Author: jrobinson

REMARKS IN Parliament on Tuesday by the energy minister, Phillip Paulwell, suggest that the Simpson Miller administration may have begun to grasp that flawed policies need not be pursued merely because they were declared.

In this case, the government seems willing to rethink its promise of a blanket removal of the general consumption tax (GCT) on electricity that it made in the heat of the campaign for last December’s general election.

That promise by Portia Simpson Miller was, understandably, popular, helping to win her People’s National Party the government and propel her to prime ministership. For, on the face of it, many thousands of Jamaicans would be freed of the 10 per cent tax on their electricity bills that was imposed by the previous administration.

The fact, though, is that it was largely a mirage – as the figures quoted by Mr Paulwell on Tuesday would have forced him to realise – were it not the case before.

Important points

The Jamaica Public Service, the light and power company, has, Mr Paulwell reported, 492,560 residential consumers. Of this number, 377,495, or 77 per cent, use less than 200 kilowatt-hours of electricity monthly – the benchmark at which consumers enjoy a price ‘subsidy’ on their power bills. Consumers at this threshold do not currently pay GCT.

There is a differential between the minister’s figures and slightly higher ones quoted by the Private Sector Working Group (PSWG) in its tax-reform proposals that offered an alternative to the government’s plan. Both, however, underline three important points.

First, from the political point of view, the constituency of poor voters that Mrs Simpson Miller most wanted to reach when she made the promise was already exempt from the GCT. Second, the removal of the tax would give a break mostly to well-to-do people who can afford to pay. Third, blanket removal of the GCT is also removing an incentive to conserve.

The PSWG had alternatively suggested keeping the GCT in place, but raising it to 12.5 per cent in line with the rate it proposes for all goods and services. It would, at the same time, raise the charge for the consumption threshold for GCT to 300 kWh, freeing more than 20,000 additional electricity consumers from the tax.

Neutral effect

The concept and the underlying implication of these numbers have apparently not been lost on Mr Paulwell and his Cabinet colleagues. He pointed out that raising the GCT-free threshold to 250 kWh, or 300 kWh, would benefit 10 per cent, and 16 per cent more electricity users. It would, at the same time, cost between $113 million and $136 million in revenue.

Minister Paulwell appears to be concerned about the impact on small businesses. But the GCT is an input-output tax, so compliant businesses could claim against their payments. The effect, therefore, would be neutral – except in the case of those businesses that are either not registered or compliant.

It can’t be the objective of government to reward people who do not play by the rules, or promote economic disorder. Moreover, as Mr Paulwell indicated, the cash-strapped government collected over $1.6 billion in GCT payments on electricity in the last fiscal year. That is not to be disregarded.

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