No return to failed policies of the past


No return to failed policies of the past

Friday, March 29, 2019

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On Monday, the Caribbean Policy Research Institute (CaPRI) continued its tradition of making the budget understandable to people without advanced degrees in public finance.

The budget continues Jamaica's shared commitment to fiscal responsibility to bring down the debt. Finance Minister Dr Nigel Clarke presented another balanced budget and, as such, CaPRI Executive Director Dr Damien King was very clear in dispelling any notion that it was a stimulus budget.

There was basic agreement that as our high debt comes down Jamaica has to spend less and less on debt service. However, we are not out of the woods, since debt service and public sector wages still take the largest bite out of the budget. The important thing is that the bite is getting smaller each year, so the debate has evolved from which taxes will be increased to what to do with the money left over after debt service and wages have been paid.

The Opposition wanted the extra cash to be used mainly to cut the GCT and the tax on gasoline to ease up low-income consumers. Dr Clarke, however, used a good portion of the extra fiscal space to cut taxes to make it easier and cheaper to do business.

This could be the single most important initiative since independence to welcome informal businesses into the formal sector, make it possible for low-income earners to afford a home, and create incentives to build more homes at all levels.

The crux of the Opposition's argument is that the budget was mostly for the rich because it made it easier for property owners to do deals but did not lower the cost of transport or cut the price of basic purchases by lowering GCT. Dr King also confirmed that the tax cuts will increase the wealth of all property owners and cautioned us to keep our eyes on this since Jamaica has “…large historical disparities in wealth, much of which is based on the ownership of property…”

It is clear that high levels of economic growth will remain out of reach until Jamaica improves the distribution of income. Growth must include all sectors, especially micro and small businesses that are the backbone of our economy. There can be no stable growth path that leaves masses of young people unattached and underpaid.

We want higher incomes, but they can only be supported by higher productivity. Our productivity has been flat or falling for almost four decades. As such, we agree with the Government's focus on improving productive infrastructure and making it easier for everyone to do business and invest. However, it is also a fact that social spending has not been increased, so we applaud the Opposition's call for more spending on education.

Jamaica has fought long and hard to bring the debt down from 147 per cent of GDP to less than 100 per cent. The intense fiscal effort made it necessary for successive governments to delay spending on productive infrastructure and social services; and it slowed economic growth. Now that we are starting to reap the rewards of that massive effort we cannot return to the failed policies of the past.

Dr King correctly debunked the days when we thought spending more than we earned could boost growth, redistribute income and improve living standards. That madness took us to the brink of disaster.

Finally, Dr King made a comment that was probably overlooked by most. He reminded us that when inflation goes up, the poor get hit hard. In the same way, when we bring inflation down, the poor get a break.

“So, the bringing down of inflation to low single digits itself is a kind of social programme,” he said.

This is a huge point that is generally not understood.

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