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Letter: Withdrawal of 'withdrawal tax': Symptom of Jamaica's deepening debt crisis
Published on May 7, 2014 Email To Friend    Print Version

Dear Sir:

Woe unto them that decree unrighteous decrees, and that write grievousness which they have prescribed. Isaiah 10:1

There are three critical, contributing factors to the budgetary crisis facing the government of Jamaica and which played out in the recent imposition and then removal of the bank withdrawal tax. They all lead to the crucial question of which class and/or sector within the class should be bearing the brunt of the debt crisis? And, if that class is not being called upon to do so: why not?

(1) Static or declining government revenues: This is primarily the result of a lack of growth in the economy. Low economic growth is a systemic problem, the result of a distorted social and economic structure inherited from our history as a plantation economy.

How it works: Former plantation economies, for the most part, have been unable to make the transition from being primary commodity producers for the world market to becoming industrialized economies. Once integrated into the world market as a primary commodity producer, the mechanism of unequal exchange (primary commodities embodying a higher value of human labour in exchange for industrial goods embodying less human labour and a higher proportion of mechanical labour) results in a transfer of wealth. This unequal exchange mechanism makes the capital accumulation required for the transition to industrialization almost impossible. Consequently, the “developmental” role assigned to the now neo-colonial State, in the face of a permanent balance of trade deficit, etc. results in a permanent and increasing fiscal deficit, which can only be bridged by borrowing or taxing.

Other factors contributing to low growth or generalized poverty are tax evasion, tax avoidance and government refusal to tax those who can most afford it. The Jamaican economy has grown only marginally over the past forty to fifty years. Wishful or ideological thinking cannot change this reality. Nor is the hogwash about creating a “business friendly environment” a basis for real growth. That is mostly ideological cover for transferring wealth from the poor to the rich, or giving businesses unbridled power to do as they please.

(2) Increasing debt stock: A permanent trade deficit (mentioned above) results in heavy borrowing in order to create infrastructural development and sometimes just to take care of ‘housekeeping’ needs. Corruption, which includes a penchant for building white elephant projects (and there are many in Jamaica), aggravates the debt crisis. It is also a form of waste.

The debt is now at levels where servicing it by taxing the poor threatens to further depress the economy and the already depressed living standards of the people. A radical approach is needed such as debt repudiation and structural economic change. For this to happen there needs to be a sharpening of the class struggle.

(3) Government, which doesn’t represent all the people as is mistakenly believed -- it primarily represents the capitalist class -- is empowered to choose how best to deal with this debt crisis. It can choose to stop paying the debt (which is not a likely option given its class orientation and servility towards the imperious north). The other alternative is to increase taxes on the poor and the working class which is the normal practice. The coercive powers of the state are designed for that purpose.

However, to overplay that hand runs the risk of political revolt. No one can forget the island-wide protests and gas riots of 1979 and 1999. And borrowing to pay debt becomes untenable once a certain debt, and interest rate to GDP threshold has been reached. Jamaica has reached that point, and hence ineluctable default is not impossible.

Enter the IMF: The IMF, which provides loans to ensure payment to creditors and to pre-empt the possibility of default, has imposed harsh lending conditions on the government. The debt payment burden, by all measures, has been squarely placed upon the backs of the poor and the working class. Supply side economics is the prescription for growth. For example, in the midst of declining revenues, the government, encouraged by the IMF, reduced corporate income taxes while refusing to increase taxes on financial institutions which are making obscene profits. This was exemplified by the aborted “withdrawal bank tax” which exposed the government’s unwillingness to increase taxes on the banks. Nor has reducing corporate taxes shown any sign of inducing increased investments and economic growth. [It never did work during the Reagan years for example and there are plenty studies to prove this.]

It is therefore quite reprehensible for the government and its apologists and capitalist ideologues to argue that by staying course with this austerity policy it will somehow transform the economy and produce “growth”. How is this growth possible when the IMF itself has already made a bleak assessment of the situation facing countries like Jamaica?

The IMF has concluded that there will be little or no growth in the Latin American Caribbean (LAC) region in 2014. They are predicting “lower commodity prices”. This will be particularly injurious to Jamaica which is heavily dependent on bauxite and alumina exports. There is a glut of bauxite and alumina on the world market (controlled by a few players), and this combined with a so-called “competitiveness problems” (i.e. lack of “competitively” priced primary commodity goods that can earn foreign exchange -- the unequal exchange mentioned above) will mean “tightening financial conditions” i.e. lower public spending so that the debt can be paid. Where then is the light at the end of the tunnel?

The government has committed to the IMF that it will stick to the prescribed austerity policies -- for example its targeted budget surplus -- in order to pay the debt. The minister of finance is quite proud of achieving a surplus in order to turn it over to creditors!

An important sidebar which highlights the government’s servility to the IMF is that it has committed to do all in its power to ensure that no steps are taken which restrict the free conversion of currency. It will “observe the standard performance criteria against imposing or intensifying exchange restriction, introducing or modifying multiple currency practices.” In other words, Audley Shaw can continue to whistle in the wind where his fixed exchange rate proposal in response to devaluation is concerned. This condition is also a broad hint that the IMF will frown on any step taken to prevent, god forbid, capital strike or capital flight should our creditors react negatively to any policy which displeases them. Prostration to the power of the market and a powerful handful of creditors (local and foreign) is the name of the game.

The politics of the bank withdrawal tax

As announced by finance minister Peter Phillips in his budget presentation over 2 billion of the 6 billion increased taxes for the 2014/15 budget was to have come from a bank withdrawal tax. Phillips subsequently tried to claim that this was not a customer tax but a bank tax but which he did not deny would be passed on to the customer. No one was fooled by his attempt at hoodwink and there was an uproar.

Some apologists claimed that this was a collectible tax and a minimal tax which is a better approach than some possibly more painful alternatives. They may be right that it is collectible. But the crux of the matter is not about how painful it is (and it is painful). The point is that the vast majority of the people view the banks as blood sucking vampires and refuse to give them any more blood. They are acutely aware that the financial institutions, generally, are the main beneficiaries of the current debt crisis. Their profits are enormous and a great portion of it represents interest earned from government debt and excessive bank charges borne by customers.

So servile is the government to the banks that once it happily withdrew the withdrawal tax in response to public pressure, no other way was found to tax bank profits. At least, one which would not involve a pass on to customers.

Conclusion: It is claimed by an Observer editorial that the government was prudent in not going ahead with the tax. This supposedly shows that it listens to the people (in concurrence with the explanation by the finance minister); and that is the way to get re-elected.

If that is so then it shows that the people need to sharpen their demands so that they get more effective results next time around rather than giving the government room to cleverly protect the banks and to seek votes.

The following must be considered:

(1) Mere withdrawal of the withdrawal tax is no solution to the debt crisis facing us. The government is unlikely to meet its revenue targets and in due course will be seeking to impose more taxes on the people, not to mention other burdens faced such as high unemployment.

(2) The debt cannot be repaid. Despite claims about having reduced the debt to GDP ratio the debt stock has increased absolutely. Instead of grinding more people into poverty, the people must demand a moratorium on debt payment to stop the oppressive austerity policies being pursued. Such a moratorium would allow for a forensic audit to determine what portion of the debt which is illegitimate or odious, and hence to be cancelled, as Ecuador has done in terms of their forensic audit, and as international law allows in terms of cancelling odious and illegitimate debt.

(3) A moratorium will also allow for negotiations with creditors in terms of how much can be repaid. Argentina negotiated a 60% discount on its debt; Jamaica can do the same and better. The Argentine economy is now one of the fastest growing economies in Latin America.

(4) Tax the rich must become the battle cry going forward. Even the rich are embarrassed at the lack of sacrifice they are called upon to make (Aubyn Hill; Karl Hendrickson; Keith Duncan; etc. have made similar points). And how about their being flabbergasted at the finance minister scandalously allowing them to import more expensive cars and pay lesser duties! But this is not surprising since the first thing the car loving finance minister did on assuming office was to use tax payers’ money to buy himself a brand new US$32,000 car!

(5) A non-negotiable NON-TRANSFERABLE bank tax. This is not a European type Robin Hood tax which appears to be passable on to customers.

Finally, it requires more than a debt moratorium plus increased taxes on the rich, etc. to solve the problems of a bankrupt economic system.

The solutions are political because, as we have seen, the decisions taken as to which class to impose the burdens on are political, class decisions. Economics is politics.
Let us therefore demand a REFERUNDUM -- more important than one to decide whether to accept the Caribbean Court of Justice as our final court of appeal, or whether we should repeal the buggery law -- on how to solve pressing political issues.

Let us demand a REFERENDUM on whether as a policy, we should radically increase taxes on the rich; suspend debt payment; spend more on the social needs of the people; and establish a system of direct democracy, as the solution to the economic crisis that has forced more than 1.2 million people into abject poverty.

Lloyd D’Aguilar
Campaign for Social and Economic Justice
Reads: 1853

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