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Abolition of Personal Income Tax (PIT) – Hon Gaston Browne

Abolition of Personal Income Tax (PIT) – Hon Gaston Browne

April 30, 2014 @ 9:35 PM
by ablpadmin
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The case for increasing economic growth and empowering the people by abolishing PIT
Antigua & Barbuda Labour Party
April 2014

Table of Contents

Acknowledgement…………………………….…………………………………………………… 1 Introduction…………………………………………………………………………….……. 2
Methodology……………………….………………………………………………………….3
Overview…..……………………………………………………………………………3-4 Findings…………………………………….………………………………………….…4
Endogenous/exogenous Economic Shocks………………………………………………………5
Chart 1 GDP Growth………………………………………………………………….6
UPP Mismanaged the economy…………………………………………………………………..6-8

Chart 2 Total Revenue……………………………………………………. 7
Chart 3 Tax Revenue Performance……………………………………….8
Chart 4 Irresponsible spending…………………………………………….9
Percentage Personal Income Tax provides of revenues…………………………….………9-10

Abolition of    PIT will spur greater economic growth……………………………………….11-13
Chart 5 Quantitative Elimination of PIT…………………………………….12
Chart 6 2004-2012 Expenditure Matrix……………………………………13
Abolition of PIT will boost residential tourism & Employment………………………………..13

Myths about eliminating PIT……………………………………………………………….……14- 15
Chart 7 World Bank GDP Figures………………………………………..16
ABST zero rated on essential items………………………………………………………..16-17

Analysis……………………………………………………………………….17-18
Summary & Conclusion…………………………………………………….18-19
Additional Policy Measures………………………………………………..19-21

Appendices

             Appendix 1………………………………………………………….………….22-23
Appendix 2…………………………………..………………………………….24

Acknowledgements

First I thank God for blessing me with the health, strength and intellect to produce this analysis of the economic and social benefits of abolishing Personal Income Tax (PIT).   I thank my dear wife, Maria, for her understanding and tolerance of the extra hours I spent toiling on this document while she took care of our toddler, Prince.

I also thank all those who graciously participated in the interview exercise especially, my colleagues in the Antigua and Barbuda Labour Party (ABLP), business executives and other stakeholders who shared their insights with me.

I also thank the Executive of the ABLP for its unstinting support of this analysis of the abolition of PIT on behalf of our party.

This analysis has a practical, layman orientation, stands on its own, and is not intended to be scholarly work to build on the theses of others. Hence, no specific was analysis done or reference made to any published scholarly work on the elimination of PIT.

Introduction

The motive of this paper is to address the genuine concerns, fears and misunderstandings associated with the proposed abolition or elimination of personal income tax. This paper provides conclusive evidence that PIT is economically destructive and that the elimination of PIT is people empowering and growth stimulating. The case for the elimination of PIT is a matter settled by experience here and abroad.

Personal Income tax (PIT) is a form of taxation created in developed countries with large populations where it has been lucrative to governments.  Large populations, paying a percentage of their income in tax, produce large revenues for governments for the very reason that they are large populations. The study of PIT has always related to large countries.  But what is valid in countries with large populations is not necessarily effective in small ones.  Indeed, the opposite is often the case.  Because of the small population size of tiny countries and the relatively small sums derived from PIT, the traditional literature has not focused on the effects of PIT on countries with small populations such as Antigua and Barbuda.

Notwithstanding the input of PIT in large countries, there are numerous debates about its effectiveness as the governments of such large countries seek to make their tax regimes more effective.  As a case in point, officials in India have recommended the replacement of PIT with a tax on bank transactions.

PIT is considered to be a progressive tax because it taxes the individual’s pay. However the tax is also recognized as inimical to growth because it adversely affects the individual’s capacity to save, employ others, invest and create businesses – the variables that are required for sustained growth.

It is acknowledged that there are inherent inequities in indirect taxation, but these can be effectively addressed through the maintenance and possible widening of the zero rated and tax exempt items under an indirect tax regime, for instance the Antigua and Barbuda Sales Tax (ABST).

