From 'poverty to prosperity' for whom?


From 'poverty to prosperity' for whom?

We are reaping what the Governmernt sowed


Sunday, August 11, 2019

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In 2015, when the general election campaign was in full swing, 21.1 per cent of the population, or just under 600,000 people, were living below the poverty line. In addition, about the same number were earning the national minimum wage. It was in that context that the then Opposition (now Government) announced its winning proposition of “$18,000 more in your pocket” — the famous tax give-back which would see the tax-free threshold being moved from approximately $593,000 per annum to $1.5 million per annum.

But let's step back a bit to attempt to construct how this promise — which has now proven to be breaking the backs of the poor — came about.

The People's National Party (PNP) had been leading in the polls in late 2015 into 2016. The election was for the PNP to lose. The Jamaica Labour Party (JLP) was desperate. Then someone had a great idea — Make a big promise! Some say the first number called was $2 million; others say it was $2.5 million. But, whatever the speculation, the fact is that the party decided on $1.5 million, and the promise was going to benefit over 400,000 people.

The JLP went further to promise that it would not raise taxes to fund this $1.5 million 'give-back', which was estimated by the JLP to cost a mere $4 billion, but later revised the figure to $8 billion. Even at $8 billion, economist John Jackson insisted that, in a budget of hundreds of billions of dollars, the Government could easily move around money and fund the '1.5' without raising taxes.

The PNP, which formed the Government at the time, scoffed at the idea; saying it would cost $32 billion. In response, the JLP went into overdrive, with Aubyn Hill ridiculing Peter Phillips for not being able to “count money” despite being a finance minister, and suggesting that he was out of his depth with this $32-billion price tag estimate.

The JLP later revised its estimate to $12 billion, and then to $16 billion, but in the end the cost was the exactly $32 billion, which Peter Phillips, Ralston Hyman, and others had said it would cost. But, by the time it was clear it would cost $32 billion, and thus there would have to be new taxes, the JLP had won the election.

Implications for the poor

The basic arguments advanced by critics of the proposed $1.5-million tax break were that:

(1) The number of people the JLP said would benefit could not, given that some 62 per cent of the workforce was already earning below the then tax-free threshold.

(2) It would require the raising of taxes.

(3) The poor would suffer a disproportionate share of the taxes.

(4) The tax would amount to taking from the poor to pay the middle class and the rich.

All of this is precisely what happened. Despite revising the number of who would benefit from over 400,000 to 250,000, the JLP was still wrong, as only 78,000 benefited. There was a massive increase in taxes and the poor has borne the brunt of those taxes.

Ministry Paper 51, which was tabled in Parliament on Friday, August 2, 2019, showed that while the number of Jamaicans living below the poverty line had fallen to 17.1 per cent in 2016 — which is before the full tax package of $34 million had been implemented in April 2017 — the number had risen to 19.3 per cent at the end of 2017. The report details that in the Kingston Metropolitan area poverty has increased by 5.2 per cent, while in rural areas by 4.1 per cent. The overall poverty rate for the country increased by 2.2 per cent.

The attached table shows that the total number of people who have fallen below the poverty line between 2016 and 2017 is 59,400. Thus, the 2.2 percentage point increase between those two years amounts to 12.8 per cent (59,400 being 12.8 per cent of 461,700). A 2.2 percentage point increase translates into about 60,000 more people living below the poverty line using a population number of 2,700,000 in 2016 (the 2019 estimate is approximately 2,900,000).

Minister of Finance Dr Nigel Clarke has sought to dispute the Opposition's claim that poverty is on the rise and has pointed to declines in poverty levels going back to 2013. In his rebuttal, Minister Clarke highlights the fact that poverty fell from 24.6 per cent in 2013 to 21.2 per cent in 2015 and declined further to 17.1 per cent in 2016. While this is true, the Government of which Minister Clarke is a member cannot claim credit for those declines. The movement in the poverty rate attributable to Minister Clarke is what occurred between 2016 and 2017, which shows that more people are living in poverty as summarised in table attached.

