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All hands needed on deck now
ELIOT PENN
Sunday, April 15, 2012
WHEN Dr Peter Phillips presents the budget in May it will not only be the usual listing of underestimated expenditures and optimistic revenue flows, but also a road map. This must be the map that will transform the Jamaican economy from marking time (marching in the same spot) to moving forward.
To march forward, tax reform must be settled and the economic policies that the Government hopes to pursue must be clear and engender confidence by those it hopes will invest. When we speak of investment it must include small businesses as it is those entrepreneurs who will grow and with that growth provide sustainable employment.
Simpson Miller (left) and Phillips… will need our full support to find the courage to forget the campaign trail and become the CEO and CFO of Jamaica Ltd
How we got to where we are is not important. Now that elections are behind us, and with none on the horizon, the Government has no excuse not to act in a clear-headed and responsible manner. Politicians need a lot of forgiveness for what they say on an election platform. They’re like men who, while pursuing the one pretty girl in a dance, will say just about anything to win her affection. But the party is over, and the honeymoon, for that matter, is also over, the bills need to be paid and the children have to go school.
Reality is here, but there is no need to be afraid. In 2012 there exists sufficient data of various policy options tried passionately by various governments and the results of those options. It is therefore not necessary for any Jamaican Administration to experiment with ideologically based rhetoric masquerading as policy.
There are a number of countries that have been where we are and have tried various approaches to achieve what we need to accomplish. We can learn from their successes as well as their failures.
As we seek to find equity, let us keep in mind that the true goal is private sector-led sustainable economic growth. There is no possible chance of that unless the private sector (foreign or domestic) is willing to invest, directly or indirectly, in our economy. That, as one former leader would put it, is impatient of debate.
The discussion about waivers seems to take on an emotional flair that seeks to pit those who benifited against those who did not qualify for them. Let us remember that these waivers span successive administrations and were a tool used to make certain industries competitive and attractive to foreign and local investors who would not have otherwise invested. So don’t cuss them too much.
Most of us are never there when these waivers are being discussed, but it’s simple really. Businesses can either invest in St Lucia or Barbados or Jamaica. In St Lucia they can pay one per cent tax, in Jamaica they pay 33 per cent. If we want investors to put their money here we need to address that difference. The investor shouldn’t have to request a waiver, by the time the initial conversation is over the Government should be offering to seek a waiver to make it possible for Jamaica not just to be competitive but even more attractive than the competition. If things get bad enough we will be offering to pay their light bill. If we gave enough waivers maybe INTEL microprocessors would be made here instead of Costa Rica.
So our leaders didn’t sell us out, they just ran up into the reality of capital and competition. When New Jersey and Connecticut wanted to attract financial firms from Wall Street these same types of tax waivers and tax incentives were offered so as to lure them away from New York City. This was also done to get the New York Giants to have their stadium in New Jersey. We may say we can’t afford that anymore, but the real question is, can we afford not to have the investment. That is one of the hard choices that we have to make.
Let’s face it, the reason we need waivers is simple; the taxes, when compared to what our competitors are prepared to offer, are way too high. Big business negotiates waivers from investmenthungry politicians, while small business negotiates them from the officers at the ports. That’s Jamaican equity, and it must end now. One level playing field, for small as well as large business.
Like America, growth will come when small and mediumsize businesses are formed and growing, not just large business. There is no need for a battle between corporate taxpayers and PAYE taxpayers. That’s just pandering to the gallery. Truth be told, if we had more corporations/investors, all things being equal you would have more employees and more tax to collect. Eventually you could even lower the PAYE rate.
I have never heard of higher taxation leading to increased investment and growth. There are, however, many cases where it leads to evasion, avoidance, corruption and economic contraction. Many are climbing on soap boxes talking a lot about the thousands of businesses that are outside the tax net. True, but many who work in Tax Admin and actually know what they are talking about will tell you it is not economically feasible to go after most of those taxes. In layman terms, it will cost you more to discover those cheats, and when you do find them it will most times be an assessment you will never collect. Sorry, but those are the facts.
So you end up with big, fat receivables that you will never collect. Why? you ask; because they are out of business or have no assets to collect on etc, etc. But worse than that, there are tax treaties that allow many of us to already pay less than 10 per cent in taxes to a foreign jurisdiction and none here in Jamaica. Yes, that’s true, and it’s perfectly legal.
As Prime Minister Portia Simpson Miller and Dr Peter Phillips seek to pilot the good ship Jamaica to prosperity, they will need our full support to find the courage to forget the campaign trail and become the CEO and CFO of Jamaica Ltd. The Opposition must join them as their DNA is sufficiently on the current proposals that paternity can be avoided but not fully evaded.
