Robert Hart and Andrew Green, Staff Reporters
DAVIES
MINISTER OF Finance and Planning, Dr. Omar Davies, opens the 2005/2006 Budget debate today, revealing Government's plans to fund the estimated $346 billion expenditure for the financial year.
The Patterson administration has vowed to balance the budget in an effort to steer the nation back on the road to economic stability.
The estimated spending is up about four per cent on the budget for last year. But revenues for that period ran below target and, therefore, tough measures are needed to bring them in line during this financial year, which started on April 1.
In this final year of the historic Memorandum of Understanding between the Government and public sector workers, the finance minister is guaranteed a level of control over state sector staffing costs. But he has limited leeway to make substantial cuts in this area.
Among Dr. Davies' options are several recommendations from the Joseph Matalon-led Tax Policy Review Committee, set up last year to examine and suggest methods of simplifying Jamaica's tax system.
In its report released earlier this year, the committee suggested that the Government:
Increase General Consumption Tax (GCT) from 15 to 16 per cent
Reduce GCT exemptions
Apply GCT to motor fuels
Make profits on sales of shares subject to capital gains tax
Abolish special allowances such as accommodation relief and preferential treatment of gratuities
Balance revenue raising measures by increasing the income tax threshold
Eliminate the Education Tax and HEART Trust contributions
Cut property transfer tax
Consider lower unified rate on tariffs
Eliminate corporate income tax.
Minister Davies has already ruled out the introduction of a capital gains tax on equities. He also said the proposed increase in the threshold would provide no benefit to the poorest citizens who would be faced with higher overall taxes.
"I think he is going to put the GCT on fuel," said Jamaica Money Market Brokers group financial controller Dennis Chung. "I also see him trying to extract some more out of GCT, whether by increasing the rate or by eliminating some of the exemptions."
But David Wan, general manager for Victoria Mutual Wealth Management, said imposing the GCT on gasoline could be, "political suicide."
The biggest lever the minister has is to lower interest rates, Mr. Wan said. This will contain the drain on the budget needed to maintain debt payments which consumed more than two-thirds of the budget last year.
"I feel he will not raise any new tax," Mr. Wan said.
Economist Errol Gregory agreed that an increase in fuel taxes was unlikely. He said, "Fee income is more likely to be the route he will choose."
