Identifier
Created
Classification
Origin
09KINGSTON1140
2009-12-21 16:05:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Kingston
Cable title:  

Jamaica: Threats of Protests Against "Wicked" Tax Hike

Tags:  ECON ETRD ENRG EFIN EINV EAIR PREL PINR SOCI TRSY 
pdf how-to read a cable
VZCZCXYZ0002
OO RUEHWEB

DE RUEHKG #1140/01 3551606
ZNR UUUUU ZZH
O 211605Z DEC 09
FM AMEMBASSY KINGSTON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0433
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHLO/AMEMBASSY LONDON IMMEDIATE 0129
RUEHOT/AMEMBASSY OTTAWA IMMEDIATE
RUEHBJ/AMEMBASSY BEIJING 0003
RUEHCV/AMEMBASSY CARACAS
RUEHKG/AMEMBASSY KINGSTON
UNCLAS KINGSTON 001140 

SENSITIVE
SIPDIS
STATE FOR WHA/CAR (VDEPIRRO) (WSMITH) (JMACK-WILSON)
WHA/EPSC (MROONEY) (FCORNEILLE)
EEB/IFD/ODF (MSIEMER)
EEB/ESC/IEC (GGRIFFIN)
EEB/ESC/IEC/EPC (MMCMANUS)
EEB/TRA (VLIMAYE-DAVIS)
INR/RES (RWARNER)
INR/I (SMCCORMICK)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW
EXPORT IMPORT BANK FOR ANNETTE MARESH
USTDA FOR NATHAN YOUNG AND PATRICIA ARRIAGADA
OPIC FOR ALISON GERMAK

E.O. 12958: N/A
TAGS: ECON ETRD ENRG EFIN EINV EAIR PREL PINR SOCI TRSY
EIND, IDB, OPIC, IBRD, IMF, XL, JM
SUBJECT: Jamaica: Threats of Protests Against "Wicked" Tax Hike
Forces PM Golding To "Re-Examine" Them, Possible Snag For IMF Deal?

REF: KINGSTON 759; KINGSTON 1050; KINGSTON 737; KINGSTON 956
KINGSTON 743; KINGSTON 521; KINGSTON 59

Summary and Analysis

------------------------------

UNCLAS KINGSTON 001140

SENSITIVE
SIPDIS
STATE FOR WHA/CAR (VDEPIRRO) (WSMITH) (JMACK-WILSON)
WHA/EPSC (MROONEY) (FCORNEILLE)
EEB/IFD/ODF (MSIEMER)
EEB/ESC/IEC (GGRIFFIN)
EEB/ESC/IEC/EPC (MMCMANUS)
EEB/TRA (VLIMAYE-DAVIS)
INR/RES (RWARNER)
INR/I (SMCCORMICK)
SANTO DOMINGO FOR FCS AND FAS
TREASURY FOR ERIN NEPHEW
EXPORT IMPORT BANK FOR ANNETTE MARESH
USTDA FOR NATHAN YOUNG AND PATRICIA ARRIAGADA
OPIC FOR ALISON GERMAK

E.O. 12958: N/A
TAGS: ECON ETRD ENRG EFIN EINV EAIR PREL PINR SOCI TRSY
EIND, IDB, OPIC, IBRD, IMF, XL, JM
SUBJECT: Jamaica: Threats of Protests Against "Wicked" Tax Hike
Forces PM Golding To "Re-Examine" Them, Possible Snag For IMF Deal?

REF: KINGSTON 759; KINGSTON 1050; KINGSTON 737; KINGSTON 956
KINGSTON 743; KINGSTON 521; KINGSTON 59

Summary and Analysis

--------------


1. (SBU) Sweeping tax increases and further progress on an
International Monetary Fund (IMF) Standby Agreement were the
subjects of two significant speeches by Prime Minister (PM) Bruce
Golding and Audley Shaw, Minister of Finance and the Public
Service, in a special Parliamentary session held on December 17
(Reftel A). Shaw announced extensive new taxes on gasoline,
cigarettes, and electricity, as well as a one percentage point
increase in the General Consumption Tax (GCT). Most painful to
poorer Jamaicans would be the elimination of many of the GCT
exemptions on goods and services including a range of basic food
items. The Opposition Peoples' National Party (PNP) wasted no time
in responding calling the tax hike "cruel" and "wicked" in
Parliament. The PNP also mobilized its forces over the weekend,
calling for "disciplined" and peaceful protests to begin December

