A ‘solid waste’ of time
“The Laffer Curve is a graphical representation of the relationship between tax rates, tax revenue, and taxable income. It is frequently cited by people who want to explain the common-sense notion that punitive tax rates may not generate much additional revenue if people respond in ways that result in less taxable income.” – Daniel J. Mitchell, writing in Forbes magazine, April 2012
We have certainly seen a Laffer Curve scenario at work in the case of our Value Added Tax over the past year and a quarter.
Its intake peaked in fiscal 2011-12, declining in fiscal 2012-13 and for the first quarter of fiscal 2013-14 (April-June 2013).
Of course, with the economy sliding downward, the contraction in business may have also played a role. But, according to the Government, hundreds of millions are owed in back taxes, including VAT.
Revenue from personal income tax has also taken a similar dive over the same 15 months noted above.
However, property tax revenues have been roughly the same during this past year-and-a-quarter. From $134 million in fiscal 2012 they actually produced slightly more, $139 million in fiscal 2013. Since this tax is usually billed later in the calendar year, revenue for the first fiscal quarter of 2013-14 are too low for comment, $7.6m and $4.9m respectively.
But you know what happens with this Government when you have a tax that “ain’t broke”. It tries to “fix” it. Will this turn out to be another example of the Laffer Curve in action?
Last August we were introduced to the “municipal solid waste tax”. According to the chart at the end of the budget speech (p. 65), the tax “replaces the Greening Levy announced last year (for) the purpose of managing the major solid waste treatment problem which the country is currently faced with.” Certainly.
No matter what it was to be finally used for, Minister of Commerce Donville Inniss was quoted shortly after Minister of Finance Chris Sinckler had delivered his financial statement to say that there must be an error in the solid waste tax rate.
As far as I know, Mr Sinckler has neither confirmed nor denied this.
While you can call it anything you want to, it is really Part Two of the land tax, as it is calculated on the same bands used to figure out your land tax. Except that while your land tax is set at 0.6 per cent, the municipal solid waste tax, as announced, was set at 0.7 per cent.
Together they will more than double the rate you have to pay on your real estate property, according to a friend of mine, Walter, who knows how to work out these things. He sent me a chart last week showing how much we will have to pay if the tax is kept at 0.7 per cent.
Notes Walter in his email to me: “At present vacant land pays land tax at a rate of 0.6 per cent. This means that with the new tax, the increase on vacant land would be 116 per cent.”
For example, if you have land with a site value of $150 000 and you improved the value via a building to half a million dollars, your current land tax would be $310. With the solid waste tax added, it would jump to $1 360.
If you had a site valued at $300 000 and you improved it to $900 000, your land tax bill would currently be $2 110. With the solid waste tax added, your total bill would jump to $4 210.
I guess Mr Inniss did a few sums like these for himself and figured out that if everybody paid their new land-based taxes, the Treasury would pull in far more than the $49 million it is looking for in the next fiscal year from the municipal solid waste tax.
So, we wait, in hopes of learning what the correct percentage will be for this new tax. In the meantime, it seems, the whole exercise of correcting the government has been a “solid waste” of everybody’s time.
Pat Hoyos is a publisher and business writer. Email [email protected]