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Stabroek News

Budgeting for a miracle
published: Sunday | April 29, 2007

Each year, Dr. Omar Davies, Minister of Finance, is asked to perform a miracle, and we are partly sympathetic to the pressure of such high demands. In the back of the minister's mind, perhaps he thinks jealously of that most famous act of budgeting - on a mountain some 2000 years ago, five fish and two barley loaves divided and distributed among a multitude, each man getting his bellyful's worth.

Davies' task this year was to break up $383 billion - a lot more, it would seem, than a few escoveitch fish and a couple loaves, but his multitude is itself also much larger. Kneeling before Davies is a population of almost three million people, and all kinds of multimillion-dollar national programmes and agendas. Also, Jesus didn't have to contend with a further complication of over half of his meagre resources (three fish and one of the loaves) being earmarked for debt servicing.

Two hundred and ten billion dollars is a big piece of pie to say goodbye to, and some of the researchers in the Jamaican Economy Project have long suggested, and continue to do so, that money might need to be 'freed up' from this allocation and injected into an economy in desperate need of stimulation and growth. While there is good sense in managing our debt, there is less sense if it is tied to an economic strategy that is content only to 'cope', and even then, barely so. It is the long term that concerns us at the JEP, and it takes little to see that the accruement of a slow year-by-year slip will eventually place Jamaica at the bottom of the pit rather than at the top of the mountain.

Moments of foresight

Still, in looking at this year's budget, JEP is not completely displeased. We do see moments of foresight though we believe more could be done. We asked four of our researchers in the respective fields of Education, Public Sector Capacity, Social Welfare and Economics to comment on aspects of this year's budget.

Janine Knight, our education expert, is particularly pleased with the minister's proposal to consolidate statutory payroll deductions - that is to say, NIS, NHT, etc., would no longer be separate deduction but collected under one fund, and conceivably more/less could be allocated to one particular sector based on national priorities. This would follow on what happened in 2006 where $5 billion not spent by NHS was transferred to the Ministry of Education. This, of course, was a one-off payment and fuelled a good deal of controversy and debate. The new proposal, however, seems like it would be an official ministry policy. "I believe that with good lobbying, it will be clear that our national priority for this year and beyond must be improving educational quality," Knight states.

Still, there are areas that concern Knight: The Students' Loan Bureau interest rate is still not in single digits. It's current 12 per cent level does admittedly represent a reduction, but one that doesn't go far enough. Government loans for students should not be an income-generating endeavour. Interest rates for such loans should be in line with projected inflation. The minister states that inflation for 2006-2007 was 6.6 per cent and is set to be seven per cent and six per cent respectively for the next two years. An interest rate of seven per cent for SLB loans is acceptable and will help in improving access.

The Government continues to be short-sighted in wholesale absorption of 80 per cent of tertiary funding. Many individuals do not need so much. Some need much less, while others need more. Eliminating this blanket 80 per cent and basing what students contribute based on what they are ABLE to contribute will free up resources to be transferred to basic education eliminating the tertiary subsidy will be controversial in the short term, transferring more resources into other educational sectors will be much appreciated and the returns for the future highly visible in terms of increased quality.

Finally, while the budget seems to have some focus on access, there is little corresponding focus on quality. Our biggest problem is not that students don't attend school, but rather that they do not stay in school. Retention must become a focus, particular in the latter years of primary school and the early years of secondary training.

Our public sector expert, Indianna Minto, notes how the budget demonstrates a difficulty in providing the right incentives to public sector workers in a cash-strapped economy. The Government, she believes, is potentially sending mixed messages to its partners (i.e., public sector and unions) about its seriousness in sticking to a budget when it remains both famous and impenitent for going against its own agreements, giving increases where it didn't plan to. Where does this money come from, and at what costs does it come? We need to be told. For that matter we also note - as others have - the absence of major expenditures, such as Cricket World Cup, from last year or this year's budget. Where exactly did that money come from? Again, what was sacrificed, and why are we not told?