The ABLP plans to introduce an aggressive growth strategy to include the abolition of PIT in the entire range of fiscal policy measures utilised. The ABLP will focus primarily on taxing consumption, thus putting individuals themselves in charge of how much tax they pay.

The analysis set out in this document is objective. Its conclusions are based on factual data.

 

Methodology

This analysis utilizes a combination of qualitative and quantitative techniques taking full account of secondary data on the performance of several countries.  The data was obtained from a combination of sources including budget estimates compiled by the Government, the Eastern Caribbean Central Bank (ECCB), the International Monetary Fund (IMF) and the World Bank reports.  In addition, the author relied on his own experience, interviews with Parliamentarians and past Minsters of Government, business people, Accountants, Economists and other stakeholders.

Overview

The economy of Antigua and Barbuda is driven and heavily influenced by consumption, foreign investment and government expenditure on goods and services in the domestic economy.  These three elements together have been the lead drivers of economic growth.

Between 2009 and 2011, the Antigua and Barbuda economy contracted by 26 percent.

Aside from the external factors, this contraction was due to a loss of confidence in the economy as a consequence of government policies which led to a reduction in real wages and disposable incomes resulting in reduced consumption and a decline in all sectors including, wholesale/retail trade and construction.

This led to an overall economic decline which was exacerbated by the absence of significant foreign direct investment and a contraction in public investment due to mal-spending on wasteful expenditure and non-sustainable and non-productive projects by the UPP regime.

The UPP Government failed to stimulate the economy plunging it into a debt/death spiral. Their attempt at economic recovery has been painfully slow, with the country recording a paltry 1.2 percent in growth only in 2013.  This dismal economic performance has caused many business failures, foreclosures of homes, re-possession of other property and unprecedented levels of unemployment, poverty and crime.

Whereas, the global crisis of late 2008 had an adverse effect on some countries, the economies of many others such as China, India, Brazil, South Africa, Malaysia, Singapore, Kenya and Ghana continued to grow at appreciable rates.  Further, even countries whose economies were affected by the global crisis have begun to experience positive year-on-year growth.

Several of these were Caribbean countries such as the Bahamas, Guyana, Suriname, St Lucia, Dominica and St Vincent and the Grenadines.

In the case of Antigua and Barbuda,  it is  the bad polices of the UPP that caused the economy not to bounce back and this  resulted  in the  country’s economy becoming among the worst performing in the world.  It should be recalled that even after the worst hurricanes, particularly Hurricane Luis in 1995 that destroyed three years of our country’s Gross Domestic Product (GDP) in 36 hours, and set our housing stock back 10 years, the economy recovered as a result of policies instituted by the ABLP government of the time.

Findings

The UPP regime imposed PIT in 2005 claiming that it was a temporary measure to stabilize the country’s economy. They had promised to cease PIT after the levying of the Antigua & Barbuda Sales Tax (ABST) a year later. They reneged on that promise.  Ten years later, PIT that the UPP pledged to repeal remains on the books contributing approximately only six percent of the Government’s revenues.

The opposition ABLP argued that the PIT is discriminatory and warned the UPP Government that PIT would reduce disposable incomes and destroy the economic equilibrium. Whereas for the first few years this was not obvious, the UPP Government soon came to the realization that the PIT was creating hardships for a number of tax payers. From 2008 they experimented with a series of adjustments right up the last budget in 2014 budget as part the election bag of tricks.  They cut the tax by approximately 25 percent to provide some relief to tax payers. However, the ABLP argued and maintains that this belated measure did not go far enough and the PIT should be repealed in its entirety.

History of UPP Government Flip Flops on PIT since its implementation

  • 2005 – Re-introduction of Personal Income Tax –  reduction in disposable income  between 10 – 20%
  • 2008 – First recognition that the burden was too great – offered attempted to increase the disposable income by introducing tax bands and introducing allowances
  • 2009 – Recognizing that they had not eased the squeeze- eliminated bands down to two: 10% 3000 – 144,000 and 25% over 144,000.00
  • 2013 – Demonstrating inability to manage – introduced tax on travel allowances, director fees; increasing contribution to Social Security and widening the band.
  • 2014 – Increased exempt band to 3,500.00 monthly and reduction of first band to 8% from 10%.

