The budgetary priority of debt reduction


Saturday, June 02, 2012    

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The budget debate is now in full swing as the country grapples to come to terms with the economic viability of Jamaica. Already Dr Phillips's presentation has evoked strong reactions from almost every sector on which new taxes have been imposed. This is understandable, for taxation is an index of burden and every sector that is taxed is going to think that an unnecessary burden is being visited upon it. Given the parlous state of our economy, characterised by an unsustainable debt burden, there is very little room that any government has to manoeuvre in.

The former JLP government had warned of "bitter medicine" to come during the election campaign. The present government has woken up to the reality that it has no choice but to apply this bitter medicine so that the "patient" can begin the long, arduous and painful road to recovery.

With our debt being 128 per cent of GDP, we can no longer think that we can borrow our way out of our dilemma. This was never an option in the first place, especially since most doors are closed to us, and if open, could see us borrowing at horrendously high interest rates. We have to look to ourselves to solve our own problems. Gone are the days of empty rhetoric or self-congratulation at our ability to borrow, especially since we do so at very low interest rates. The refreshing thing is that Dr Peter Phillips recognises that we are indeed in a huge crisis of debt, an acknowledgment that we hardly get from our politicians who would rather give people soothing palliatives than the unpalatable truth which alone can set us on the right course. This, of course, is as true of our personal lives as it is of the nation. It is only as we wake up to the harsh truth of our dysfunction and impairment that we can begin the painful process of change that leads to healing. Not a moment before.

Jamaica's moment of truth came a long time ago, but we have pussyfooted around investing our trust in political messiahs to take us to a dubious promised land. Externally, we have looked to other people's hard savings to bail us out in a time of need. The time has come for us to face ourselves and the consequences of our political and economic folly over the years and move in a new direction.

It is in keeping with this new direction of restraining our appetite for debt that the minister of finance has announced a raft of tax measures to plug the hole in the 2012/13 budget year. No sector that has come under the tax whip will ever be satisfied that they are getting fewer strokes than another sector. Hence the loud howls we are hearing. The howling becomes more palpable in a time of recession when every sector is under strain and some barely surviving at the margins at which they have to operate.

But as the minister rightly pointed out, we either find the revenue by sacrificing among ourselves or we borrow the funds. In the long run a highly unsustainable debt burden hurts everyone. Those who are arguing for deficit spending (a euphemism for debt) to continue, or for a stimulus package, are whistling in the dark. Their commitment is to the Keynesian dogma of stimulus spending in the time of a recession. What Keynes' supporters are not always mindful of is the notion that his theoretical orientation regarding deficit (stimulus) spending never lent itself to an orthodoxy that this ought to be the approach at all times when these events occur. You have to take into consideration the situation on the ground in a particular environment at a given time, like we have in Jamaica. Dr Phillips and his government, in light of the high debt burden, have chosen to err on the side of not further running up the debt. I believe this is a correct position. It is a position that is still lost to Keynesian purists.

Another point to be made is that we seldom make judicious use of borrowed money. We have $1.6 trillion worth of debt and yet every crucial social and economic infrastructure in the country is under siege. Do we have the absorptive capacity to handle effectively another debt burden of $20 or $50 billion. One can rest assured that if we had borrowed $25 billion to support a stimulus package, the money would quickly be sucked up in a vortex of waste, mismanagement and corruption. At the end of the day we would have very little to show for it except a higher debt burden. Take a cursory look at the overruns in every major project that we have done in this country and you will get a good idea of what I am talking about. What has become of the unfinished and still to be executed projects under JDIP? While you try to answer this question, bear in mind that most of the money for JDIP has been spent.

Robustly tackling our debt is itself a paradigm shift in our thinking as a people. The minister of finance and his government ought to be commended for not just talking about our need to reduce it, but by ensuring through policy that this is the path on which the nation is set. Any government that is resolute and determined to chip away at our horrendous debt will get the support of this writer. As one of the most indebted countries in the world, we ought to be ashamed of ourselves when we consider our appetite for debt against the background of the natural resources with which we have been blessed, and the legendary resilience and good sense of the Jamaican people. To rein in this appetite, Dr Phillips, is not something for which you ought to apologise.





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