Three things must be achieved in the next fiscal year. First, taxes must be lowered to make us competitive and encourage investment. No one, especially small businesses, invests for the good of the State. Investment is made for a return, and that return must be competitive. Be bold, look at the Panamanian model.
Second, remove red tape at the ports and in tax administration, but mostly at the port. Set clearance benchmarks, and if they’re not achieved in four months, remove the commissioner, the deputy commissioners and the collectors, and make it clear that if the clearance targets and the revenue targets are not met, the process will be repeated. I assure you you won’t have to do it more than once. The same can be applied to tax admin. They know what to do, they just need to be empowered and motivated.
Third, reschedule our debt payments aggressively. This is necessary to give ourselves the room to not have to make counterproductive cuts in the public sector. Yes, I said it, counterproductive cuts. This is not the time to cut the public sector, and if you understand the make-up of the wage bill — unless you are cutting soldiers, police, teachers, nurses and doctors — the cuts won’t have any real effect. The only effect will be to depress spending more and to stall growth.
The economy will produce jobs only with investment, and investment will only happen where investors are convinced that if they borrow funds they will make a return sufficient to service that debt. Higher taxes is the antithesis of that because those taxes have to be paid before the investor gets his return. The question is not whether we should lower taxes, it is simply what’s the best way to do it and how quickly can we get it done.
Jamaica must achieve port clearance times that allow for just-in-time inventory practices and also for logistic centres to become attractive and a reality. Paying taxes has got easier, but we have too many of them and too many forms. We have improved, and instead of casting that work aside because it was done by another administration, the Government should take it, run with it and improve it to the point that its success becomes completely theirs. Begin with the end in mind.
If sufficiently aggressive work is done on the restructuring of the debt, little if any will need to be borrowed in the short term. The bankers will, in the long run, benefit. They have had a lot of practice over the last decade with these types of workouts.
Whatever the choice, we are in this together. Let us work as a team, let us respect each other and be mindful of the most vulnerable among us. This is not bigger than us, but if we are divided, bad-minded and start to try apportioning blame, that will lead us back to marking time, and the cycle of debt and poverty will continue to enslave us.
http://www.jamaicaobserver.com/colum...ed-on-deck-now
ELIOT PENN
Sunday, April 15, 2012
WHEN Dr Peter Phillips presents the budget in May it will not only be the usual listing of underestimated expenditures and optimistic revenue flows, but also a road map. This must be the map that will transform the Jamaican economy from marking time (marching in the same spot) to moving forward.
To march forward, tax reform must be settled and the economic policies that the Government hopes to pursue must be clear and engender confidence by those it hopes will invest. When we speak of investment it must include small businesses as it is those entrepreneurs who will grow and with that growth provide sustainable employment.
Simpson Miller (left) and Phillips… will need our full support to find the courage to forget the campaign trail and become the CEO and CFO of Jamaica Ltd
How we got to where we are is not important. Now that elections are behind us, and with none on the horizon, the Government has no excuse not to act in a clear-headed and responsible manner. Politicians need a lot of forgiveness for what they say on an election platform. They’re like men who, while pursuing the one pretty girl in a dance, will say just about anything to win her affection. But the party is over, and the honeymoon, for that matter, is also over, the bills need to be paid and the children have to go school.
Reality is here, but there is no need to be afraid. In 2012 there exists sufficient data of various policy options tried passionately by various governments and the results of those options. It is therefore not necessary for any Jamaican Administration to experiment with ideologically based rhetoric masquerading as policy.
There are a number of countries that have been where we are and have tried various approaches to achieve what we need to accomplish. We can learn from their successes as well as their failures.
As we seek to find equity, let us keep in mind that the true goal is private sector-led sustainable economic growth. There is no possible chance of that unless the private sector (foreign or domestic) is willing to invest, directly or indirectly, in our economy. That, as one former leader would put it, is impatient of debate.
The discussion about waivers seems to take on an emotional flair that seeks to pit those who benifited against those who did not qualify for them. Let us remember that these waivers span successive administrations and were a tool used to make certain industries competitive and attractive to foreign and local investors who would not have otherwise invested. So don’t cuss them too much.
Most of us are never there when these waivers are being discussed, but it’s simple really. Businesses can either invest in St Lucia or Barbados or Jamaica. In St Lucia they can pay one per cent tax, in Jamaica they pay 33 per cent. If we want investors to put their money here we need to address that difference. The investor shouldn’t have to request a waiver, by the time the initial conversation is over the Government should be offering to seek a waiver to make it possible for Jamaica not just to be competitive but even more attractive than the competition. If things get bad enough we will be offering to pay their light bill. If we gave enough waivers maybe INTEL microprocessors would be made here instead of Costa Rica.
