Consumption taxes, duties derailed - Spending cut to offset revenue decline

Published: Friday October 3, 2008

Jamaica's fiscal team is ahead on key performance targets, but also three billion dollars off the mark on tax collections, the Finance Ministry's most recent financial show.

At the end of August, the fiscal deficit stood at $19 billion, a narrower gap between revenues and spending than the $25 billion the Finance Ministry had projected; the spending bill was cut by $9 billion to $128.3 billion, largely at the expense of capital programmes which were cut 17 per cent; while the primary balance was a healthy $30.7 billion of surplus when the cost of servicing the debt and new borrowings were stripped from the budget.

In the first five months of the fiscal year, the treasury collected US$109.2 billion in taxes and grants, but had projected income of $112.4 billion by August.

While taxes accounted for 89 per cent of inflows to the treasury, the $97.5 billion collected was short of the $100.3 billion mark, due to underperforming production, consumption and import duties.

International trade taxes, all five categories, missed their targets, denying the treasury $1.97 billion; while production/consumption taxes, including GCT, were off by $2.2 billion.

Inflation

Analysts polled by the Financial Gleaner said disposable income had been eroded by inflation, leading to dampened store sales, and cutting into GCT collections which were off by $1.9 billion.

Some of the shortfall was covered by corporate and personal income tax, which were $1.3 billion above target at $39 billion.

The fiscal deficit continues to be financed by borrowing, with the treasury tapping the international and domestic markets for $71.8 billion to date - or just over half the $138.9 billion targeted to be raised from donors and the markets.

Since then, the Government has announced a deal with the Inter-American Development Bank for a US$50 million loan, but neither the terms nor distribution schedule have been announced.

The signing of the loan agreement is expected to take place in a matter of weeks.

However, the IDB funds is the equivalent of some J$3.6 billion, and while the Finance Ministry would have raised even more debt in September, the Govern-ment still needs tens of billions more to cover its full budget.


Source: Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20081003/business/business4.html