My fellow Jamaicans…The public anger that has arisen since the announcement of new taxes last Thursday is understandable and I sympathize with the Jamaican people. The world-wide recession has hit us badly and I know that many Jamaicans are having it hard. In these difficult times, no one would want to impose additional taxes if there was a way it could be avoided.
On Sunday, I announced that the government would re-examine the tax package that was presented to see how it could be redesigned to lessen the impact especially on the poor and low income families. On Monday, Minister Shaw and I held a telephone conference with IMF officials and advised them that the tax package would have to be overhauled. This evening, I will give you the details of the changes that we have agreed to make.
It is important that we understand the situation that the country is in and how we got there. As I told Parliament on Thursday, for many years we have been spending much more than the taxes we collect. Each year we borrow to make up the difference and each succeeding year we have been forced to borrow more and more to meet our expenditures and service the debt. For the last 10 years, all the taxes we collect have not even been sufficient to service our debt.
When the global crisis hit us, some of the revenue that we so desperately need disappeared, like what we earn from bauxite, GCT, customs and income tax, so we have had to borrow even more to fill that gap.
We can’t continue borrowing and borrowing. The capital market which has been severely battered by the global crisis is in no position to lend us the way it used to and even if it were, our debt burden is so high that we have to start cutting back on our borrowing and controlling our expenditure … in short, we have to begin to put our house in order.
We are cutting back on our expenses but it will take time for these savings to accumulate. What borrowing we cannot avoid doing has got to be cheaper borrowing so that the interest we have to pay does not eat up so much of our budget. That is why we have had to turn to the IMF, the World Bank and the Inter-American Development Bank, which is where cheaper money can be found. And, at the same time, we will have to find additional revenues to help narrow the gap between what we earn and what we spend. There is no other way – not if we are to avoid having to close schools and hospitals and police stations and lay off thousands of government workers. That is the stark reality.
The tax package announced last Thursday was designed to raise $21.8 billion. That is the amount required to satisfy the Medium Term Economic Programme we have submitted to the IMF. Without that additional revenue, there will be no IMF programme. I want you to understand what this would mean. Without the money from the IMF, the exchange rate would come under severe pressure because with the fallout in bauxite and alumina earnings, remittances and other inflows, we would have difficulty in meeting the demand for foreign exchange. Without an IMF agreement, the additional funds from the World Bank and the Inter-American Development Bank which we need to support the budget would not be forthcoming. We have to find this $21.8 billion of additional revenue. That is the stark reality.
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