|Jamaica tightens belt|
|Friday, 01 June 2012 09:41|
Jamaica's new austerity budget prepares for pending IMF agreement
In the midst of loan negotiations with the International Monetary Fund (IMF), Jamaica's Minister of Finance and Planning Dr. Peter Phillips emphasized severe austerity for his recent 2012/13 budget presentation in parliament. Despite public support for more stimuli for the nation's economy, the new minister focused on more additional taxes and less government spending.
Additional taxes take center stage in the proposed budget, following government plans to raise an additional $23.4 billion in taxes. This includes broadening the general consumption tax (GCT) to previously exempted products like cod-fish, pickled mackerel, flavored milk, condensed milk, corned meat, beef patties, rolled oats, fish, eggs, surgical gloves and printed matter. However, GCT will be lowered from 17.5 to 16.5 percent, which could be the precursor to eventually reduce the GCT to 12.5 percent, but make it applicable to more products.
Taxes will also be placed on mobile phone calls, as well as special consumption tax on tobacco and ethanol fuel, a higher tariff on imported cars, a 50 percent increase in motor vehicle licenses and an increased tax on a drink of white over-proof rum.
In addition, financial institutions and securities dealers will pay an additional J$1.95 billion in asset taxes, and discretionary waivers (tax-breaks) to some businesses will be removed. Businesses that paid no corporate tax whatsoever will now pay J$60,000 per year.
Phillips argues that this extensive taxation plan is necessary to reduce the national debt of J$1.7 trillion. With this year's J$612.4 billion budget, the government would need to source a gap of $274.5 billion.
"Who would not want to answer the call to spend more? I certainly would. But seductive as the thought is, it is a mirage," said Phillips. According to the minister, the country's current debt means that every new Jamaican born would owe J$600,000.
He also stressed the new austerity budget's important influence on the country's pending agreement with the International Monetary Fund (IMF). Phillips claimed that the country's debt struggled causes a "trust deficit" in the nation's previous IMF deal, as the past Jamaica Labor Party (JLP) government failed to implement aspects of that agreement. He however assured parliament that the new government's austerity approach has led to substantial progress towards a full re-engagement with the IMF, with the possibility of a new three-year agreement.
The budget does bear relieve for some tax payers as the threshold for paying income tax has been increased by five percent from approximately J$440,000 to $505,312. Although a GCT remains on residential electricity bills, the threshold for tax on residential electricity use rises by half to 300 kWh. However, commercial and industrial companies must pay a new standard rate of 16.5 percent on their electric bills.
With these changes, Phillips hinted there could be a balanced budget by 2016, when the Jamaican national debt could decline from the current 128 percent of GDP to 100 percent.