Commentary
Newsday
DR JAMELIA HARRIS
OFTENTIMES those who critique the current state of development in TT look to the North or Far East with aspirational eyes. Why can’t we be like Canada? Like Germany? Like Singapore? If we assess the debates around the property tax and the impending repeal of the Property Tax Act, we will find some answers.
The first, and most obvious, is that most developed countries have a property tax. The Organisation for Economic Cooperation and Development notes that across all of Europe only two countries do not levy property tax: Liechtenstein and Malta. There are over 40 countries in Europe.
The reason for property taxes being so commonplace is simple: they offer a reliable and stable source of government revenue. The fiscal arguments are clear. The economic arguments are also clear.
From an economic perspective, of all possible taxes, a property tax is least distortionary as it has the least impact on behaviour – a higher property tax is unlikely to cause someone to sell their home. The main challenge of the property tax is that it requires political will and public buy-in – as we have clearly seen here in TT.
The second lesson is that we have a very low appetite for paying taxes – lower than in most developed countries. In all developed countries the social contract is such that citizens pay taxes; sometimes up to 12 per cent in property tax and 40 per cent in income tax if we use the UK as an example. That said, the UK does not have the highest tax rates in Europe or globally.
The residential rate of the property tax in TT is two per cent, reduced from three per cent. The understanding in most developed countries is that to fund public goods and services taxes must be paid. This social contract is not very strong in TT.
There are multiple reasons for the breakdown of this social contract – top of the list are corruption and mismanagement. Also on this list is the belief by some citizens of their right to public goods and services, but not their responsibility for paying into the collective pot.
The third is that we are not serious about diversifying our tax base. We have been having the diversification conservation for most of our existence as an independent country. One of the benefits of a diversified economy is a diversified tax base so that the government is not overly dependent on any one tax source.
Beyond diversifying the economy, the government can directly diversify the tax base to ensure multiple tax sources can be tapped into. This is what developed countries do. This is what the property tax was intended to do.
The fourth is that we are a society with poor enforcement of laws. We see this daily. With the property tax, a large share of residents did not pay the tax. The consequences: nothing. In most developed countries, non-payment of tax is met with a warning, a fine, and, at worse, prison time.
And fifth, and possibly most concerning, we do not reward playing by the rules. In contrast to the group that did not pay, the other share of the population duly complied with the law and paid their taxes. Finance Minister Davendranath Tancoo promised a refund; which the Prime Minister swiftly refuted.
Kamla Persad-Bissessar’s response: we told them not to pay, reflecting on her position as then-opposition leader. In other words, you should have refused to comply with the law. Such advice would rarely come from one of the highest offices in the average developed country, far less from a seasoned lawyer.
We really need to look in the mirror in TT. We want to be more developed. We want progress. But progress requires change. Let’s change our tax base and introduce the property tax. No thank you. Let’s change our revenue collection system and collect revenues more efficiently with the TT Revenue Authority. No thank you. Let’s change our driving behaviour with the demerit points system. No thank you.
If the only thing we are willing to change is our government, and not the underlying structures of our economy, fiscal system and society, then we will change little and our quest for continued development will be elusive.
Dr Jamelia Harris is an economist
