Tax Reform, Wage Restraint Policy Key – Alemanni

KINGSTON — Head of Delegation of the European Union (EU) in Jamaica, Ambassador Marco Mazzocchi Alemanni, has called on private and public sector stakeholders to commit to measures to effect tax reforms and contain wage increases to achieve macroeconomic targets.

He argued that a strong commitment to these two measures “could be, I believe, an excellent incentive to the IDPs (International Donor Partners) to rapidly re-engage, thereby dispelling any possible risk of rating agencies becoming jittery” and avoiding any possible repercussions on interest and exchange rates.

Ambassador Alemanni was addressing the Private Sector Organization of Jamaica (PSOJ) Chairman’s Club Forum yesterday morning at the Jamaica Pegasus Hotel in New Kingston.

He stressed the need to move quickly on tax reforms to increase inflows, noting that the country regularly falls short of revenue estimates. He noted that the Prime Minister has stated that only 4,000 out of 250,000 eligible Jamaicans pay income tax, while 80 per cent of company taxes and 50 per cent of property taxes are not being paid.

In addition, Ambassador Alemanni said the complexity of the system is a huge obstacle to private sector growth. He informed that the World Bank, this year, ranks Jamaica 174 of 183 countries on ease of paying taxes.

He noted that tax waivers can be an excellent tool of economic policy, but only if they are growth-inducing, particularly in infant industries, and “not as a systematic hand-out to interest groups”.

Meanwhile, Ambassador Alemanni said a policy of wage restraint would be effective in increasing real labour productivity and facilitating the expansion of old and new economic ventures.

"We all agree that the public sector wage bill needs to be reduced. Since salaries have been raised, this could be done by taking a decisive and plain approach on attrition, for example, by establishing that, within each monthly period, only two or three public sector vacancies out of 10 can be filled and that the others would be permanently frozen,” he suggested.

"Of course, this will only be a first step, as measures of wage restraint will also have to be introduced,” he added.

The EU Head noted that since his tenure in the island there have been some major developments that have taken place. These include divestment of the sugar sector and Air Jamaica; and the dramatic reduction in crime figures.

"JDX (Jamaica Debt Exchange) has been a great success and has contributed to a lowering of interest rates, to the lowering of debt service and, undoubtedly, to the stability of the exchange rate,” he stated.

Ambassador Alemanni said that most of the developments were facilitated by a wise policy of re-engagement with the multilaterals, recalling that the EU’s major budget support programmes were signed one and a half years before the agreement with the International Monetary Fund (IMF).

By Chris Patterson, JIS Reporter