My recent short trip to Jamaica coincided with the first Budget of the freshly-elected Jamaica Labour Party (JLP) government, led by Prime Minster Andrew Holness.
Such events are normally guaranteed to be snooze fests for all but the most geeky. But in the run-up to the February election, the Finance Minister, Audley Shaw, had promised a hefty income tax cut, which would mainly benefit the poorest earners, without raising taxes elsewhere or cutting public spending.
After three years of a crippling IMF-imposed austerity programme, the prospect of some relief was welcomed by much of the population and underpinned the narrow JLP victory, while Mr Shaw brushed off concerns about his fiscal arithmetic. As for worries that such a policy would put the IMF lifeboat at risk, Mr Shaw would make them see the wonder of his financial wizardry.
Perhaps it was just a coincidence that an IMF advisory mission was also on the island at the time. In any case, the Finance Minister decided to trenchantly denounce his previous position. He noted:
“We can’t be irresponsible and take away revenue and don’t replace it with something. That would be fiscally irresponsible.”
Consequently, there was a cut in income taxes. But the government clawed the money back through hefty rises in taxes on consumption, which will hit the poor, especially those who do not work, much harder.
Still, the IMF was pleased enough for now. An official statement at the end of their visit a few days later noted that the hikes in indirect taxes were “bold and essential”.
Reports that the IMF delegation also left an abacus behind for the Finance Minister’s future usage are apparently bogus.
TNT Gobal Issues
Photo credit: Jamaica Observer