 

Endogenous/Exogenous Economic Shocks

Throughout its 10-years (and more) in office, the UPP did not have to deal with the disastrous effects of hurricanes whereas the ABLP contended with six hurricanes in 5 years between 1995 and 2000. Yet, under the ABLP the economy grew every year (except 1995 – the year of Hurricane Luis) while the economy contracted under the UPP.

In 2006, the UPP had the good fortune of the preparations for the actual Cricket World Cup (CWC) in 2007.  This exogenous driven growth delivered a record – though short-lived – rate of growth in 2006/2007. Despite this, accompanied by record revenue collection, the government accounts remained in the red and the levels of poverty and unemployment increased. See appendix one, Kairi Consultants Ltd poverty study.

By 2009, the UPP Government had already destroyed the country’s resilience to economic shocks by squandering hundreds of millions of dollars on corruptly executed capital projects including the construction of $1.0 billion in roads, curbs and drains.  Half of the proceeds ended up in the private bank accounts of pseudo contractors who fronted for UPP Government Ministers, cronies and family members.

The issue of corruption is outside of the scope of this paper, but it should be noted that nepotism, cronyism and the overall extortion and abuse of state resources were unprecedented during the period 2006 – 2008 when the Government’s revenues from vastly increased taxation were at an all-time high.

The squandermania that ensued during this period completely destroyed the country’s resilience and Antigua and Barbuda economy crashed after CWC 2007, to the extent the economy contracted steeply and grew by a paltry 1.5 percent in 2008. Clearly, the severe decline started before the effects of the global crisis which manifested itself in whopping 10.7 percent decline in 2009. See chart one below adopted from 2014 budget statement.

GDP Growth
Chart 1 Source – Budget Statement 2014

 

UPP Mismanaged the Economy

The UPP Government’s response to the economic crisis was one-dimensional focusing exclusively on fiscal The UPP Government’s response to the economic crisis was one-dimensional, focusing exclusively on revenue generation through taxation without any attention to economic growth.

Between 2004 and 2009 the UPP regime increased taxes, exhausted the taxable capacity of the country, overspent by hundreds of millions annually and exacerbated the fiscal problems. The wastage in the public sector consumed all of the PIT revenues which were utilized to fund the excesses of the UPP Government and not for developmental purposes. Evidently, if these funds remained in the pockets of tax payers they would have employed been employed more profitably thereby reducing or eliminating the rampant wastage and excesses that occurred.

Since 2004, the UPP extracted from what was a strong economy, an additional $220 million annually in taxes on the people.  The regimes collected approximately $640 million compared to $420 million collected in the ABLP’s best revenue year in 2003. See chart 2 below. Even adjusted for the time value of money, the UPP Government benefitted from an increase of approximately 52 percent annually. However, instead of addressing the fiscal problems with the increased revenue, the UPP Government irresponsibly overspent and increased the overall deficit from a record high $160 million in 2003 to an average of $215 million annually from 2004 – 2013.  It should be noted that the public accounting methodology was changed in 2005, in keeping with the International Finance Statistics Classification, now the overall deficits no longer include debt amortization.

This is important to note, because since then, the UPP has borrowed in excess of $2 billion primarily to fund its unsustainably large deficits thereby worsening the country’s fiscal performance and exacerbating the debt burden which now stands at $4 billion, when adjusted for contingent liabilities that no longer form part of the calculation of the national debt.

 Current Revenue

Chart 2 – Total Revenues – Source, Budget Estimates

The UPP wasted tens of millions on non-value added expenditure including travel, consultancy fees, legal fees and entertainment.  In addition, hundreds of millions in additional taxes collected in its first term were fleeced from tax payers through corrupt Government contracting including the construction of overpriced roads, fencing projects bathrooms, curbs and drains, jelly beans sidewalks and a power plant that has the output of an old one.  The wastage of our taxes weakened our country’s capacity to recover from economic shocks. In fact, by the end of 2009, the UPP incurred a record overall fiscal deficit of approximately $482M or 16 percent of GDP.

