Tax breaks kick in this month

“Look for savings vehicles, set up a little nest egg,” said Minister of Trade and Industry Ken Valley when asked what advice he would give to people benefiting from the tax breaks announced in the 2006 Budget last September. With free tertiary education to take effect this year, he said people no longer had to save for  university tuition fees. “Put aside funds for retirement, illness,” Valley suggested. While there has been concern about the Government’s role in advising the public, Valley said the new thinking in economics was that people are rational beings who could make their own decisions regarding their finances. He said it was up to financial institutions to provide options to the public on how to invest their additional income.

From this month, several tax amendments announced in the 2006 Budget will take effect. Taxes have been eliminated for workers falling in the monthly salary range of $5,000 and less. The personal allowance has also been increased from $25,000 to $60,000, and a flat personal income tax rate of 25 percent will be applicable to all income levels. With the increase in personal allowance, the $40,000 personal allowance claimed by people over 60 has been removed, as well as the $10,000 deduction for first time homeowners (on or after January 1) and the $18,000 deduction for mortgage interest payments. Valley said the $18,000 for mortgage interest was used for student fees, but this deduction was removed due to the increase in personal allowance. He said families with children studying in the United States can still pay up to $18,000 as a deduction.

Increased inflation spurred by higher food prices has caused concern that with more money circulating, inflation could spiral out of control. Valley said the Government shared the concern about inflation and admitted that with people having more money at their disposal there could be a “pull on inflation.” Valley reiterated, “My advice is to save and invest more.” Asked about the status of the proposal for reduced import taxes on certain food items (meat, milk, peas and other items) which was announced in the Budget, Valley said he expected a decision next week when Caricom’s Council of Trade and Economic Development meets. He told Newsday that the Government had received word and the issue has gone back to Caricom. “They were saying that cost of living is not a reason for reduction of goods under the Caricom guidelines.” He said the Government had argued that cost of living was impacted by a reduction of supply of goods within Caricom due to floods and hurricanes.