Jamaica Gleaner
Published: Sunday | December 23, 2012
Home : Commentary
On a mission? What mission?
Claude Clarke, Contributor

If you were told of a country which boasts over half a century of unbroken democratic government and was blessed with the most desirable of climates; a country that sits on reserves of important mineral assets, with a remarkable variety of micro-climates and soils that impart unique characteristics to its food and spices, your response would probably be: there is no such country.

If you were told of a nation that has long enjoyed preferential access to the world's most lucrative markets and the productive technologies they create; a society that has produced individuals who have excelled internationally in every field of human endeavour, physically, creatively, academically, entrepreneurially and politically, with a culture that delights the world, your response would probably be: there is no such country!

And if you were to be told that that country, along with war-ravaged Congo and economically floundering Greece, had among the worst average economic performance in the world during the last 10 years, your response would probably be: There is no such country!

But there is. Jamaica, with all its blessings, has managed to record an average annual growth of 0.6 per cent, spanning three political administrations in the last decade.

Year after year, there is collective anguish about our galloping debt and stagnant economic output; great agonising over the widening trade deficit and the receding jobs landscape; and national shuddering at the daily evidence of our disintegrating social fabric.

MEANINGLESS SLOGANS

Yet Jamaica has had no shortage of studies and plans aimed at making things better. Each new plan is heralded as the road map to our economic nirvana. Vast sums are spent establishing special committees and task forces to study and find solutions to our chronic economic and social malaise. But instead of solving our problems, we seem only to have perfected the art of designing catchy but meaningless slogans.

Having moved from being one of the world's fastest-growing economies at the time of Independence to being among the slowest, now in the 50th year of our largely squandered sovereignty, we have a new one. We are 'A Nation on a Mission'. Just what this mission is may be buried somewhere beneath the tons of papers, studies and plans piled atop each other that have accumulated over the years.

These papers and plans, like our governance, have been largely lacking in coherence and coordination, strategic direction or practical connection between our dire circumstances and the lofty outcomes they promise. What are the fundamental policy changes implemented by Government to make Jamaica 'the place of choice to live, work, raise families and do business'? Five years after Vision 2030 was launched, our economy remains stalled and Jamaica continues to sit firmly on the bottom rung of economic performance among the world's nations.

In the absence of a clear strategic plan, Government has been sailing without a compass; more of an obstacle to growth and development than an enablement and motivation.

It is against this background of empty slogans and unfocused government that we have now found ourselves with a new opportunity to design a pathway to an economic turnaround and a healthy economic future. After almost two years of preparation, which took us through a Green Paper, a special parliamentary committee and extensive public debate, the Government last month tabled a White Paper, preparatory to a bill to reform our tax system and to suitably demonstrate to the IMF that it is serious about, and capable of, setting the economy within a framework of fiscal discipline, order and vitality.

However, the White Paper, as tabled, has left me wondering whether anything has changed and if the Government has yet discovered that its approach to economic planning: colourfully enumerating desired outcomes without identifying the means by which they are to be attained, is doomed to failure, and will never be able to bring us the economic results for which we have waited for so long.

A tax-reform exercise is not worth much if it is not tailored to the economic requirements of a country. To a country desperately in need of development, a focus on tax collection will contribute less to economic success than a vibrant, growing economy and will yield decreasing revenue over time. At the heart of Jamaica's illness is our chronic inability to generate adequate economic output for the upliftment of our people.

OVERRIDING NEED

In these circumstances, the country's overriding need is not to increase taxes but to stimulate and sustain economic development. Neither Government's revenue needs nor the people's welfare will be satisfied until that becomes the principal priority of Government. The White Paper on tax reform may lay out an effective strategy for collecting as much taxes as possible. A framework for economic development it is not.

Of course, the tax system must be made as efficient, equitable and protective of the poor as is possible. But those desirable goals are most easily achieved in a productive economic environment. And neither maximum tax recovery nor economic development is likely to result if the greatest emphasis is placed on tax enforcement.

To stimulate and sustain increased economic output, the tax code must incentivise the key factors of production, capital and people, to be productive. This should be reinforced by trade and monetary policies that enable the output of labour and capital to be profitably marketed.

Among the first things that must be addressed is the competitiveness of our currency and fair access to markets, beginning with our own. Without these things, no tax-reform programme can bring sustainable increased revenues, because the tax base will contract as both capital and the most productive labour emigrate in search of better returns.

Tax reform must also begin with the answers to a few fundamental questions.

First, after setting a floor below which no income should be taxed, is there any reason why any income, including income from dividends, capital gains and interest, should go untaxed?

Second, is there a valid reason why income from any particular source should be subject to lower tax rates than any other income?

Third, in a country with as wide an income disparity as Jamaica, how can a flat-tax regime be either equitable to taxpayers or fair to the revenue?

Fourth, since higher-income earners consume a far lower percentage of their income than the less affluent, is it logical to believe that consumption tax can compensate for direct income tax foregone on higher incomes?

Fifth, with the relative paucity of top-end consumption goods and services available in Jamaica, and an overvalued currency providing additional inducement to indulge in consumption abroad, won't much of the consumption-related taxes paid by our high-income earners go to foreign governments?

The Jamaican Government appears convinced that simply relieving high-income earners and corporations of income tax will result in increased investments in production. This reasoning is much too simplistic to be worthy of contemplation. High-income earners and corporations have innumerable opportunities to use their tax breaks unproductively and in foreign lands without benefit to Jamaica. Wouldn't it be a more effective strategy to induce investments by providing tax credits at higher progressive tax rates? The challenge the Government seems unwilling to confront is how to make it profitable for higher-income earners to invest in domestic production.

GREATEST FAILURE

Jamaica's greatest failure has been its inability to develop an economy capable of creating increasing levels of economic value. And it would seem that addressing this failure should be the overarching objective of tax reform. The fundamental problem with the White Paper is that although it mentions economic development among its many guiding principles, it is not focused on development, and it is difficult to find development as an objective in any of its specific recommendations.

It is Government's job to build a framework of fiscal, monetary and trade policies and institutions that are welcoming, nurturing and appealing to human effort, enterprise and capital.

We cannot continue to ride several horses in multiple directions at the same time. The country needs a clear sense of direction. It is not enough to assert that we are on a mission. Every man, woman and child must know what that mission is, how it is to be accomplished, and what his or her role in making it happen is to be. Such a mission can only be defined and articulated by the head of our Government, the person to whom the responsibility of leadership has been entrusted.

And only decisive and focused leadership can make such a mission happen. Fragments of a mission delivered through 16 different portfolio voices will, at best, fail to inspire confidence, and at worst, confuse.

Jamaica can no longer be satisfied with glib imagery and pat phrases. Our mission must be clear, our pathway lit, and our people inspired. We now have both the opportunity and the ability to accomplish a mission of economic success. What is it that prevents us?

Claude Clarke is a businessman and former minister of industry. Email feedback to columns@gleanerjm.com.

Home | Lead Stories | News | Business | Sports | Commentary | Entertainment | Arts & Leisure | Outlook | In Focus | International | Auto |