Audley Shaw, Minister of Finance

Gareth Manning, Sunday Gleaner Reporter

WITH THE slowdown in the United States economy - Jamaica's largest export market - predicted to last into the middle of next year, a local financial analyst is suggesting that government tax the informal economy in an effort to finance the $489 billion budget for 2008/2009.

Finance Minister Audley Shaw tabled the Jamaica Labour Party (JLP) administration's first estimates and expenditures in parliament in 18 years last Thursday. But with the American economy showing signs of a recession, many are predicting that developing countries could find themselves ailing.

Lecturer in finance and banking at the University of Technology (UTech), Dr Neville Swaby, opines that the conditions in the US market will affect the Jamaican economy negatively - particularly remittances and tourism - and Government must find ways of nullifying that impact.

"It is in Jamaica's interest to improve productivity and increase employment; if not, the alternative is to walk the Argentine route of debt renunciation in order to not go under," he warns.

Swaby says the primary economic problems facing the country are frightening and believes the large informal sector - 40 per cent of the overall economy - should bear some of the burden. He says government must ensure that all Jamaicans obtain tax-registration numbers and file their income-tax returns annually.

"Jamaica's large informal sector should bear some of the burden and should also be taxed in order to improve the country's high debt, quality of education and services to efficiently utilise the limited disposable funds in the country," Swaby tells The Sunday Gleaner.

The informal economy includes about 45 per cent of the agriculture sector and about one quarter of wholesales, retails and restaurants. It also includes 12 per cent of community, personal and social services, says Swaby.

"This informal economy does not help to solve the macro-economic difficulties in the country based on the sizeable activities conducted across the island," he argues. "Most of these activities are outside of the tax regime, which makes it difficult for prudent fiscal policy. Hence, registration of all activities is necessary."

Step on tax dodgers

Government has already begun to step on some tax dodgers. Several, including a popular entertainer, are before the courts for non-compliance and last week, the tax authorities announced that a new, computerised system would be used to identify those who failed to file their returns by March 17. Swaby argues that in the current environment, the Government will have to flex its muscles and make good on its promises to place a constitutional limit on borrowing, and reform the tax system.

In contrast to Swaby's views, economist Errol Gregory argues that although developments in the US are disconcerting, Jamaica has some breathing space to grow the economy because debt payments are not due until February 2009.

He says tax reform is expected and sections of the population seem to believe the Government will be putting their tax dollars to good use. If that view persists, then there might be room for economic growth, he argues.

"If we remain in an environment where we feel that the tax dollars are being spent wisely," Gregory reasons, "people will be willing and some will make the sacrifice of paying some more - not a whole heap more - but just to keep the economy on track to allow the Government to do the necessary infrastructure work that will be required to get the economy back into a growth mode."