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Madam Speaker: I wish to address Members of the House on the revised package of revenue measures which I intend to table immediately after this. As you are aware, the decision to introduce additional measures following my Budget Presentation on April 15, is somewhat unique. It results from the protests which engulfed the country last week following the increase in the tax on specified petroleum products which was projected to yield $2.8B to finance the 1999/2000 Budget. Before going into the specific proposals, I would like to make a few brief comments on the budgetary process. I believe that this is necessary to put to rest certain claims which have emerged and impressions which have been created over the past few days. The government’s budgetary process is complex. It begins around October of each year and concludes with the budget debate in the House of Representatives, which is shortly after the beginning of the new financial year. Throughout this period, the staff of the Ministry of Finance and Planning is fully engaged in the putting together a coherent, internally consistent package which sets out the expenditure and revenue of Government. This is not simply an exercise involving numbers. The process has to take account of a whole host of assumptions and considerations. It has to balance the interest of various groups. It has to support an environment to achieve certain long term targets, such as growth and development. It has to be developed within the context of a consistent economic path and strategy, promoting the achievement of certain targets. It also has to be credible to both domestic as well as foreign investors. The 1999/2000 budget was constructed to achieve a number of fundamental objectives. Among them is the need for Government to reduce the fiscal deficit and reduce its level of borrowing. The budget also had to reflect sums allocated to begin servicing in cash of the debts incurred by FINSAC. It was also constructed around a set of policies designed to achieve certain objectives in the medium and long term - employment, growth and increased investments. Some strategies were difficult, but are necessary if we are to achieve our long term objective. The Revenue measures are an example. No Administration wants to impose harsh tax measures on its citizens. Given the overall nature of non-discretionary expenditure in this year’s budget, there is absolutely no alternative but to raise additional revenue. Furthermore if we are to return to a surplus, we must begin to put our house in order. In putting together a tax package, consideration has to be given to issues such as equity; burden sharing; cost of administering taxes and certainty of cash flows. Since the Government has fixed commitments and bills to meet, it cannot gamble with schemes which have no certainty in terms of resource flows. Thus, it is important for us to understand that the construction of a budget is an extremely complex and difficult process which has to take into account a whole host of assumptions and considerations - balancing the interests of various groups with trying to build an environment for investment, growth and employment. The adjustments which are among the revised measures contained in Ministry Paper No. 12/99 fall within the existing parameters in which the 1999/2000 budget is cast. As you have heard earlier from the Prime Minister, the Government has accepted the major recommendation of the Moses Committee which is to reduce the Special Consumption Tax on fuel. The estimated yield from this measure is $1,531M or $1,324M less than what was previously anticipated. Consequently as of April 28, 1999, it is proposed that the existing tax on specified petroleum products will be modified as follows:
The bulk of the funding to replace revenues from the tax on petrol will result from the collection by the government of the tax on interest accruing on securities at source. I wish to indicate that discussions on this had been taking place with the Securities Dealers for some time and the decision has been taken to implement the new arrangement with effect from June 1, 1999. It is proposed that a deduction at the rate of 15% of interest earned be withheld at source by issuers of all investment instruments, commercial paper, and on managed funds. Securities include all instruments defined by the Securities Act and all issues by agents of managed funds. I must indicate that I have just concluded a meeting with a representative grouping of securities dealers, and the measures which I have just announced are as a result of our discussions. The last meeting is but one in a series which I have held with the group. Furthermore, technical work to ensure a smooth implementation will be undertaken by a team from the dealers and the Ministry of Finance. This deduction will be treated as a tax credit towards the investors income tax liability. The balance of tax remaining is payable at the appropriate rate on the filing of the relevant income tax return for the year of assessment. Administrative procedures will be put in place to expedite refunds where this becomes necessary and I wish to assure investors that these will be handled expeditiously. Earlier I mentioned the issue of equity in the formulation of taxes, and I now wish to return to this in a specific way. The withholding rate which would apply to investors in securities will be 15% of interest earned. It is only fair to ask what of the small savers in commercial banks who are subject to the 25% withholding tax on interest earned. In recognition of this inequity, it has been decided to apply the 15% to time deposits and savings accounts held in institutions operating under the Bank of Jamaica Act, Banking Act and the Financial Institutions Act. The estimated reduction in revenue to Government is $800m. Members of the House will recall that in my budget presentation last year, I announced an initiative towards the creation of a long term savings instrument to promote long term savings. After consultations with players in the securities market, certain amendments have been made to the original proposal and Cabinet has now agreed to the introduction of a tax free savings instrument. The instrument must be held for five years. Provision has been made for interest to be paid quarterly over the life of the instrument, but if the principal is withdrawn the total tax on interest earned becomes payable. I wish to end by joining the Prime Minister in commending the members of the Moses Committee for undertaking the exercise at the request of the Prime Minister. Initiatives of this nature can only serve to broaden the understanding of a wider cross section of persons to the realities of the budgetary process.
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