Rudolph Brown/Chief Photographer
LEFT: Minister of Finance and the Public Service, Audley Shaw in his Budget speech on Thursday, April 10.
File
RIGHT: Customers converge on the Premier Plaza, St Andrew, office of Cash Plus Ltd, during this November 2007 file photo, in search of information about the operations of the popular investment club.

Don Robotham, Contributor

The rapid transformation of Cash Plus into cash minus is a very sad story, which has extremely serious implications for the Jamaican people. The issue here is not liquidity but solvency, combined with astonishing extravagance. Thousands of middle-class Jamaicans stand to lose their entire life savings. In a sense, it is a metaphor for the entire Jamaican economy and for Jamaican economic policy. The entire Jamaican economy is in a cash-minus state.

This crisis differs from the FINSAC one, in so far as, thanks to the firmness and prudence of the NCB management, it does not endanger the entire financial system. But it does endanger the life status of crucial strata of Jamaican society.

The economic destabilisation of the middle and working classes is fraught with the most dire consequences on the economic, social and political fronts. No one should be complacent about the serious personal and national consequences of such a crisis.

The persons who were so unwise to put their life savings in Cash Plus by and large are the bedrock of many of our social and political institutions. They are the teachers, nurses, civil servants, small-business people, churchgoers and political organisers without whom the society cannot function effectively.

By and large, they did not invest in Cash Plus out of greed. These were middle-class persons who, very foolishly to be sure, saw such an investment scheme as the way to pay off their mortgage, send their children through college and to augment their nonexistent or dismal pensions. From a social point of view, they are more innocent than many of those who were caught up in the FINSAC net.

For these and other reasons, the Cash Plus situation cannot, therefore, be ignored by the Government or anyone in Jamaican society.

Optimistic projections

The Cash Plus crisis is overshadowing the entire Budget Debate for which it has serious implications. In a sense, it raises the question as to whether this too is a cash-plus budget, based on overly optimistic projections of the kind we have come to expect from various Jamaican investment schemes.

For example, Finance Minister Audley Shaw projects a rate of inflation of between nine and 10 per cent, stating: "This outlook is based on an anticipated deceleration in the rate of increase in international commodity prices, relative stability in the foreign-exchange market, and recovery in domestic agriculture." This is said in the week in which global rice prices shot up over 30 per cent, in which oil remains firmly ensconced at over the US$100 per barrel point, and in which the International Monetary Fund claimed that the subprime crisis involved at least US$945 billion in losses.

Likewise, Mr. Shaw anticipates a GDP growth rate of about three per cent. But this is said in the very same week as STATIN reported a last-quarter decline in GDP of 1.3 per cent. Mr Shaw boasts about an improved projected budget deficit of 4.7 per cent. But in 2005-06, the Budget deficit was 3.3 per cent, the then government having promised to balance the Budget. In 2006-2007, the Budget deficit rose to 3.7 per cent, Dr Davies having projected a deficit of 2.5 per cent. In other words, the rule in Jamaica is, whatever optimistic projections made by the Government on budget deficits, add at least one per cent to it.

The borrowing for the coming financial year is projected at about US$185 million, which, quite apart from amortisation payments, as Shaw himself conceded, represents a net increase. The Government seems to be living in a Cash Plus world!

The main problem in the economic thinking of the Government is its refusal to make inflation reduction an absolute priority, hence, the complacency around the projected 10 per cent inflation rate. But the effects of inflation on the Jamaican people, especially those on fixed incomes, continues to be devastating.

Revenue streams to finance

This seems to be a government which thinks of expenditure first, then scrambles around to find revenue streams to finance it. It is true, that in its increases in taxation, the Government has been forced against its will to step back from the brink. The increase in tobacco and motor-vehicle taxes are a case in point.

For short-term political reasons, the Government was determined to honour its pre-election promise of free health care at all costs. The increase in the health budget, which then ensued, was about J$6 billion. When faced with the yawning hole in the budget, which they had created, the Government proceeded to impose new tobacco and car taxes which add up to J$5.2 billion. In other words, the people who may be relieved of hospital charges (plus many others who will not) will now pay increased tobacco and transportation charges instead - six of one, half a dozen of the other! Take from Peter and pay Paul.

A similar drama has unfolded over the reduction in transfer taxes and stamp duties. As he is wont to do, Mr. Shaw impulsively announced this very early after being sworn in. Alas, when this was costed, it was discovered that the finance minister had inadvertently blown a J$1.5 billion hole in his own budget. Spend first, then worry about financing later, seems to be the general approach.

This cash-plus approach raises other interesting questions of increasing inequality in Jamaican society. Indeed, the Government itself proclaims to be concerned with something called 'equity', a well-known weasel word. Equity is an evasive legal concept which refers to equality of opportunity as distinct from equality in outcomes. No social scientist has ever been able to measure it satisfactorily. On the other hand, we know what equality is and have various ways to measure it. Under the baneful influence of the World Bank and International Monetary Fund, we have not measured inequality in Jamaica in decades. We measure poverty, which is not the same thing. But intuitively and if you look at the debt-servicing data, it is clear that there have been substantial increases in inequality in Jamaica in the last 18 years.

The Cash Plus debacle will have the effect of increasing this inequality because it hits at the life savings not of the rich, but of the middle classes. The interesting thing about the Government's new tax measures in tobacco and cars is that it also falls largely on these very same social groups.

Trifecta

Further, the increase in the price of gas and food also bears down very heavily on these very same groups in the middle, lower-middle classes, working and small-farmer classes. The car-price increases without doubt will be passed on to the travelling public in general, through many different channels. In other words, middle, lower- middle and working-class Jamaicans are getting a triple lash here - a trifecta, as racing fans might say. There is no doubt in my mind that this will have extremely serious implications for both the Government and Jamaican society as a whole. The implications for increased social alienation, social chaos, indiscipline and crime are serious indeed.

The question is whether there are any real alternatives to this approach. I believe that there are. In the first place, the Government needs to return to the policy of placing the emphasis on curbing inflation and stop the flirtation with fiscal slackness. We have enough slackness in Jamaican society without anyone attempting to increase it. Second, if one is going to expand expenditure in an inflationary manner, then great care has to be taken that such expenditures yield growth in the future. Third, if one is going to increase taxation, then great care has to be taken with incidence. We have to try to avoid increasing the burden on already burdened groups in society. The Jamaican tax system with its flat tax structure is already highly regressive. Adding to the tax burden of the already overtaxed is not such a great idea.

Develop a sober critique

The Cash Plus crisis and the Budget Debate presents the Opposition and the country with an excellent opportunity to develop a sober critique of the new Government's policies. Above all, in addition to addressing the fundamental fiscal carelessness which underpins the new Budget, the PNP can use this opportunity to revive its social critique of the economy in terms of the likely increases in inequality which will follow. Of course, in so doing, they would have to be highly self-critical of their own past policies as well. Their record in the field of increasing inequalities in Jamaican society in the last 18 years is unsurpassed by any other previous regime.

Deep and self-critical thought is needed from that side in order for the PNP to make a useful contribution to the Budget Debate and the Cash Plus crisis. This is not a time for economistic nit-picking of the financial variety. The country needs a clear and sober vision of the real policy alternatives which exist.