Finance Minister Says Fiscal Package Will Enable Government to Meet Targets

Minister of Finance and the Public Service, Hon. Audley Shaw, says that the fiscal package he revealed in Parliament on April 23, will allow the Government to meet its commitments to the people, increase the fairness of the tax system and better position the economy over the long term.
“Our fiscal package will allow us to meet our commitments to the Jamaican people, the most important of which is the protection of the most vulnerable members of the society during these difficult times,” Mr. Shaw said, as he opened the 2009/2010 Budget Debate in the House of Representatives, Gordon House.
The package included:Doubling the general Income Tax Threshold from the current $220,272 to $441,168 by January, 2010, which will relieve an additional 85,000 workers of the need to pay income tax;Increase the Income Tax thresholds for pensioners, relieving an additional 4,500 pensioners of income tax commitments;Reduce the rates of Stamp Duty and Transfer Tax, to 3% and 4%, respectively, resulting in a cumulative 50% reduction in these taxes since 2008, to stimulate the real estate market;Broaden the General Consumption Tax (GCT) tax base and reduce the number of items listed as exempt, while GCT remains at 16.5%;Consolidation of statutory deductions;Increase the Special Consumption Tax on petrol to 5%, while the advalorem component remains frozen;Remove personal income tax preferences, including tax free allowances and gratuities, and merge them into taxable income;Imposition of a 20% rate of GCT on the importation and sale of telephone instruments;And, imposition of a 331/3% withholding tax on dividends earned by non-resident shareholders of listed companies in Jamaica.
The increase in the Special Consumption Tax on petrol, reform of the GCT and imposition of GCT on telephone instruments will become effective on Monday, April 27; the increase in the income tax threshold for workers and pensioners, the removal of personal income tax preferences, consolidation of statutory deductions and the withholding tax on dividends will become effective as of July 1, while the final phase of the increase in the income tax threshold and the reduction in Stamp Duty and Transfer Tax takes effect on January 1, 2010.
Mr. Shaw said that the Government’s decision was guided by two core principles – fiscal responsibility and equity.
He said that “careful” consideration was given to the new measures to fill a $18 billion gap in the 2009/2010 budget, which Prime Minister the Hon. Bruce Golding indicated Wednesday night has to be filled from revenues, instead of additional borrowing.
Mr. Shaw noted that despite the increase in the Special Consumption Tax (SCT) on petrol to $8.75 per litre, the price of local gasoline will continue to be among the lowest in the region.
“Even with this increase in fuel prices, Jamaica will continue to enjoy some of the lowest prices of gasoline in the region – significantly lower than gasoline sold in Barbados, the Bahamas or the Dominican Republic,” he explained.
Eventually, 50% of this tax will be dedicated to an enhanced Road Maintenance Fund, currently financed by motor vehicle licensing receipts, to be used to repair and maintain roads. This year, $3 billion of the expected yield of $13.3 billion will be put into the Fund, increasing the allocation for road repairs from $7.8 billion to $10.8 billion.
He said that there was a need to reduce the long dependence on borrowing, and to ensure that more people are drawn into a wider tax net.
“The Government is committed to undertake a profound reform of the tax system to address the issues of equity, efficiency, effectiveness and revenue adequacy and, in order to do so, has reviewed a menu of options that will help to satisfy these objectives,” he stated.
Mr. Shaw said that, based on projected revenue and expenditure, the borrowing requirement for Central Government this fiscal year, amounts to $215.8 billion. This is comprised of external financing of US$29.4 billion, including loans for investment projects and policy-based/development policy loans. The remaining portion of the loan raising programme of $186.4 billion will be raised on the domestic market.
But, he said that based on the revenue forecast and the Expenditure Budget, which is to be approved by Parliament, there remains a fiscal gap of $18.1 billion or 1.5% of GDP.
This year, the Government is targeting a fiscal deficit of 5.5% of GDP, equivalent to $65.4 billion. The Estimates, which now total $556.7 billion, reflect above-the-line expenditure of $401.9 billion and amortisation payments of $150.4 billion.
Expected revenue for the fiscal year will be $321.1 billion, with tax revenue contributing 86% of the total. Non-tax revenue will contribute $15.5 billion; capital revenue, $20.3 billion; grants, $10.2 billion; and bauxite levy only $139 million, due the huge fallout which has led to a decline from the $5 billion collected in 2007.
Mr. Shaw said that in light of the significant fallout occurring within various sectors, including bauxite/alumina, tourism, export agriculture, as well as falling revenue from border taxes, GCT and PAYE, there is need for replacement revenue.
He said that there was need for equity in sharing the tax burden and a need to get more people in the tax net, as well as to garner more funds for infrastructure development and the rebuilding and maintenance of the social fabric of the country.
“I have no doubt that if we come together, are prepared to accept shared sacrifice and approach our problems realistically, constructively and with some calm, cool and strength displayed every day by ordinary Jamaicans, there is no question that our best days are ahead of us,” Mr. Shaw said.