In the wake of this global financial crisis, many economies all around the world found that their engines had suddenly stalled. The various governments, which have been in the driving seats, have had to now look carefully and responsibly at the mechanics of their economies and think of ways to jump-start them again. In the last days of his presidency, George Bush tried to push through an ambitious stimulus package which would inject a whopping US$800 billion into the economy. That figure and how exactly it is to be apportioned and spent is still the centre of much debate in the US.

Here in Jamaica, Bruce Golding announced his own stimulus package on December 14, 2008. As compared to the United States, Jamaica's stimulus package necessarily represents a much smaller monetary value - Jamaica being a significantly smaller country with fewer resources to draw on. What we find a little unfortunate at CaPRI (Caribbean Policy Research Institute) is that it has also generated much smaller debate. The stimulus package is one that should be analysed closely and contested vigorously so that in the end we might feel the money is being spent in the best possible way.

Jamaica's stimulus package has not just been in the form of an injection of capital into various sectors of the economy, it has also come in the form of tax breaks - i.e. in some cases the Government has forgone potential income as a way to offer relief to various citizens. The Government announced 15 initiatives.

We wanted to provide the costs for all 15 initiatives, but only managed to get initial estimates for six of these. Of the remaining nine initiatives, four were loan packages and we were reliably informed that there is only a minimal cost associated with providing these. The other five initiatives could not be estimated due to the unavailability of data.

We arrived at our estimates from a number of sources, including the ministry's own documents, estimates from other officials; and data from previous budgets. We must reiterate that these are only initial figures.

Costing results

Our own estimates suggest that the Government will be spending and/or forgoing at least J$4.6 billion over a one-year period and this works out to be about 0.59 per cent of gross domestic product (GDP).

We compared our estimates to those produced by the Ministry of Finance and the Public Service and found a significant difference. Based on the press release from the ministry, approximately J$863 million would have been forgone in tax revenue over the remainder of the 2008/09 fiscal year. If we assume that these estimates will increase by the same amount for each quarter (by multiplying by four), then those initiatives for which the ministry provided estimates would amount to only $2,252 million over a one-year period. We see then that our one-year estimate for a few initiatives is already twice the size of the ministry's estimate.

Alternatives

Having now estimated at least a portion of the money the Government is willing to spend or forgo in order to stimulate our economy, it is useful to think of alternative uses of this money. This comparison is simply to give us an idea of what J$4 billion could translate to, what other things might the Government have accomplished with this money, and so determine if this money is being put to its best use. For instance, J$4 billion is equivalent to paying the annual salary for more than 2,000 more policemen. Alternatively, J$4 billion would educate over 279,000 pupils at the early-childhood level.

So, now we have an idea of the minimum cost of the stimulus package and possible choices that were forgone in order to provide these initiatives largely for the business community. In the next article in the series, we will turn our attention to this business community which is supposed to be the chief beneficiary of this stimulus package and we will look at what it thinks about the effectiveness of the package.

The Caribbean Policy Research Institute (CaPRI) is an independent think tank affiliated to the UWI, Mona. CaPRI welcomes all comments and suggestions. Please contact us at info@capricaribbean.org or by phone at 970-2910 or 970-3447.

Stimuluspackage costings

CaPRI's estimates of annual tax revenue to be forgone for six stimulus initiatives:

Increase tourism advertising and marketing - $265m

Increasing the income tax threshold to $220,272 - $575m

Abolish tax on dividends by locally owned companies -$130m

Increase GCT threshold from $1 million to $3 million - $773m

Removal of customs user fees from capital goods and ... - $2,507m

Reduction in GCT in the tourism sector from 8.25 per cent to ... - $303m