This self-inflicted fiscal crisis, forced the UPP Government to introduce a fiscal consolidation program, a death spiral, called NEST, of drastically reduced spending and increased taxes to cure the large structural fiscal deficit it created. The Finance Minister was warned that engaging the IMF for liquidity support would damage the investment climate and that introducing additional tax measures would prove counterproductive. An appropriate response would have been to keep taxes stable and to incentivize investments and reduce taxation as a stimulus to expand the economy.

The very inexperienced and neophyte Finance Minister opted to push the economy over a fiscal cliff by simultaneously increasing taxes, while cutting expenditure. This resulted in the strangulation of the private sector as the Government, in satisfaction of its insatiable appetite for cash, squeezed every cent of taxes out of these firms.

Chart 3 confirms that while businesses were maltreated into paying more taxes despite declining turnover, tax revenues stagnated for the years 2009 to 2014 evidencing that there was no economic buoyancy, the taxable capacity was exhausted and that the counter-productive UPP tax polices had failed. This resulted in a significantly reduced economy, with many foreclosures, business failures, unprecedented job losses and poverty.  The National geographic in its November 2013 publication found, that in 2012, almost 20 percent of our country’s population was undernourished.  See Appendix 2.

Stagnating Tax Revenue

Chart 3 – Tax Revenue Performance, Source Budget Statement 2014, pg. 23

Chart 4 below gives a summary of the injudicious spending of the UPP Government and the unsustainably high annual overall deficits which peaked at $482 million in 2009 and averaged $215 million annually during the period.

 Irresponsible Spending

Chart 4 – Irresponsible Spending – Source Budget Estimates

Personal Income Tax provides only 6 per cent of revenues

Personal Income tax contributes only six percent of Central Government’s revenue The yield from PIT is even less than six percent if an adjustment is made for costs associated with its collection. Returning the six percent to disposable income could be easily recouped thorough consumption taxes, particularly when account is taken of the increased spending, savings and investment (and the resultant increase in government revenues) that would flow from the abolition of income tax. It is clear that the reliance on PIT is minimal and that the transition to increased reliance on consumption taxation could be easily made.

During the past nine years, PIT has negatively impacted the lives and living standards of many families, undermined business start-ups, and business sales. The increased hardships created by the re-introduction of PIT contributed to many families losing their cars and their homes through foreclosures and repossessions while others have had to choose between buying medicines or food, or paying the electricity bill or burning candles. It has been proven by experience here and abroad, that personal income tax is economically destructive, because it taxes directly the reward for work, it taxes savings, it taxes investments and it taxes entrepreneurship. In essence it reduces the personal wealth of tax payers and his/her capacity to consume or invest even in a new or better home.  It also does not encourage persons to work harder and earn more since the more they earn, the more income taxes they pay.

There are several studies which confirm that taxing consumption on the other hand, is more favourable to savings and investments. These studies found that the propensity to save increases with income but is ultimately reduced by income tax.

The larger the savings and investment, the higher the future level of income. Savings increase the capital formation for investments and/or consumption. This is the fundamental reason that the ABLP adopted the informed position to tax consumption and not income to achieve robust economic growth and development.

The PIT in its present construct is also discriminatory and burdensome to the middle class who are the fulcrum of economy activities in the society. It not only taxes the individual’s capacity to save and to invest but it also penalizes entrepreneurship in that the tax burden increases with improved performance serving as a disincentive. With the reward reduced, the incentive for pursuing economically productive activities is reduced.

It is also noteworthy that PIT also causes earners to cut back on services that employ other persons such as household help and other discretionary spending including eating out at restaurants and personal care services like beauty salons.  When household helpers and other providers of services lose their jobs or earn less, the economy further contracts from a greater reduction in consumption.

All these circumstances are inimical to the creation of a robust economy and our objective of empowering our people with strong disposable incomes to help build an entrepreneurial, truly stakeholder society with a wide ownership base.

Abolition of PIT will spur greater economic activity and increase government revenues

The ABLP is opposed to PIT for these reasons and has given a commitment to abolish it in its entirety.

The abolition of PIT will increase disposable incomes and empower people to consume and invest more and so fuel robust economic growth and development. Consequently, the ABLP will reward and incentivize work by abolishing PIT and putting back in excess of $40 million annually into the pockets of tax payers to support increased consumption, employment and investment.