So our leaders didn’t sell us out, they just ran up into the reality of capital and competition. When New Jersey and Connecticut wanted to attract financial firms from Wall Street these same types of tax waivers and tax incentives were offered so as to lure them away from New York City. This was also done to get the New York Giants to have their stadium in New Jersey. We may say we can’t afford that anymore, but the real question is, can we afford not to have the investment. That is one of the hard choices that we have to make.
Let’s face it, the reason we need waivers is simple; the taxes, when compared to what our competitors are prepared to offer, are way too high. Big business negotiates waivers from investmenthungry politicians, while small business negotiates them from the officers at the ports. That’s Jamaican equity, and it must end now. One level playing field, for small as well as large business.
Like America, growth will come when small and mediumsize businesses are formed and growing, not just large business. There is no need for a battle between corporate taxpayers and PAYE taxpayers. That’s just pandering to the gallery. Truth be told, if we had more corporations/investors, all things being equal you would have more employees and more tax to collect. Eventually you could even lower the PAYE rate.
I have never heard of higher taxation leading to increased investment and growth. There are, however, many cases where it leads to evasion, avoidance, corruption and economic contraction. Many are climbing on soap boxes talking a lot about the thousands of businesses that are outside the tax net. True, but many who work in Tax Admin and actually know what they are talking about will tell you it is not economically feasible to go after most of those taxes. In layman terms, it will cost you more to discover those cheats, and when you do find them it will most times be an assessment you will never collect. Sorry, but those are the facts.
So you end up with big, fat receivables that you will never collect. Why? you ask; because they are out of business or have no assets to collect on etc, etc. But worse than that, there are tax treaties that allow many of us to already pay less than 10 per cent in taxes to a foreign jurisdiction and none here in Jamaica. Yes, that’s true, and it’s perfectly legal.
As Prime Minister Portia Simpson Miller and Dr Peter Phillips seek to pilot the good ship Jamaica to prosperity, they will need our full support to find the courage to forget the campaign trail and become the CEO and CFO of Jamaica Ltd. The Opposition must join them as their DNA is sufficiently on the current proposals that paternity can be avoided but not fully evaded.
Three things must be achieved in the next fiscal year. First, taxes must be lowered to make us competitive and encourage investment. No one, especially small businesses, invests for the good of the State. Investment is made for a return, and that return must be competitive. Be bold, look at the Panamanian model.
Second, remove red tape at the ports and in tax administration, but mostly at the port. Set clearance benchmarks, and if they’re not achieved in four months, remove the commissioner, the deputy commissioners and the collectors, and make it clear that if the clearance targets and the revenue targets are not met, the process will be repeated. I assure you you won’t have to do it more than once. The same can be applied to tax admin. They know what to do, they just need to be empowered and motivated.
Third, reschedule our debt payments aggressively. This is necessary to give ourselves the room to not have to make counterproductive cuts in the public sector. Yes, I said it, counterproductive cuts. This is not the time to cut the public sector, and if you understand the make-up of the wage bill — unless you are cutting soldiers, police, teachers, nurses and doctors — the cuts won’t have any real effect. The only effect will be to depress spending more and to stall growth.
The economy will produce jobs only with investment, and investment will only happen where investors are convinced that if they borrow funds they will make a return sufficient to service that debt. Higher taxes is the antithesis of that because those taxes have to be paid before the investor gets his return. The question is not whether we should lower taxes, it is simply what’s the best way to do it and how quickly can we get it done.
Jamaica must achieve port clearance times that allow for just-in-time inventory practices and also for logistic centres to become attractive and a reality. Paying taxes has got easier, but we have too many of them and too many forms. We have improved, and instead of casting that work aside because it was done by another administration, the Government should take it, run with it and improve it to the point that its success becomes completely theirs. Begin with the end in mind.
If sufficiently aggressive work is done on the restructuring of the debt, little if any will need to be borrowed in the short term. The bankers will, in the long run, benefit. They have had a lot of practice over the last decade with these types of workouts.
Whatever the choice, we are in this together. Let us work as a team, let us respect each other and be mindful of the most vulnerable among us. This is not bigger than us, but if we are divided, bad-minded and start to try apportioning blame, that will lead us back to marking time, and the cycle of debt and poverty will continue to enslave us.
http://www.jamaicaobserver.com/colum...ed-on-deck-now
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