Finance Minister Audley Shaw (left) and Prime Minister Bruce Golding are banking on bigger tax collection to help fund the 2009-10 Budget. - File

Before Minister of Finance Audley Shaw presented the eagerly anticipated revenue estimates and tax package for fiscal year 2009-2010 yesterday, Jamaicans had a portent of what was to come.

"Increasing taxes is never easy or pleasant," declared Prime Minister Bruce Golding in a national broadcast Wednesday.

"Every government likes to be able to announce that taxes are being reduced. Some countries have, in fact, reduced taxes as a means of stimulating the economy. We would love to be able to do that too. But, then, they don't have a debt burden that gobbles up all of their revenue."

The stage set, one will have to closely examine the new tax package, and the likelihood that the Government will be able to meet its budgeted targets, including, most important, the anticipated deficit target for the current financial year and the medium-term programme.

Majority for debt

Shaw has a $547-billion budget to fund, $309 million of which is for debt payments.

This year's projections will be impacted by a severe fall-off in the revenues from the bauxite levy.

In fiscal year 2007-08, despite lower total bauxite production and exports relative to the previous year, higher prices on the London Metal Exchange for aluminium resulted in bauxite levy receipts of J$4.998 billion - an increase of $828 million or 19.9 per cent over FY 2006-07.

These inflows were 17.1 per cent higher than budgeted.

Last year's budget projections called for a spectacular 73 per cent increase in levy receipts to the tune of $8.645 billion. However, with the advent of the global financial crisis, actual receipts for the first 11 months for FY 2008-09 totalled $4.305 billion - a shortfall of $3.482 billion against year-to-date budget projections.

Given the closures of a number of plants and the resultant cuts in bauxite and alumina production, as a result of the present glut on the world market for alumina and aluminium, the Government would be lucky to get bauxite levy receipts close to J$2 billion during the current financial year.

Significant factor

The fall-off in the bauxite levy will be one of the significant factors that should be covered in the announced tax package.

Another area that the Govern-ment will be hoping to increase its revenue collections is the divestment of GOJ assets.

In fiscal year 2007-08, the revenue collections were buoyed by the proceeds of J$4.546 billion from the 49 per cent divestment of shares in Petrojam, as well as inflows from the Financial Institution Services of J$2.22 billion.

The capital revenue estimates for FY2008-09 included an expected $6 billion from the divestment of various GOJ assets such as Air Jamaica and the Sugar Company of Jamaica.

The combination of the revenue forecast - inclusive of the baseline and administrative component which takes in improved compliance, improved organisation and management of the tax system - and the final expenditure package approved by Parliament will leave a fiscal gap to be filled by a combination of loan receipts and the tax package.

The good news for the Government is that it might be able to borrow more from the multilaterals than originally anticipated. (See that story on Page 10).

Similarly, despite the reticence of the Bruce Golding administration to approach the IMF for assistance, it is important to note that the Jamaican authorities have already been in dialogue over the past few years with the IMF - both the previous PNP administration and the current JLP administration.

The GOJ would not have been able to access the funding that it has received from both the IDB and the World Bank in recent years without the tacit approval of the IMF. A check on the websites of IDB and the World Bank will show that this was the case.

Sooner rather than later, the Jamaican Government might want to join the list of countries seeking assistance from the IMF. If not, the tax package will be steep. There are very few silver linings in this Budget.

renee.shirley@yahoo.comSee stories on the presentation of the Budget in the main news pages.