Ralph Thomas, Guest Columnist
The annual Budget Debate in Jamaica has always been accompanied by an increased awareness of Jamaicans that something important is going on beyond what is sometimes cynically depicted as merely a housekeeping duty by the Government, as it proposes spending to meet the anticipated costs of running the country for another year.
In this case, it is a $545-billion Budget for 2011-2012. In the Budget exercise, the Government presents a spending plan followed by detailed measures to finance the spending by either additional taxation, or by some form of financing domestically or globally. All aspects of the Budget are usually carefully examined and critiqued by the parliamentary Opposition, whose duty it is to play a watchdog role in ensuring that the Government carries out its functions without egregious abuses of the awesome power to tax and spend vested in the minister of finance and, through him, the Government.
Drawing the most attention
Ironically, the spending plans may be of less interest to the average Jamaican unless he/she perceives that a Budget cut affects his/her employment or business directly. It is the financing side of the Budget that usually draws the most attention, as the entire nation waits with bated breath to hear the expected tax measures.
These measures directly affect the ability of their own households to pay bills, take care of family responsibilities, and cope with the difficulty of survival in the increasingly harsh economic environment that has resulted from 14 successive quarters of economic stagnation. The ensuing debate in Parliament provides a forum for political theatre and a chance to score points by both sides, even as representatives go about the serious business of complying with the established rules for getting parliamentary approval of the Budget, as required by the Constitution.
Recently in the United States, the Obama administration faced the possibility of a looming shutdown of the Government, as an impasse had been reached where neither the governing Democratic Party nor the opposing Republican Party could agree on critical elements of the budget. These differences resulted from both deeply philosophical divergence of opinion on the role of government and its spending. The divide was also influenced by the political expedience of ensuring that budgeted resources would continue to flow to various projects, regarded as pork barrel, affecting employment in key political districts across the country; and affecting the outcome of national elections expected next year.
Faced with this difficulty, the Americans, as they usually do, were pragmatic: both sides put the country first and made timely concessions to resolve the areas of disagreement, allowing the nation to continue on its economic course without the embarrassment of being unable to pay its bills in the short run. In this case, through negotiation, both parties won in what is commonly perceived as a win-win exercise. But it was more than that; it was a win-win-win exercise, where the country, as a whole, also came out a winner by demonstrating to the world the effectiveness of its democracy and political institutions and its ability to stay on course with both its short-term and long-term development plans to ensure the continued primacy of the United States of America in the global space. We seek this kind of outcome for Jamaica.
As we examine the Budget, we should ensure that there is rigorous examination of all areas of proposed expenditures in determining that such expenditures are absolutely necessary, while ensuring that the present Budget fits neatly into the three-year economic framework defined by the Planning Institute of Jamaica (PIOJ) as the medium-term framework (MTF) for development within overall guiding principles of the nation's Vision 2030 Plan, made up of seven such MTFs.
Even more critically, the Golding administration recently announced a Growth-Inducement Strategy (GIS) to jump-start the economy and establish economic growth of 3.7 to 5.2 per cent, a plan that can have some impact but has been criticised as being both unrealistic in expected outcomes and misdirected in emphasis. Nearly 90 per cent of the expenditures are projected to be spent on building infrastructure and roads to stimulate the mining and aggregates sector, expected to provide the raw materials and create economic activity, leading to GDP growth and employment. This plan and its spending component evident in the 2011-2012 Budget can either be perceived as necessary for growth, or just another barrel of 'pork' for the political machine to feed on as we approach a national election. You decide. Its greatest weakness is its inability to stimulate the productive sector or fully incentives the micro, small and medium enterprise sector.
The present Budget does not appear to be inconsistent with the objectives of the stated growth-inducement plan, as already heated debate is taking place in Parliament on the proposed expenditures in the capital budget of $8 billion for the Jamaica Development Infrastructure Programme (JDIP), essentially a road and infrastructure-development programme. This still leaves a further $6.5 billion of proposed GIS expenditure of $14.4 billion to be identified in the current budget.
Additional spending of $568 million on maintenance and construction of buildings for the finance ministry, and $700 million for computerising the revenue service, supports the Budget theme of stimulating the construction industry, while further tightening the tax squeeze constricting the economy. The PIOJ has indicated that the GIS is not the same as the first medium-term framework for development which forms part of the longer-term plan to grow the economy, so both plans (the GIS and the MTF) need to be reconciled to ensure that current short-term actions proposed in this year's Budget do not run counter to broader, long-term strategy to grow the economy on a sustained basis.
Harsh economic realities
The tabled Budget reflects some harsh economic realities, as the expenditures are basically flat. This is what one would expect when the country is confined by the rigours of an IMF plan that establishes conditionality on Budget expenditures and requires stringent efforts to balance the Budget to achieve a programmed narrowing of the fiscal deficit. This fiscal deficit is perceived to be hindering Jamaica's economic growth prospects. Expenditure for education and health care has been kept flat and a modest seven per cent increase provided for national security.
Because the financing side of the proposed Budget is yet to be disclosed, we are unable to evaluate the full implications of the current budget until the finance minister, Audley Shaw, begins his presentation on April 28 in Parliament. It would be premature, at this time, to characterise this budget as a tax-and-spend Budget until the other shoe drops, which is presentation of the Budget-financing plan.
However, the options are limited, as Jamaica needs to recognise that it has run out of debt capacity and should seek to reduce its debt burden of some $1.5 trillion, which in this Budget consumes $263.4 billion, or roughly half of expenditures; of which principal repayments are $132 billion and interest charges $131 billion; a further restructuring of which may be hinted at in this Budget. Since increased borrowing does not appear to be a desirable or feasible option, the tax hatchet seems to be poised to more skilfully carve out further resources from taxpayers, even if nominal tax rates appear to remain unchanged, which will act as a continuing brake on economic growth and provide increased economic challenges in the coming year.
Ralph S. Thomas is a senior teaching fellow and joint appointee of the Mona School of Business and the Department of Management Studies; UWI. He is a financial consultant and was a vice-president of the Bank of New York-Mellon. Email feedback to columns@gleanerjm.com [2] and ralphthomas003@yahoo.com [3].