Individuals, who are presently paying personal income tax monthly, will either increase consumption of durables, increase savings or invest in various undertakings including personal dwelling homes or investment properties.

For example, a person could assign his or her monthly savings from the abolition of PIT to borrow from a financial institution and construct an investment property for rent as part of his or her retirement planning.  By so doing, the tax payer, without taking into consideration the capital gains, could turn at least a 10 percent return on his/her investment which would contribute to net increases in his/her disposable income. The rental income could then be utilized for further investments or even consumption.  The economic activities generated from such an investment and even the rental income, when spent, will provide the government with revenues from indirect taxes including the ABST.

Other taxes flowing to the government will include new land and building taxes, stamp duties, and ABST from utilizing the services of other professionals such as lawyers and engineers that result from persons using regained PIT for investment.  Additionally, it is obvious that the monies invested in property will create construction jobs, support retail sales for hardware stores and suppliers of building aggregates.  The ABST and other taxes on these additional activities in the economy will provide revenues that will outstrip the loss from PIT.  There will be a further boost to government revenues from more or expanded businesses earning greater profits.

The attendant tax revenue from the consumption and/or investments from the $40 million dollar relief per annum will make the initiative self-funding, since the funds will be derived from taxes on expanded businesses and services.

Elimination Quantitative analysis

Chart 5

No one can predict with any certainty the utilization of the $40 million i.e., what percentage will be consumed and the percentage invested.  However a reasonable assumption is that practically all of the funds will be utilized in the domestic economy because of the hardships middle class tax payers are experiencing.

The above chart 5, which assumes 75 percent of the PIT is consumed with a 3.5 times turnover indicates a net loss of $19 million in the unlikely event the funds are consumed only and not invested.  The potential for loss is reduced or eliminated if the tax proceeds are leveraged to support investments.  So for example, in $30 million of the proceeds were leveraged to support investments to include residential and commercial construction and new business starts, this leverage up to $300 million dollars in borrowings providing up to $60 million in taxes which will more than cover the $40 million PIT break.

At the end of the day, the increase in revenue growth will compensate for any potential loss. The ABLP intends to grow the economy sustainably by at least five percent per annum. This will provide at least $40 million in additional taxes which compensate for any potential shortfall.

Alternatively the savings from the elimination of wasteful expenditure would more than compensate (as indicated in the last red column in chart 6).The red column shows the amounts that could be shaved from these items of expenditure which are not exhaustive and the attendant savings of $52 million which will cover any potential shortfall from the elimination of PIT.

There are many funding options for the abolition of PIT, so the risk of any adverse effects is minimal or non-existent. It should be noted that revenue yield fell by $134 million in 2009, so risks associated in any unlikely shortfall from the elimination of PIT are minimal.

 2012Expenditure matrix

Chart 6 – Amounts in EC$ millions for a few selected line items of expenditure

 

Abolition of PIT will boost residential tourism and employment

The absence of PIT will also increase our country’s competitiveness in the residential tourism market.  Since the UPP imposition of PIT, the residential tourism market has plummeted as investors move to other countries without PIT to avoid the payment of PIT on their foreign earned income and pensions.  Even local firms have paid their high earning expatriate employees abroad to circumvent the payment of PIT. It is well known that PIT is a disincentive to attract and retain the best professionals, thereby contributing to the brain drain. The change in the pattern of payment has also negatively impacted on the total collected for statutory deductions.

Those earnings are likely to stay in Antigua and Barbuda if PIT was abolished and they would be captured by the payroll taxes. Overall there would be more spending on goods and services, creating more employment and there would be more money kept in our banks for on-lending to development projects.

Myths about eliminating PIT

The Prime Minister and Finance Minister have deceptively led the population to believe that the abolition of PIT will wipe out all taxes and that there will be no taxes to run the country.

This is not true.  As at the end of 2011, The UPP government collected $35 million in personal income tax which was about 5 percent of total income. If we assume that the amount has since increased to $40 million, that’s only six percent of total income. There will still be 94 percent remaining to run the country.  The fact that only 6 percent of our total income  will be affected makes the shift to indirect taxation easier compared to if PIT was contributing 40-50 percent of total income.