21, to culminate in a face-to-face consultation on December 30. PM
Golding appeared to buckle to criticism, and released a statement
on December 20, saying, "I have heard the cry and the appeal of the
Jamaican people." He announced he will "re-examine" the tax package
to find suitable alternatives for securing the JD$21 billion (USD
$237 million) of revenue required to support the program being
negotiated with the IMF, while also limiting the burden on poorer
Jamaicans. The JLP missed an important opportunity to link the tax
increase with a debt reduction plan that would fall on the
shoulders of wealthier Jamaicans. This mistake also gave the PNP
ammunition to fire back on the JLP, saying the tax hike was
inequitable and unjust. Hopefully the PNP will recognize that any
organized protests in response to the tax hike could quickly could
get out of hand, creating civil unrest and possibly hurting the
tourism sector, one of the few bright spots in the local economy.
End Summary and Analysis



Golding's Speech In Parliament

--------------


2. (SBU) In Parliament Golding spoke of the possible sale of Air
Jamaica to Caribbean Airlines in an effort to shed liabilities and
accelerate an IMF agreement. He announced that the proposed
expansion of Petroleum Jamaica's (PetroJam) refinery, in
partnership with Venezuela (PDVSA),cannot be supported by a
sovereign guarantee. Golding also revealed that the Chinese will
build a new office for the Ministry of Foreign Affairs and Foreign
Trade. Most noteworthy was the fact that both Shaw and Golding
failed to provide specifics for how the GOJ intends to address
restructuring of its massive domestic debt, an issue that is on the
minds of many Jamaicans. However, Golding said he was satisfied
with the openness of the market players, who he said "now
understand that their interests are inextricably tied to those of
Jamaica."



Third Tax Hike This Year

--------------








3. (SBU) Shaw reiterated the many challenges facing the local
economy, including negative productivity growth and persistent
fiscal imbalances, problems magnified by the global economic
downturn (Reftels B, C, D). He provided details for the third tax
package for this fiscal year (nine months to December),amounting
to a projected JMD$22 billion (US$ 248 million) in new tax revenue
(equivalent to nearly two percent of GDP). This will bring the
total estimated tax increase for this fiscal year to JMD$48 billion
(US$541 million) or 3.78 percent of GDP, unless Golding implements
revisions as he has suggested. NOTE: It is also unclear how any
revisions in the proposed tax package will be received by the IMF,
which appeared to time its announcement to Golding's speech in
parliament END NOTE).



Taxing Across the Board-Public Outraged

-------------- --------------


4. (U) Shaw announced a 15 percent ad valorem tax on gasoline (this
is in addition to the U.S. 10 cents tax per liter added in April)
and a 20 percent increase in the tax on cigarettes. The GCT will
be raised by one percentage point, but more significant is the
drastic reduction of the number of goods and services that were
previously exempt. It is the new taxes on basic food items such as
fruits, vegetables, beans, eggs, flour and fish that has generated
such outrage among the populace. In addition, GCT now will be
applied to residential electric bills for all electricity use above
200 kilowatt hours per month. Shaw tried to couch the move as a
strategy for promoting energy conservation, and sought to downplay
its impact by saying it would not affect 310,000 households out of
the country's estimated 540,000.



IMF Team Agrees On Key Elements With GOJ, But, Golding Backtracks

-------------- --------------


5. (U) At the same time of the Parliamentary speeches, Trevor
Alleyne, head of the IMF mission to Jamaica, said in a press
release, "The Jamaican authorities and an IMF staff mission have
reached agreement on the key elements of a program that the IMF
would support with a loan under a Stand-By Arrangement (SBA) of
nearly US$1.3 billion over 27 months. He added, "We will remain in
close contact with the authorities over the coming days as they
finalize their economic program in a Letter of Intent, which then
would be reviewed by IMF management. The IMF's Executive Board
likely will consider Jamaica's SBA in early 2010. (NOTE: Any
revisions in the tax hike announced by Shaw would require further
discussions with the IMF and could lead to delays in bringing the
SBA to the Executive Board. END NOTE).



Shaw Says U.S. Supports Jamaica on IMF Deal

-------------- --------------


6. (U) Shaw said that he met with U.S. Treasury Deputy Assistant
Secretary for the Western Hemisphere Dr. Nancy Lee in Istanbul and
that "in a meeting with our U.S. Ambassador Anthony Johnson last
Tuesday she said the United States is very supportive of a very
substantial financial package from the IMF and other multilateral
institutions to back this deal, but only in the context of an
agreement that will solve the problem in the long term." Shaw went
on to say the U.S. has been supportive in the country's tax reform






efforts and highlighted specific technical assistance provided by
the U.S. Treasury's office of Overseas Technical Assistance (OTA)
and the Internal Revenue Service (IRS).



