Finance Minister Dr. Omar Davies addresses Parliament in May. Davies's projected 4.5 per cent deficit for 2007-2008 is creating confusion. - File

Even investment bank Bear Stearns appears confused about the 4.5 per cent deficit projected for 2007-2008.

Describing it as high, they state in their last Central American and Caribbean Monthly Report of May 3 that "it is either an election year budget or an attempt by the Ministry of Finance to make sure that the target is met this year (having missed the target in four of the last five years)."

There is reason for this confusion.

True budget deficit

In his speech, Finance Minister Dr. Omar Davies argued that the true budget deficit for this year is actually 2.5 per cent of GDP, and he did not raise the tax threshold, otherwise the projected deficit would have been at least $5 billion higher through foregone income tax.

On this basis, Davies said this year's budget was not an election budget.

There appears, however, to be a 'conspiracy of silence' with respect to the 40 per cent increase in the wage bill to $89 billion over the two fiscal years to March 2008.

This was approximately double the 20 per cent increase signalled in the second public sector Memorandum of Understanding negotiations, and up to now, no reason has been given for this overshoot.

Faster growth

Moreover, the International Monetary Fund projects much faster growth in debt (to significantly over one J$1 trillion) than the projected central government deficit, with the increase in projected PetroCaribe debt alone equivalent to last year's after-the-fact accounting.

A suspicious person would therefore argue that it clearly is an election budget.

keithcollister@cwjamaica.com