The abolition of personal income tax will not result in a reduction in total revenue; instead the release of $40 million annually into the economy will increase government’s overall revenues as a consequence of greater spending, business expansion, increased investment and construction. Other government revenue sources such as land tax and property tax, stamp duty, a fair corporation and business taxes on larger profits of businesses will bring in greater revenues.

The notion that the abolition of PIT will reduce corporate income tax significantly is also flawed because the allowances for salaries and wages and transactions to related parties will be capped by the Inland Revenue Department under the ABLP administration in assessing corporate liability for all firms especially, closely held firms, in which the owners are likely to convert corporate income into personal income as a tax avoidance strategy.

In response to the other speculative political rhetoric, there is no empirical evidence to support that the previous ALP Government arrears on debt was a function of the abolition of personal income tax. The debts incurred under the previous ALP government was due to borrowing for the following reasons: Development of the socio-economic infrastructure  to include, The air and sea ports, Heritage Quay and Redcliffe Quay Cruise piers, Mt. St. John’s Hospital, The roads and telecommunications network which ranks among the best in the Caribbean.

The ABLP had to borrow constantly to rebuild after 6 hurricanes in 5 years between 1995 and 2000; the employment of people who had lost their jobs in the tourist industry that was non-functional for almost 2 years between 1995 and 1997 while the country’s infrastructure was rebuilt; incentives and other help given to the tourism industry to rebuild their plants and employ people; increased marketing of our tourism product abroad to recover market share after the industry had been rebuilt.

The heavy investment by the ALP government to restore tourism and maintain the employment and well-being of the people was preferred to build economic capacity against prioritizing the full servicing of debts.  The ABLP government focused on bringing-in more foreign direct investment from which the UPP regime benefitted in its first three years in office between 2004 and 2006.

A case in point is when a highly leveraged ALP Government borrowed $67 million to build a second cruise pier at Nevis Street.  Even though the Government struggled to pay this loan, it resulted in the doubling of cruise arrivals which is now in the region of 600,000 people annually giving hundreds of Antiguans employment and income.  Ironically, this increase has been claimed by the UPP without any investment to maintain the infrastructure that the Labour Party built.

Further, existing data confirms that the economy grew exponentially after the abolition of personal income tax in 1976. See Chart 7.

 world Bank GDP growth in USD

Chart 7 – World Bank GDP Figures (Source World Bank Website)

There is also evidence in the United States to prove that all states without taxes on income invariably outperform those with taxes on incomes including higher GDP growths, lower unemployment etc.

Caring for the poor and vulnerable: ABST zero rated on essential items

The ABLP is – and has always been – fully committed to the poor and vulnerable in Antigua and Barbuda.

The ABLP has introduced over the years the many social mechanisms that cater for the less well-off so as to uplift them and empower them.  Today’s middle-class in our society comprise people – including those in the leadership of the ABLP – who rose out of poverty because of the ABLP’s social upliftment programmes in health,  education and job opportunities.   The ABLP recognizes that there is a basket of goods and services that are essential to the well-being of the poor.  These goods and services will remain zero-rated or lower-rated where they exist, and an annual review will be made to the list of essential items.

The ABLP is aware that among the falsehoods being spread by malicious operatives of the UPP is that ABST will be applied to essential goods and services to compensate for loss of revenue from the abolition of PIT.  In the analysis that has been conducted, the ABLP has taken full account of the importance of low or no ABST on essential goods and services for the poor and vulnerable.

Analysis

Fiscal policy has a direct bearing on the level of aggregate demand in the economy  and consumption is a function of disposable income.  The UPP regime’s inept fiscal programme reduced disposable incomes and aggregate demand and destroyed the strong economic position.  This is the primary reason why the impact of the 2008 global crises was greater in Antigua and Barbuda than in any other country in the region.

A competent government would have opted to incentivize investments, reduce taxation which would have had an expansionary effect. Tax payers would have had higher disposable incomes and would have spent more, giving rise to an increase instead of declining and stagnating revenues.

This option was only considered after five years of economic decline, sluggish growth and in response to the ABLP’s pledge to eliminate PIT.