Minto is, however, as pleased as Knight about the consolidation of payroll deductions. Tax collection is essential to the Government's ability to finance the budget, and efficiency in the collection system remains an area in need of improvement. Consolidating payroll deductions is therefore a positive move; it will allow for more smoother collection, at the same time reducing the costs and time for employers in paying over taxes, and also the costs to government collection agencies.

The Government needs, however, to be more inventive in finding ways to bring others into this formal economy. Our Government is in constant need of more revenue. Priority should be placed in trying to increase their income from taxes, not by raising said taxes, but by getting more people to pay them. We don't imagine or pretend that this would be an easy task, but it is a necessary one if the Government is to increase its income and also if it is to bring more of the needy into a social safety net.

The Memorandum of Understanding is another positive move. Similar strategies have been tried in Ireland and Barbados with great success. With recent calls from the private sector to have open dialogue with the Government about the country's future, this move seems to suggest a healthy willingness on the Government's part to do just that.

Indeed, work must continue towards a more collaborative governance model.

Social development

Our social development expert, Kim-Marie Spence, is a little more cautious of the proposed consolidated tax. The Government, she believes, has not acknowledged the reason for the resentment people have to paying taxes - i.e., they want their taxes to do what it was collected for. This need to have citizens believe in and understand the value of the taxes they pay is not a frivolous one, nor an issue the Government should continue to ignore. Perhaps a public relations strategy should have earned a bigger slice of the budget pie, as such a campaign might lead to greater tax compliance and thereby reap its own rewards. For now, Spence would like to know - how will the proposed prioritisation be defined and implemented? What is the long-term plan for the viability of the institutions funded through this tax?

Spence also notes with dismay the Government's continued reliance on rhetoric that is at some distance from actual policy. Certainly, by word and sound, this year's budget reflects some of the influence of the charismatic new prime minister; Omar Davies has always referred to the social sector and prioritised the small man, but never to such an extent.

The importance of the participation of small domestic entrepreneurs is emphasised. There is a need to address the non-economic aspects of the difficulties of entrepreneurship. There are community-based problems, but the only agency addressing the community is the Social Development Commission.

There is continued inattention to the social development sector, except the financial ends of that, such as the People's Bank and the JBDC. For instance, while the CDA was lauded for its work, other aspects of that sector require financial support - namely, the Office of the Children's Advocate.

Spence does, however, laud the Government for moves such as the new category of catastrophe insurance. This seems especially wise for social stability following disasters, especially in this time when we can expect more natural disasters due to increased global climate changes. We would welcome more detail on the requisite distribution mechanism of the payout from this facility.

The environmental levy also seems like a useful source of income. However, the tax as applied seems somewhat of a misnomer - is the tax levied to make up for the air-miles/ship-miles of the particular good?

Economic Growth

Keith Collister, our economic expert, highlights the need for growth, not balance. He states that the underlying reason why we find it difficult to meet our fiscal targets is our very low growth rate which, at 2.5 per cent was not only once again below our official target but, more importantly, less than half last year's estimate for the rate of growth for Latin America and nearly six per cent below the IMF estimate of 8.3 per cent for CARICOM and Dominican Republic.

Collister is convinced that our goal should be to more than double the national income over a 10-year period and, over the same period, increase by more than 50 per cent the number of jobs in Jamaica. This increase in jobs would be achieved primarily through creating the conditions for the rapid entrepreneurial expansion of the small and medium sized local business sector - not as 'entrepreneurs of necessity' because of their inability to find a job, but as opportunity-based entrepreneurs taking risk as a conscious choice to create new industries.

The widest possible cross-section of the business community - not just the leading firms - and, indeed, the wider society should be involved in the creation of this vision. The mechanism for this consultative approach already exists in the Partnership for Progress initiative.

Our conclusion of this year's budget is an echo of our feeling on the economy as a whole. It is neither exciting nor profoundly disappointing. It is a middling budget for a middling economy. The Government shows some foresight, but not enough - as if we see clearly, but only through one eye - as if depth perception is what we lack. In this day and age, Davies is probably quite right not to try and budget for the miraculous, but the budget in staying the beaten, worn-out course, also lacks the adventurous, and the Jamaican Economy Project feels that is an ingredient we still might need.

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