Robert Buddan, ContributorEDWARD SEAGA and Don Robotham have raised alarms about populist budgeting. The Portia Simpson Government, they say, will spur inflation and widen the deficit gap with spending policies designed to win popularity for elections.
The problem, as I see it, is not on the spending side but on the revenue side. Mr. Seaga is one of six living present and former ministers of finance, along with Dr. Davies. I am sure they and the others - David Coore, Seymour Mullings, Hugh Small, and P.J Patterson - will attest that they all faced major problems collecting taxes, fines and fees to support government spending.
Attacking spending can lead to the impression of insensitivity to the poor, and ignoring the revenue side can let off the rich. The truth is that budgets and development plans have not had the successes expected because of continuous shortfalls in revenue.
The problem, however, goes beyond the budgets presented. It is a problem of state capacity. By this, I mean the capacity to plan, to develop production, and to source revenue. This last has undermined the goals of the first two. We have just not paid Caesar even though we want Rome to be built in a day.
REVENUE CRISIS
Jamaica's average rate of tax compliance is a mere 58 per cent. Yet, we focus our debates on the high debt servicing that leaves little left over for the social, infrastructure, and national security budgets instead of the low level of tax compliance and how this restricts development spending. The PSOJ and JCC have told us to look to dollarisation, fixed or flexible exchange rate management, currency boards, and now the Irish model to sort out our problems. We don't have to look anywhere if we just pay our taxes.
The April 2006 IMF report on the economy says there is danger in postponing infrastructure and social and poverty-reducing programmes. It advised the Government to pursue tax delinquents in a more vigorous manner. The compliance rate for property taxes last year was a shameful 35 per cent, down from the previous low of 40 per cent. In the multi-billion dollar entertainment industry too, reggae and dancehall performers pay less than 20 per cent of what they should. Yet, they talk about the poor and oppression. Both uptown and downtown need to come clean. It is the mid-town people on P.A.Y.E. who support everybody else, and yet it is they who have to bite the bullet under the public sector Memorandum of Understanding (MoU).
In 2004, the Minister of Finance said that the society owed the Government $15 billion in taxes, fines and fees. This is three times what Government hoped to save each year under the public sector MoU. That amount could pay for the cost of two ministries with change. It was a quarter of the salary of the entire public sector. We complain about the size and cost of government when two-fifths of us are not paying for the cost of government at all.
CITIZENS AND THE LAW
The private sector says the first duty of government is to protect its citizens. Fine, but we need the money to hire the police and equipment. Foreign cops are not the solution. Mark Shields says we need first-class security technology. But we are struggling with broken down motor vehicle fleets and police stations. The revenue department reported in 2005 that two car dealers alone had been assessed for due taxes to the amount of $40 million. The year before, the Government was trying to find the same $40 million to repair 80 vehicles to be added to the police fleet so that the police could more effectively protect citizens. The first duty of citizens is to obey the law, and one such law is to pay taxes.
Citizens do not obey the law. The police reported in 2003 that 65 per cent of motorists were not paying their traffic tickets. One motorist had 199 tickets outstanding. Some 300,000 outstanding tickets over six years denied the country $900 million. This alone is half of the $1.8 billion hardship allowance that Government had to pay to public sector workers as a side deal to the MoU.
In its 2003/4 report, the IMF said that only about 17 per cent of corporate taxes were reported. It now says that Government must pursue tax delinquents vigorously. Indeed, we need better corporate citizenship. In March 2006, the KSAC complained that 16 companies, some of them multinational corporations, had failed to pay $75 million in fees for advertising billboards. Mayor McKenzie said these were the same people who were complaining about the poor state of streets, drains and street lights in their business districts.
Mayor Donaldson of Montego Bay has had to go to the bank for a loan to finance roadwork because the city is not earning what it should from fees and fines. He wants a municipal court to force delinquents to pay. These same Montego Bay business people demand money to make their city clean and safe for tourists. But they don't want to pay for it. Ernie Smith, MP, said that bauxite companies owed $1.5 billion in fines for failing to fulfil their obligations to redevelop mined-out bauxite lands. That money would go a far way in rehabilitating communities.
THE PROBLEM OF STATE CAPACITY
Since both central and local government are starved for revenue, it means that the problem of state capacity exists for both JLP and PNP politicians at those two levels.
There is a fiscal crisis at local and central government. Property taxes go into the Equalisation Fund for local government to fix roads, collect garbage and do other things, but people only pay 35 per cent of property taxes. There is a limit to what shared governance between central and local government can achieve if the society is not willing to share the economic pie with either.
What does capacity mean? It means the ability to put effective laws, investigative, enforcement, and appeal structures in place to achieve our revenue targets. We must tackle this with the same seriousness that we do for regular islandwide voter registration. After all, what is democracy without development, and how can we achieve development when people do not pay their way? The Americans understood this when they put the Internal Revenue Service (IRS) in place to give meaning to the phrase 'no taxation without representation'. Americans don't like to be
regulated but they have had to comply with the IRS.
What we have is tax facility, not capacity. We facilitate taxpayers by making it easier for them to pay. They can pay online. They have all the information they want on websites. They have the revenue division and tax administration department to assist them. But the World Bank/GOJ Tax Administration Reform Project (1994-2000) has clearly not worked. By 2001, a survey of tax administrators showed that they felt the system of revenue collection was still unsatisfactory.
Fiscal capacity enhances the capacity of government overall. The JLP complains that we shouldn't accept rent-free space for our overseas mission in China. It has a point. But we wouldn't have to if the state could afford to pay for its own foreign affairs capacity.
We have to turn more and more to PetroCaribe to finance infrastructure like the very roads that our non-tax paying motorists use.
We have to look overseas for others to help us with policing. Now we are thinking about selling our shares in our oil refinery and ethanol industry and in the JPS, presumably to raise money. In the end, we can't get representation without taxation.
Robert Buddan is a lecturer in the Department of Government at the University of the West Indies. You can send your comments to robert.buddan@uwimona.edu.jm
