Pressure mounts for JLP, PNP to share detailed tax relief plans

 

Pressure is mounting for the two main political parties to share details on how they plan to implement their proposed tax cuts ahead of the general election next Wednesday. 

 

The Jamaica Labour Party (JLP) is promising to gradually cut the income tax rate to 15 per cent, while the People's National Party (PNP) wants to increase the income tax threshold to $3.5 million.

 

Economist Janiel McEwan says both parties should outline how they plan to achieve the goals of the tax cuts without implementing new taxes.

 

"If it is that this is either of them talking point or the driving force towards the election, I think it's something that needs to be addressed because when I was on X last night and the persons were commenting along the line of the income tax threshold, the Fayval Williams was saying that her technocrats are saying that it would cost her around $20-30 billion, while economist Keenan Falconer, he was giving different figures as it relates to the cost. 

 

"So it's important to explain to the country - and this is an appeal - what are the costs? How is it that we're going to achieve from both parties? It is necessary for them to explain this to us. Is it that they are going to raise taxes, modify the scope of the proposal, or cut expenditure in some of these areas? And that is very difficult to do because many of the expenditures on the proposed budget, they are fixed costs which can't be changed. So I would like to see how they go and cut and paste in order to really achieve this," urged Mr. McEwan, who was speaking Wednesday on Radio Jamaica's Beyond the Headlines.

 

Financial commentator David Wan believes there may have to be cuts in some sectors to fund the proposed tax breaks. 

 

According to Mr. Wan, the Fiscal Commission should weigh in on the proposals of both political parties to determine their credibility. 

 

"It is exactly the scenario where the Fiscal Commission should come in with an authoritative answer to each side as to which one is credible and which one is going to cost us X and Y, so that we can have a firm decision on which one is better," he proposed. 

 

But the commentator was pressed by Beyond the Headlines host Dionne Jackson Miller on whether it would be a good idea to have the Fiscal Commission "politicised by wading into these kinds of green and orange waters".

 

"If you look at the model that was used to establish the Fiscal Commission, it's the Congressional Budget Office in the US. And what they do is the government puts forward a proposal and says, it's going to cost us $60 billion and the budget office comes in and says, no, it's really going to cost you $55 billion because they have access to information. So I'm not saying they should come in and try to play one against the other. I'm just trying to get to what is the cost of each of these programmes without giving an opinion," Mr. Wan explained.

 

 

Economist Keenan Falconer has said both major political parties need to provide a comprehensive growth strategy for funding their tax relief packages.

 

Speaking Wednesday on the Morning Agenda on Power 106 FM, Mr. Falconer said the tax packages of both political parties will cost somewhere within the region of $60 to $70 billion. 

 

He said it seems both political parties are relying heavily on economic growth to fund their tax relief proposals since they do not intend to impose new taxes or to borrow. 

 

"You don't move from an average of 1 per cent, for example, for nearly a decade to 5 per cent overnight. So the growth is really the only way that you can now potentially absorb the increases while moving around a few items in your expenditure profile. But the problem is that in many operating expenses, and you have some fixed costs, operational expenses are also very rigid. So you probably can get some efficiency gains of a couple billions and so on, in trying to re-priorise that expenditure. But more details are really needed on growth. A comprehensive growth plan at some point for both parties would be necessary because we're still meandering at around 1 to 2 per cent. And that means that revenues that are growing over the next couple years are effectively growing at the rate of inflation." 

 

At the same time, Mr. Falconer said the PNP has provided an explanation of the sources for funding the increase in the income tax threshold, but the JLP has yet to state how it will fund the reduction in the income tax rate.

 

Still, he believes that the tax relief plans cannot be accommodated in the fiscal profile for the next two years.

 

"I think the the timeline needs to be elongated a little bit for both of them. These are massive adjustments, equivalent to around 2 to 3 per cent of GDP. That's not something that you can force fit I think in a year or even two to three years. A realistic timeline for both of these, which effectively constitutes some amount of tax reform, would be after the next two years, which would be closer to the end of the next parliamentary term, going into the very early days of the following term after that. This is such a major reform, I think it will necessitate that sort of careful implementation," he reasoned.