Successive governments of Jamaica have found that they are unable to provide their promised level of social services and investment in social goods. The existing levels of tax collections simply cannot service the national debt, meet the salaries of the public sector and do all the other things that governments are committed to doing.

Governments of Jamaica have recognised and accepted the difficulty of relying on income tax as the primary source of revenues, given that some 40 per cent of the economy operates outside the income-tax network. This 40 per cent of tax dodgers, the Govern-ment has informed us, includes many professionals, single proprietors and successful business people. That is why tax collections have come to depend increasingly on consumption or goods taxes - General Consumption Tax, Special Consumption Tax, tariffs, etc.

Our present personal income tax structure is proportional rather than progressive, meaning that all above the tax-free threshold pay the same percentage of their income in taxes. A progressive tax structure, as is the case in many devel-oped countries, is supposed to result in the marginal and ultimately the average tax rate increasing as income increases.

Developed countries tend to have a progressive income tax system supported by a range of consumption taxes, licences and user fees. The revenues from these taxes allow these countries to provide many social goods and services free. Their tax net is wide and their tax structure is progressive. Jamaica's tax net is narrow; its income tax structure is proportional, with a high level of consumption taxes and massive non-compliance.

Regressive tax system

Across the entire population of taxpayers, the lower-middle and middle-income groups pay a greater percentage of their income in taxes than many of those who earn the same or more than they do. The conclusion is that our tax system is regressive.

The minister of finance, Audley Shaw, has suggested that if everyone, including the 40 per cent outside the system, paid their correct share of taxes the deficit would start falling and we could adequately fund our social services and social goods. I suspect that we can readily identify many of the professionals and others who should be paying income taxes. Perhaps we should impose draconian licence fees on those who must be licensed or who should operate in licensed establishments, for example, doctors and hairdressers, and if they file income taxes that show that the licence fee was bigger than the tax they should have paid, they would only be required to pay the tax.

The act of any lying on a tax return should, with modest investigation, eventually be found out. If these dodgers do not file they must pay the full licence fee. We must broaden the tax net. We must give the broadening of the net the highest of priorities. The broadening of the tax net will not result in a progressive tax structure and will not provide enough for the Government to meet its desired level of social spending in the short run.

Given the level of income inequality and the inability of the tax system to generate adequate tax revenues, the state inevitably under-provides social services and critical social and public goods. The party in opposition always promises to provide more of these social goods and services than the Government, and the party that forms the Government tries to do more than its available resources allow. The result is the country's debt burden increases, funds to generate growth are crowded out by government borrowing, and despite the best will in the world the social commitments are not met.

Given our inability to fund the requisite services and social goods, we strongly recommend that the Government imposes user fees, where the delivery of the service or good allows for a user-fee system without massive evasion or corruption. This policy, in the context of a regressive tax structure and a highly unequal income distribution can, however, result in certain services priced beyond the reach of many citizens.

If possible, therefore, the fees charged to lower-income users should include an element of subsidy paid for by imposing higher unit prices on, say, higher-volume users or a different class of service. The higher volumes or different class of service are treated, here, as a proxy for higher incomes. Variants of this type of pricing structure already exist in the National Water Commission and the Registrar General's Department. The Government should ensure that the revenues collected in these enterprises cover all their costs - both capital and recurrent.

There are, however, some key public goods, such as education and hospital care, that all agree need to be provided with a rate structure that ensures that all can access the service. The surest way to accomplish this is, at first glance, to provide these services free.

Positive benefits

Education and health care provide significant positive benefits to the society above the benefit derived by the individual who receives the education or hospital care. In order for society to have the requisite amount of investment in these services, the state must provide support for their delivery. Education and hospital care are also regarded by some as a right, hence the state must be the provider.

Consider the case of free secondary education in Jamaica. Not having the funding to provide a good-quality education for all, the state has entered into a complex system of selection that generates inequities that are bizarre and must be frustrating to the Government and the general public. The inequities of the so-called free system at the secondary level is seen when those who have resources invest in the best prep school education for their children to allow their children a better chance at accessing the best of the "free" secondary schools.

Indeed, despite a reasonable primary and prep school system, the selection process for a secondary education has spawned a further investment in 'extra lessons'. The extra lesson need sometimes spills over to the secondary level, reflecting in part the poor quality of service provided by some of these schools. No acceptable school system spawns an extra-lesson factory system. The spending on prep schools and on extra lessons suggests that there is a willingness across a wide spectrum of the society to pay for good-quality education, but it is also true that many are simply unable to pay, or refuse to pay without coercion.

The solution is obvious - we must introduce a progressive collection of fees or taxes, or both. The implementation of the solution scares both the Government and the population alike, but we must find the answer to proper funding of education and health care quickly. My politically charged solution is to take a hard look at property taxes and recognise that a progressive-type property tax is relatively easy to develop and should be implementable. To get the buy-in of the citizenry, they need to be involved directly in the imposition of the tax and the governance of the school system.

Perhaps schools should be county-based and the tax decided by the residents of the county. This system, coupled with a judicious cost-sharing system, might just work and it might also resolve the struggle to get into the 'better schools'. Whatever we do must have a strong progressive-type tax structure and involve the citizenry.

Free health but poor quality

The challenge in hospital care is the same, it is free to all but poor quality is provided to all. Those who are able find ways to top up the poor quality by judicious use of private hospitals and physicians. A regressive funding system results in a regressive delivery framework.

A requirement of a good user-fee system is to let all know the true cost of the service. This is particularly true in hospital use. When we require all to pay a fee that is considerably less than the true cost we discourage the acquisition of health insurance. The fee structure at the UWI hospital is an example of this approach.

All users must be given a statement of the true cost of the service they receive. I would like to believe that knowing the true cost will result in a greater willingness to contribute to the cost of the care. The challenge is to find a progressive tax type method to fund hospital care. A national health insurance programme with premiums tied progressively to income but with payouts from the scheme independent of premium contribution might begin to reduce the burden and improve the quality.

The implementation recommendations obviously need careful appraisal but my general conclusions are: