set back our economic progress,” he said.
“The way it is being proposed by the leader of Opposition will definitely set back the progress and would mean effectively, the abandonment of the programme. At the very minimum he would have to renegotiate the programme and it is going to just revive the whole situation that we are escaping from. It is going to return to the place from which we are trying to leave… where in January 2012 our word was not trusted and Jamaica was seen as a place not serious about reform and about setting its economic house in order,” Phillips stated.
Amid agony and anxiety, Jamaica re-entered an agreement with the IMF to provide budgetary support and honour its obligations to creditors in 2012, following on the heels of crashed negotiations between the administrations led by Bruce Golding and Holness between 2007 and 2011.
Former Finance Minister Audley Shaw, who served under both Golding and Holness, admitted that the agreement between Jamaica and the IMF ran into challenges because the international lending agency had raised the bar too high and some of its targets set would result in untold hardship for the Jamaican people. It was on that basis that Shaw said that he refused to sit any IMF performance tests on the economy, insisting at the time that he had not failed a single test.
Under the agreement now in force, Jamaica has achieved performance targets for 10 successive quarters.
Phillips underlined some of the challenges that PAYE earners would face if the JLP’s proposals were to be taken seriously.
“The proposals as they (JLP) have explained them have varied between two things. They have said that they are going to raise the threshold for everybody in one version. That would lead to a cost of somewhere around $30 billion plus. Then they say they are not going to do that, they are going to actually relieve the people at the bottom, but everybody over $1.5 million will pay at the current rate and then some over $5 million pay more. But that is unworkable and inequitable. Let’s take a position of two workers – one worker, Lennox, earns $1.5 million and he would currently pay tax and end up with an income of $1.273 million now.
“Sharon earns $1.592 million and is getting a little more – because she earns $92 more. Under the JLP’s plan, Lennox gets the whole $1.5 million now tax free. But Sharon, who is earning more … by $92 would be earning close to $200,000 less, take home. So let us say there is a supervisor who earns $1.6 million, then the supervisor would be taking home less pay than the person he is supervising. Or look at another example, your salary is $1.5 million, your company says it needs you to work 20 hours overtime, the overtime money carries you over the $1.5 million and so you end up earning less because they are going to start taking out the taxes.
“The only way it can work is if you raise everybody’s threshold, and that is something that you are giving up in the budget. Plus, he (Holness) has said he is going to double the minimum wage, which everybody would want to do, and again we have raised the minimum wage many times during the last four years… But you have to do it at a pace because in one move that would be an additional $68 billion, so we are gone close to $100 billion that they would be giving up. How are you going to finance it?“ Phillips asked.
“There are two things about the financing which spell the end of the IMF programme. They say, with their numbers, that they have a deficit of between $6 billion and $13 billon, but let’s say it’s $13 billion. You cannot go to the Fund and say ‘I am spending more, I have not closed my budget but I hope I will get it’. It doesn’t work. It’s like going to the bank and saying, ‘This is my income statement, but watch ya, a feel like a going get a money later, so lend me the money now’. Nobody does that. So it’s a ‘six for a nine’ they are selling the Jamaican people,” argued Phillips.
The veteran parliamentarian, who is seeking to defend his seat in St Andrew East Central, also warned against a JLP Administration, should it assume power, dipping its hands into the Energy Stabilisation Fund.
“There is another more disturbing element about the proposals, because in order to reduce the deficit to $13 billion, or whatever they say, they say the are going to take the resources in the Energy Stabilisation Fund that we introduced. The whole purpose of that cess was two-fold, and we have already agreed that we are going to create legislation to guarantee it. The money doesn’t go into the general budget, it is a separate fund for two purposes: to hedge against possible upward movement of oil prices, which we did … by insurance, to protect the country’s balance of payments.
“Oil prices are low today, oil prices may not be low next year or the year after, but more importantly, we have said that we are going to use those resources that accumulate over and above what we spend on a hedge. It hasn’t accumulated anything yet because we advanced the money for the hedge, US$27 million, but we have had savings on the price of oil, but not savings for the government account as much as for the country.
“The Government has saved some because we are paying less in light bill, and Government costs and so. We have said that the other use of the fund is to undertake the capital investments that make us less reliant on oil as a country that does not produce oil or energy,” Phillips said, as he reflected on the fact that when the world experienced the oil price shock in 1973 Jamaica was importing 95 per cent of its energy needs.
“It comes around now. Three years ago when oil shot up we were at the same level of dependence, relatively speaking, on oil, and we said it can’t make sense. We have done nothing as a country, as other countries have done, to reduce our reliance on something that we do not produce, in a volatile market, and God knows, if it wasn’t for the Venezuelans in the period of the high oil prices, Jamaica would probably have totally collapsed in financial terms,” he said, pointing to the Venezuela-inspired PetroCaribe Agreement under which Jamaica and other countries in the region benefit from favourable payment terms for oil from the South American country.
“Now, they are going to throw up all this possibility of making the investments. A fund like this is able to receive proposals, for example, for our hospitals, finance conversion to solar energy, so that there is less need for them to buy electricity, which is dependent on the oil. You might be able to do the same thing for schools, which is a plan that is before us. You can’t do all at the same time but you would be reducing the cost of operating the schools and putting more money into the things that help the children to learn more — audio-visual aids, computers, smart blackboard that children in other places learn with, and with whom we have to compete for our place in the world economy. All of those things are there for which the Energy Stabilisation Fund is dedicated.
“And they intend to tear it up and leave the country naked again for when the oil prices go up. We are going to end up with not having put our house in order again. As a Jamaican I would just hope that at some point our political culture will not just focus on the immediate, short-term gratification, but on creating the sound foundations which have to be built if the country is actually to make progress and realise the legitimate aspirations of the generations that gave us independence and nationhood. Which means that you have to first lay foundations, then you put up the walls, then you put on the roof, and as everybody who has ever paid a mortgage knows, that the earliest years are the hardest ones,” he said.
“It’s like every time you put down a money; it’s like you at a bar and you put down some extra money, or money to build on a room on the house, a man come and say ‘man, why you nuh buy a cue, man’. That’s what is happening now in the politics,” Phillips said.