But, UPP regime’s  recent response to ABLP pressure by  only partially reducing PIT is woefully inadequate and has come five years too late. It is also a confession by the UPP regime that the ABLP’s position is right, i.e., the abolition of PIT will increase disposable incomes, savings, investments, confidence and ultimately establish more robust GDP growth.

THE ABLP economic recovery plan will be driven primarily by high levels of investments, trade in services and a moderate rate of taxation to fuel sustainable economic growth.  This is the strategy that the previous ABLP administration used when our country outperformed all of its regional neighbours in GDP growth without personal income tax.  As a result, Antiguans and Barbudans enjoyed full employment and one of the lowest levels of poverty in the Caribbean.

There can be no economic or fiscal sustainability without growth.

Growth will be the fulcrum of our economic plan unlike the conservative growth restrictive, backward looking, “book keeping” UPP NEST Plan that has not worked and will never work.

The  Nest Plan and its reliance on PIT has produced a net reduction in economic growth of 22 percent during the last five years, many business failures and the highest rates of poverty and unemployment in our modern history.

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The proposed abolition of PIT is therefore not a political ploy; it is a policy instrument (stimulant) to foster robust growth and economic development in a country with a small population whose primary income derives from services such as tourism and banking.  Antigua and Barbuda does not have a large population paying income taxes as a large part of government revenues.  Therefore, Antigua and Barbuda, as a small state cannot be compared to larger countries such as Britain, Germany, France, Brazil etc.

Summary & Conclusion

In summary, a reduction in taxes will not lead to reduced government revenue but will increase disposable income and consumer spending. Therefore, the notion that a cut in PIT will reduce overall government revenue should be dispelled. The UPP Government itself recognized that lowering of taxes is required as demonstrated by its lowering of the ABST rate briefly in December 2012 & 2013, in their effort to stimulate the economy before Christmas. The volume of new car sales for that period compared to overall sales of new cars for the rest of the year illustrates the point. The financial services sector also benefitted from increased consumer loans and insurance service purchases

It should be noted that although government spending could be a greater stimulus than tax cuts, the effect depends on our relative position. Increased taxation at this point is yielding excessive waste and diminishing returns as can be seen with lower overall government revenue yield with increase taxation and compliance rates.  In any event, spending should be on sustainable and profit-producing projects that the private sector is better placed to undertake.  No PIT would be an incentive to the private sector to invest the necessary capital in sustainable projects that would create employment and generate tax revenues.

The evidence in support of the abolition of PIT could be deduced from the performance of our country’s economy for the period 1977 – 2003 as evidenced in chart 5.  The economy of expanded by an average of 4.5 percent for 28 years without personal income tax.  By contrast, between 2009 and 2013, the economy contracted by about minus 4.4 percent annually for the last five year period with PIT under the UPP Government.

Without PIT, Antigua and Barbuda outperformed all of its sub- regional neighbours.  With PIT Antigua and Barbuda is not even the diminishing head but has become the worst performing economy in the Caribbean and most of the world.

The ABLP will create a new paradigm of prosperity and economic growth, building on proven facts and technical evidence.

The ABLP Government grew the economy by approximately by 5 percent per annum sustainably for 28 years without PIT; by a factor of at least 5 times the rate of growth achieved by the UPP for the past ten years.   The latter confirms that there is more robust economic growth without PIT and this has been proven in other countries and states.

The superior performance of the economy without PIT is proven over 28 years under the ABLP. In essence, it is a settled matter; settled by known and lived experience. No econometric modelling, inference, deductions, adductions or speculative arguments about its abolition could be superior to the actual experience.

Therefore, I conclude that the abolition of personal income tax will foster robust economic growth, more business start-ups, more job creation, greater home ownership, increased competitiveness and the overall advancement in the living standards of the people.

Additional Policy Measures

The ABLP will:

—  Ensure Fiscal Responsibility – Prudent fiscal management to Reduce large deficits to sustainable levels.

—  Institute a dedicated policy to prioritise and ensure prudent, value for money, government spending.

—  Eliminate wasteful expenditure on travel, motor vehicle expenditure, entertainment etc.