With 521,100 people living in poverty it means that one in every five Jamaicans live below the poverty line. Alongside one-fifth of the population living below the poverty line, which means that are subsisting on less than $250 per day, is the fact that some 600,000 Jamaicans, more than 20 per cent (one-fifth) of the population, are living off the national minimum wage.

Faced with the daunting prospect of imposing $32 billion in new taxes immediately upon coming to office, the Andrew Holness-led Government decided to phase in the $1.5. Thus, in July 2016 the first portion of just over $1 million was implemented. Having raised the tax-free amount to about $1 million in July 2016, and having had to raise taxes to achieve this, the question was whether the Government should go the full distance and raise the threshold to $1.5 million in April of 2017, as it insisted it would.

In chapter 10 of my 2018 book Reflections on Leadership and Governance in Jamaica: Towards a Better Society, I examine this $1.5-million issue in detail. Among other things, I argued that funding the “tax give-back” through indirect taxes would hurt the poorest and most vulnerable, such as pensioners, the unemployed, and the working poor, as they would be funding the tax break for the middle class and the rich.

I also argued — as did experts in the trade union movement, Economic Programme Oversight Committee (EPOC) Co-Chair Richard Byles, and political commentator Kevin O'Brien Chang — that, given the fact that the Government had to impose new taxes to implement partially in July 2016, and would have to impose further taxes to make the increase to $1.5 million in April 2017, it should abandon the planned increase and spare the poor further pain. Despite the urgings of many people that the Government back away from this path, it pressed ahead and fully implemented the full $1.5 million in April 2017.

Failed experiment

So, the $1.5-million tax break was made up on the fly, with five separate estimates given for what it would cost and none turning out to being correct. The fact that the JLP could not accurately estimate the cost of this experiment should be the first sign that it was a dangerous experiment. But all the speculation and doubt are now replaced by hard evidence: More people are poorer since the new taxes have been imposed, and this is a direct consequence of the decision to tax the poor to pay the rich more, and to tax the rest of us and give us back some and call that a tax break.

It is most ironic that this growth to almost 20 per cent in the number of people living below the poverty line is taking place when all the economic fundamentals are healthy and the economy is moving in the right direction. It is a lesson that we must heed.

If increased net international reserves cannot result in lowering poverty, something is wrong! If economic growth is not affecting the quality of health services, something is wrong. If the Government is spending billions on mega projects while more people are malnourished, something is wrong. If the interest rates are being lowered and the poverty rate is rising the equation is skewed.

The Government, if it has any sense of regard for the people whom its policies have now impoverished, must come to the country and acknowledge that this experiment has not helped the most vulnerable in the society. Boasting, as Senator Aubyn Hill, that the Government has made more money available for the safety net and that there is an increased number of people on the Programme of Advancement Through Health and Education (PATH), is an admission that its policies are not moving people “from poverty to prosperity”, but consigning more people to abject poverty.

Simply put, when the policies of a Government have the effect of impoverishing its citizens, such policies and such governments are a danger to the people.

A way out?

The question to be answered is whether having brought the country, particularly the most vulnerable, into the level of impoverishment, the Government has what it takes to bring us out.

If we are to be eased of this level of poverty being then there are at least five things the Government should do in the short term, namely:

(1) lower General Consumption Tax (GCT) on goods predominantly purchased by the poor;

(2) shift some of the tax breaks which were offered to the rich in the 2019/20 budget to support small and micro business activities;

(3) provide subsidies on fertiliser and other items used by certified small farmers;

(4) invest in value-added activities to support increased production such as harvesting, canning, packaging, storage, and export support for the farming and industrial sector; and

(5) improve farm roads.

There is an open secret that the Government has some big spending plans for 2020 — the year the general election is widely expected to be called. Is it too much to ask that the spending be done to support development, not just win the election?

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