Janiel McEwan | New taxes ahead: Jamaica faces fiscal reality after Hurricane Melissa

Hurricane Melissa did more than rip off roofs and flatten farms. It tore through the foundations of Jamaica’s public finances.

The Independent Fiscal Commission’s January assessment places the damage at US$8.8 billion, roughly 41 per cent of GDP. Roads disappeared. Bridges collapsed. Hospitals and clinics flooded. Entire farming belts were wiped out. Tourism bookings stalled just as the winter season was expected to accelerate. The Ministry of Finance is already projecting an $80 billion shortfall in tax revenues this fiscal year.

This is not a routine shock. It is a systemic rupture.

Finance Minister Fayval Williams confirmed that new tax measures will be introduced in the 2026/27 Budget, the first broad-based tax adjustments in nearly a decade. The announcement is politically difficult but fiscally inevitable. This is not a retreat from reform. It is the cost of preserving it.

Dr Damien King of the University of the West Indies captured the moment plainly, describing the coming plan as a hurricane budget. The fiscal rules that anchored Jamaica’s recovery over the past 12 years were built for discipline in normal times. They were not designed to absorb a climate event that erases nearly half of annual output in damages. Balanced budgets without new revenue cannot survive a disaster of this scale.

The reforms since 2013 were real and hard won. Sustained primary surpluses, debt exchanges, institutional independence, and strict expenditure control reduced debt to GDP from over 140 per cent to the mid 60s before Melissa struck. That achievement restored investor confidence and lowered borrowing costs. It is precisely that credibility which now allows Jamaica to borrow without triggering panic.

But credibility is a buffer, not an inexhaustible well.

The cumulative fiscal impact of Melissa is estimated at 5.3 per cent of GDP through 2029/30. Supplementary estimates have already increased expenditure this year from $1.26 trillion to $1.39 trillion. Recurrent spending pressures are rising as schools reopen, hospitals restock, and public sector repairs accelerate. Loading all of this onto debt would mean drifting back toward the very trap the country escaped.

There are only three ways to finance a shock of this magnitude: borrow, cut, or tax. Borrowing alone would raise interest costs and crowd out private credit. Cutting deeply into social services during reconstruction would compound economic scarring. That leaves revenue.

The question is not whether Jamaica will be taxed more. The question is how, and on whom.

WHERE JAMAICA SHOULD BE TAXED AND WHY

The objective must be to raise revenue without stifling growth, deepening inequality, or punishing recovery. A hurricane tax strategy must be guided by three principles: equity, efficiency, and resilience.

1. Close Structural Loopholes in Income and Corporate Taxation

Jamaica’s statutory tax rates are not the core problem. Compliance and preferential treatment are. High net worth individuals and certain corporate structures often reduce effective tax liabilities through incentives, exemptions, and aggressive planning.

A comprehensive review of tax expenditures is overdue. Incentives should be retained only where they generate measurable productivity gains or foreign exchange earnings. Sunset clauses must be enforced. Transparent reporting of effective tax rates by sector would improve accountability.

Revenue gain here does not come from raising headline rates but from broadening the base. A broader base allows lower distortions and fairer burden sharing.

2. Luxury Consumption Levies

In a post disaster environment, progressive consumption taxation is defensible. Targeted increases on luxury imports such as high end vehicles, yachts, private aircraft, premium alcohol, and luxury real estate transactions would raise revenue with minimal impact on productive capacity.

These items have low multiplier effects in the domestic economy and are often import intensive. Taxing them reduces foreign exchange leakage while signalling fairness.

Such measures must be tightly defined to avoid dragging upper middle income households into unintended hardship. The line between aspirational consumption and luxury must be drawn carefully.

3. Environmental and Carbon Based Charges

If climate change is intensifying storms, fiscal policy must reflect that reality. Environmental levies on high emission activities, including certain industrial processes and fuel consumption beyond essential thresholds, can both raise funds and incentivise transition.

Revenue from these charges should be ring fenced for resilience infrastructure such as drainage systems, sea walls, climate smart agriculture, and renewable energy expansion.

This aligns taxation with long term adaptation rather than short term patchwork repair.

4. Property Tax Reform and Compliance

Property taxation in Jamaica remains underutilised relative to its potential. The issue is not necessarily higher rates but valuation accuracy and compliance.

Urban land values have risen substantially over the past decade. Updating the valuation roll while protecting primary residences below certain thresholds would increase fairness. Commercial property and high value secondary residences should bear a larger share.

Improved digital tracking and enforcement can expand collections without imposing blanket rate hikes.

5. Digital Economy and E Commerce Compliance

The digitalisation of commerce has expanded faster than tax enforcement mechanisms. Cross border digital services and online platforms must be fully integrated into the tax net.

This is not about penalising innovation. It is about ensuring that economic activity, wherever conducted, contributes to the national reconstruction effort.

6. Windfall Mechanisms

Certain sectors may experience windfall gains during reconstruction, particularly construction materials, logistics, and insurance related services. Temporary windfall levies, narrowly targeted and time bound, can prevent crisis profiteering while raising funds for rebuilding.

These must be carefully structured to avoid discouraging investment.

WHERE JAMAICA SHOULD BE CAUTIOUS

Broad increases in General Consumption Tax would disproportionately affect lower and middle income households already coping with storm losses. Across the board payroll tax hikes would suppress employment recovery. Raising taxes on small and medium enterprises during a fragile rebound would be counterproductive.

The middle class, already strained by housing costs and stagnant wage growth relative to living expenses, must not become the default fiscal backstop.

Equity is not a slogan. It is a stabiliser.

STRATEGIC BORROWING STILL MATTERS

New revenue does not eliminate the need for borrowing. It complements it. Borrowing should be directed strictly toward capital projects that expand productive capacity and reduce future vulnerability.

Climate resilient roads and bridges reduce future reconstruction costs. Modern irrigation and greenhouse systems stabilise agricultural output. Hardened logistics hubs protect trade flows. Digital infrastructure ensures continuity when physical systems fail.

Debt used for resilience is qualitatively different from debt used for consumption.

Front loading reconstruction may increase deficits in the short term but accelerate recovery and growth. Delayed rebuilding stretches economic pain and prolongs revenue weakness.

THE POLITICAL REALITY

Keenan Falconer is correct that this may be one of the most consequential budgets in modern Jamaican history. The politics will be unforgiving. Households are still counting losses. Businesses are still repairing balance sheets.

Yet the alternative to measured taxation is uncontrolled borrowing. That path would erode the credibility painstakingly rebuilt over a decade. Investor confidence would weaken. Interest rates would rise. Private investment would retreat precisely when expansion is needed most.

Jamaica’s reduction in debt to GDP was not cosmetic. It restored sovereignty over economic decision making. Losing that would carry generational consequences.

A DEFINING MOMENT

This is not about punishment. It is about stewardship.

If new taxes are designed intelligently, transparently, and progressively, they can finance a transformation rather than a patch. The revenue must rebuild schools stronger, modernise agriculture, strengthen hospitals, and climate proof infrastructure.

The science is clear. Storm intensity is increasing. Melissa will not be the last severe shock Jamaica faces.

A hurricane budget, done right, can mark a shift from reactive recovery to proactive resilience. It can embed climate adaptation into fiscal architecture. It can deepen tax fairness. It can strengthen institutions rather than weaken them.

The pain will be real. But credibility preserved today lowers the cost of every future shock.

Jamaica stands at a narrow passage between resilience and regression. The decisions made in the 2026/27 Budget will determine which side it chooses.

- Janiel McEwan is an Economic Consultant. Email feedback to janielmcewan17@gmail.com and columns@gleanerjm.com