Jamaica has recovered from the precipice of recession and stagnation and has seen several consecutive quarters of economic expansion. This has come with the assistance of the IMF, the close monitoring associated with that assistance and other loans and grants from multilateral agencies and friendly nations from around the world.
Unfortunately, this has also come with a mighty tax burden, and the usual tightening of belts. This additional taxation has enabled Jamaica to pay down its loan obligation and free up space for capital works and investments which in turn has led to further economic expansion. It is a tough cycle that ultimately benefits all Jamaicans over the long run.
The Government of Jamaica has borrowed significantly less while increasing taxation dramatically. The chart below shows GoJ receipts over the period:
Whereas taxation once accounted for 50% of GOJ revenues, by 2018-19, it now accounts for at least 70%.
Taxation and GDP
Taxation amounted to approximately 25% of 2018 GDP.
- the USA collects 25.7% of GDP in taxation
- Australia – 27.9% of GDP in taxation
- Brazil – 33.9% of GDP in taxation
- Norway – 39.9% of GDP in taxation
- Canada – 31.2% of GDP in taxation
- Barbados – 24.7% of GDP in taxation
- India – 16.4% of GDP in taxation
- China – 24.4% of GDP in taxation
Taxation and Debt Servicing
In fact, we can finally use our taxes alone to maintain our debt servicing (interest payments), which was unthinkable until recently.
How significantly have taxes grown in 10 years? From 2008-9 to 2018-9 taxes grew from J$244.4bln to J$518.4bln, that’s an increase of 112%. This has a compound annual growth rate of 8%, meaning that if the government put that starting money of $244.4bln in an investment that paid 8% per year, they would end up with $518.4bln. That’s a lot of taxes.
Breakdown of Taxation
But how did these taxes increase so significantly. Didn’t the government cut taxes at some point?
The simple answer is that the government raised taxes on things like gasoline, telephone calls and international travel. At the same time, the economy grew, and indirect taxes are paying the bills. More people are spending and more companies are paying over their general consumption tax (GCT). GCT or VAT (value added tax as it’s known in other countries) is now the largest contributor to taxation revenues. Customs duties is another form of indirect tax which is reaping major benefits for the government.
Direct taxation has gone from 43% of all taxation in 2008-9 to only 32% of all taxation in 2018-19. This 32% figure is more in line with world averages.
Taxation and the Budget
As a result of increased revenues, the GoJ’s annual budget has grown. This has allowed Public Debt Servicing, also known as, loan repayments, to fall as a percentage of the overall budget, while remaining relatively steady in overall value over the last decade. Loan repayments peaked at 60% of the total budget in 2009-10, but has steadily fallen to a much more manageable 36% by 2018-19. This means that, at the start of the decade Jamaica had less than half of its annual budget to pay for schools, teachers, nurses, police, much less any new initiatives. Now it has significantly more money to pay for all these vital services, over J$300bln more!
Public Debt Servicing as a % of Total Budget 2008-9 to 2020-21
*All charts extracted from data available at the Ministry of Finance and the Debt Management Unit