Hon. Gaston Browne on PIT

Address by Hon. Gaston Browne
Political Leader
Antigua & Barbuda Labour Party

July 17, 2013

At a town hall meeting held last evening in St. Paul’s Hon. Gaston Browne, Political Leader of the Antigua & Barbuda Labour Party addressed the gathering with hundreds in attendance. During the meeting he endorsed the candidacy of Senator Paul Chet Green, as an astute, articulate, productive and intelligent international sports administrator. The ABLP political Leader indicated that the ABLP is on a rescue mission and outlined his vision for the country: to transform Antigua Barbuda into a harmonious, prosperous and modern nation, an economic power house in the Caribbean, a country of equality of opportunity and justice irrespective of colour, Creed, or class. He also used the opportunity to articulate the ABLP’s personal income tax policy.

Here follows Hon. Gaston Browne’s statement on PIT:

The ABLP is philosophically opposed to taxes on personal income. PIT has negatively impacted the lives and living standards of many middle class families and undermine business starts and business sales. We believe 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.

With the reward reduced, the incentive for pursuing economically productive activities is reduced. The ABLP will reward and incentivised the reward for work by eliminating PIT and putting back in excess of 40 million dollars back into the pockets of tax payers. Individuals who are presently paying personal income tax monthly will be incentivised to invest in various projects to include investment properties. For example, a person could assign his or her monthly savings from the elimination of PIT to borrow to construct an investment property for rent as part of his or her retirement planning. By so doing, the tax payer could turn at least a 10 percent return on his investment which would contribute to an increase in his or her disposable income. The rental income could then be utilised for further investments or even consumption. The economic activities generated from such an investment and even the rental income, when spent, will be captured by indirect taxes including the 15 percent ABST. Other taxes will also apply to include land and building taxes. The monies invested in the property would create several construction jobs, support retail sales for hardware stores and suppliers of building aggregates. These purchases will also carry a 15 Percent ABST thereby providing compensatory revenue for the loss in personal income tax. Any profits generated by these businesses will also be taxed at a 35 percent rate of corporation tax or 25 percent business tax.

The result of our tax policy will be more savings, more investments, more business starts, more job creation, higher disposable wages and income and higher overall economic growth. This will increase aggregate demand, build confidence in the Economy and ultimately increase the velocity of circulation of money in the economy which will be taxed by the indirect taxes every time the money turns.

The Finance Minister Harold Lovell and PM Spencer deceptively, have led the population to believe that the elimination 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 $35m in personal income tax which was about 5 percent of total income. If we assume that the amount has since increased to EC$40M 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.

It is important for our people to understand that the elimination of personal income tax will not necessarily result in a reduction in total revenue because what will in effect happen is a shift from direct to indirect taxes, or a greater reliance on indirect taxes.

So the elimination of personal income tax is not a giveaway because the amount will be taxed indirectly when employed in the economy. The notion that most of these funds will be employed external of the country is unsubstantiated and unlikely especially considering that most middle class families (the bulk of PIT payers) are struggling to cover their basic expenses.

The PIT as presently constructed is also discriminatory and burdensome to the middle class which is the fulcrum of economic activities in the society.

The ABLP is a caring institution which will continue the exemptions and zero rated ABST items as a safeguard for the lower income people and to make the ABST less burdensome on the poor and vulnerable.

Elimination of personal income tax will also increase our country ‘s competitiveness in attracting more investments to our country to include more investments in the residential tourism market.

So the elimination of personal tax will be a policy instrument, to stimulate the economy, increase aggregate consumption demand and overall confidence in the economy.

In summary, a reduction in taxes will not automatically 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 Government itself recognized that lowering of taxes is required as demonstrated by the lowering of ABST rate in December 2012 in their effort to stimulate the economy before Christmas 2012. The volume of new car sales for that period compared to overall sales of new cars for the rest of the year can be used to illustrate the point.

It should be noted that although government spending can 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.

The evidence in support of the elimination of PIT could be deduced from the performance of our country’s economy for the period 1977 – 2003. The economy of Antigua & Barbuda expanded by an average of 4.5 percent under Labour for 28 years without personal income tax. Between 2008 – 2012, the economy contracted by about -3.5 percent annually for the five year period with PIT under the UPP Government. Without PIT, Antigua & Barbuda outperformed all of its sub- regional neighbours. With PIT Antigua and Barbuda is not even the diminishing head but has been the worst performing economy in the sub-region and the world. By making the investment climate more attractive and by simplifying tax collection, the ABLP will create a new paradigm prosperity and economic growth.

The chart below clearly shows continuous GDP growth between 1977 – 2003 and the virtual doubling of GDP every five years until Hurricane Luis in 1995).

World Bank GDP Figures (Source: World Bank Website)

Hon. Gaston Browne also spoke about the introduction of a prudent borrowing policy; one in which the ABLP will borrow primarily for revenue generating projects that will become self-sustaining. One such program is the St. John’s Harbour project that will see the development of the waterfront between Heritage Quay and Point Wharf to include more duty free shops, two boutique hotels, condominiums, a Marina, fine dining restaurants, museum, factory stores, offices, and a marina. The Leader of the Opposition argued that the project will augment the country’s tourism product and increase tourists arrivals.

He said that, upon winning the next general elections, that his Government will approach the Chinese Government for a loan of US$500 million to consolidate existing debts with an increase to fund this development. The proposed development will be a public, private sector partnership which will generate thousands of jobs during the construction phase and several hundred jobs when the project becomes fully operational. Hon. Gaston Browne will lead a Labour Party delegation to China in two to three weeks at which time, he will further talks about funding for this project.