—  Consolidate Government Ministries and Departments to reduce office rentals. Any new rentals will be on a boot basis.

—  Maintain public sector employees. We will concentrate on providing educational and training opportunities to increase their job proficiency and productivity in creating an efficient, rapid response culture. A reduction in the size of the public sector will be achieved in the medium to long term by curtailing new employment, through attrition and revenue growth. By keeping the aggregate amount of public sector workers constant and growing the economy, the percentage of total salaries and wages to total revenues will be reduced to sustainable levels.

—  Reduce the number of overseas missions and their operating costs by sharing office locations with other countries, entering arrangements for joint representation and the appointment of honourary consuls.

—  Eliminate corrupt Government contracting by removing the opportunity for theft to ensure Best Value for every dollar of tax collected.

—  Curtail borrowings and borrow only for development unlike the UPP that borrowed primarily for consumption

—  Eliminate UPP Government’s – unsustainable high Deficit Spending & excessive borrowings which increased national debt to an unsustainable $4 billion as at the end of 2013, accounting for large unsustainable statutory corporations debts and other contingent liabilities.

—  Systematically reduce borrowing to GDP to sustainable levels within next five years.

—  Negotiate wholesale write offs of certain external loans, set off profits and swap debts (including land swaps) with Statutory Corps.

—  Set-off Medical Benefits debt against amounts due to Central Government for health care.

—  Re-capitalise the Social Security Scheme through a judicious investment policy and place it on a viable and sustainable footing.

—  Enter joint venture developments, including housing, with statutory corporations to create value. Profits and capital appreciation would be set off against amounts owed.

—  Refinance existing debt to improve the terms by lower interest rates and longer maturation periods, particularly for dubious loan agreements into which the UPP regime entered.

—  Introduce policy initiatives to ensure stability within the banking sector and will prioritise the resolution of the ABI Bank, CLICO and BAICO issues.

—  Strengthen the regulatory framework for Insurance companies and offshore Banks to include the establishment of a parliamentary oversight committee, enhanced supervision and harmonised legislation.

—  Reinvigorate Offshore financial services to include insurance, investment trusts and Wealth management and making the sector fully CFATF compliant at all times.

—  Negotiate an amicable settlement of the WTO gaming dispute to include market access with a commitment for tighter regulations. Or possible tradeoffs for more scholarships for medical students to study in Antigua and the establishment of a United States of America satellite visa office, among other initiatives.

We trust that the foregoing analysis would have provided you with greater clarity and ally any fears you may have had about the elimination of PIT.

Team Labour, is a champion team, always ready to champion any cause to empower our people. We are ready to govern, ready to transform Antigua & Barbuda into a champion nation, and an economic powerhouse in the Caribbean.

We invite you to be part of this champion team to rebuild our country.

APPENDICES

Appendix 1

Appendix1

Socio Economic Status of Population-Kairi Poverty Study

INDICATOR OF VULNERABILITY HOUSEHOLDS INDIVIDUALS
Indigence Line (Annual in local currency) n.a. 2,449
Poverty Line (Annual in local currency) n.a 6,318
Vulnerability Line (Annual in local currency) n.a 7,898
INDICATOR OF VULNERABILITY

HOUSE HOLDS

%

INDIVIDUALS

%

Indigent 3.1 3.7
Poverty Headcount Index (Adult Equivalent) n.a 18.3
Low per capita household consumption(below 125% of poverty line) 34.2 45.3
Low adult equivalent household consumption (below 125% ofpoverty line) 20.9 28.8
Low educational attainment(defined as not having passed any school examination) n.a 52.3
No schooling(school age children not attending school last week for at leastone day) n.a 4.2
No employment(no adult employed in the household) 21 13.4
Insufficient employment(less than one in two adults employed in the household) 26.7 23.9
High dependency ratio(less than one person of working age for every two persons notof working age) 5.8 8.7
Poor access to safe water(if no piped water) 6.0 5.5
Poor quality of housing(toilet is a pit latrine or worse) 22.7 20.4
Low asset base (whether household has 3 or less out of 9possible common durables) 11.6 8.8

 

Summary Poverty and Vulnerability Indicators

Appendix 2

 Counting Calories

National Geographic Chart

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