Golding: Cooperation of the Market is Crucial For Debt Solution

-------------- --------------


7. (SBU) In a follow-up speech to Shaw's presentation on new
austerity measures, PM Golding sought to provide context for the
"perilous state of the economy" and emphasized that the GOJ's
options are "extremely limited." He said he anticipated a war of
words to ensure, cautioned "truth was likely to be the first
casualty," but noted that "Jamaica's future may be the greatest
casualty." He said the budget deficit will not be wiped out by the
current revenue measures, and therefore other strategies will have
to be employed. Golding stressed that JMD$85 billion (US$ 959
million) in annual debt servicing is at interest rates of between
16 to 25 percent, which he noted is the highest of anywhere in the
world. He also said "the GOJ is pursuing a program, although it is
not signed off on yet, that will address the high interest rate
problem, but cooperation of the market in this is crucial." (NOTE:
Many listeners were anticipating more specifics for addressing the
exorbitant debt problem to complement the tax package. Also with
Golding indicating he may revise the tax increase, it is not clear
how much this may delay IMF negotiations. END NOTE).



Shedding Contingent Liabilities

--------------


8. (SBU) Golding spoke of a possible sale of Air Jamaica to
Caribbean Airlines in an effort to comply with some of the terms of
a potential IMF deal (Reftels E and F). He added that the GOJ
would assume all existing liabilities for Air Jamaica as part of a
privatization deal, but said the GOJ is not prepared to accept any
future liabilities (possibly hinting that the airline would be
closed if a buyer could not be secured in the short-term). (NOTE:
The GOJ is still in talks with private equity group Indigo
Partners, operators of Spirit Airlines, about the purchase of Air
Jamaica END NOTE). He also emphasized that the proposed expansion
of Petroleum Jamaica's (PetroJam) refinery, the cost of which has
increased from US$ 600 million to US$ 1.2 billion, cannot be
supported by a sovereign guarantee. He said, "Given the country's
fiscal and debt situation we cannot absorb that kind of liability."





9. (U) Golding said the government also plans to divest its 45%
equity stake in the JAMALCO bauxite plant; the balance is owned by
U.S. firm Alcoa. The GOJ also will sell its 20% share in the
monopoly power provider Jamaica Public Service (JPS) and intends to
privatize the Norman Manley International Airport in Kingston.
(NOTE: The GOJ privatized Sangster International Airport in
Montego Bay in 2003 End Note). Golding also said there were plans
to privatize the Port Authority of Jamaica, which operates all the
major ports on the island.



Chinese Investments

--------------







10. (U) Golding said the Chinese have agreed to build a new
building for the Ministry of Foreign Affairs and Foreign Trade. He
also noted that the new convention center currently being built by
the Chinese will "never break even" and will require government
subsidy in the future. He also stated, that the Trelawny Stadium
built for Cricket World Cup 2007 remains "a white elephant" and
continues to cost the GOJ money.



PNP Calls Tax Hike "Cruel and Unjust," Pushes For Protests

-------------- --------------
--------------


11. (U) The PNP was quick to pounce on the Jamaican Labour Party
(JLP's) failure to address the debt problem in the their
presentation, and PNP President Portia Simpson Miller (PSM) labeled
the tax hike, "wicked." PNP Member of Parliament and Former
Finance Minister Omar Davies said the JLP's plan for tax hikes was
"cruel and unjust" and added that it is going to place an undue
burden on the poor and "once again the wealthy are not paying their
fair share." Davies said this was essentially the third budget
presentation in eight months, but "the JLP has still not gotten it
right." The PNP held a meeting of the party's National Executive
Council (NEC) over the weekend with PSM saying "we shall take no
more, telling the audience, "are you ready to demand the government
roll back the unjust and inequitable taxes? She continued, "Then
go forth, comrades with discipline." "Await the instructions for
the various protests across the country. "



Analysis

--------------


12. (SBU) After months of false starts, the JLP finally has
announced concrete plans to try to raise new revenue and is closing
in on an IMF deal, only to backtrack three days later saying it may
revise the tax hike. The JLP missed an important opportunity to
link the tax increase with a debt reduction plan that would fall on
the shoulders of wealthier Jamaicans. This mistake also gave the
PNP ammunition to fire back on the JLP, saying the tax hike was
inequitable and unjust. The press release from the IMF noting that
a deal should come early in the new year should have calmed the
markets, but the uncertainty of the tax plan and the possibility of
protests will mute benefits of this message. Jamaicans, already
suffering under a deteriorating economic climate, will not welcome
the rash of new taxes, but Golding's apparent backtracking will
likely embolden the PNP. Hopefully the PNP will recognize that
any organized protests in response to the tax hike could quickly
could get out of hand, creating civil unrest and possibly hurting
the tourism sector, one of the few bright spots in the local
economy (Reftel G). End Analysis.
Parnell