'Trickle down' disguised as 'bubble up'?

mani Duncan-Price

Monday, March 25, 2019

Print this page Email A Friend!

As I watched the close of the budget debate on Wednesday, March 20, 2019 I came to the conclusion that the minister of finance, Dr Nigel Clarke, seems to neither understand the structure of the Jamaican economy nor the daily struggles of the Jamaican people to survive in this economy.

I know that Nigel, like all of us, wants Jamaica to grow. However, as he put full energy into telling the country that the measures being pursued by the Jamaica Labour Party (JLP) Government would “bubble up” the economy, I had to wonder at the disconnect. I fail to see how the country can be “bubbling up” when Nigel himself projects only 1.5 per cent growth.

Here's the reality:

1. Forty-one per cent of the economy is informal. That means that most of them don't even deal with formal banks or pay taxes (except maybe General Consumption Tax [GCT]).

2. Approximately 700,000 Jamaicans earn at or just above the national minimum wage — that's $7,000 or just above per week. After covering the cost of housing, food and transport, what do you have left?

3. More than half the children who attend primary and secondary school are on the Programme of Advancement Through Health and Education (PATH).

4. Another 474,450 Jamaicans are neither working, nor looking for work. They have just dropped out, seeming to have lost all hope.

5. Seventy-five per cent of graduates of The University of the West Indies earn less than $100,000 per month. That's above minimum wage, for sure, but after the significant investments that they and their families have made in their education, the prospects for starting life are just rough.

So when the minister of finance boasts that he is building an “an economy that works for all”, you have to understand why I am confused.

The majority of the $14-billion tax giveback ($12 billion of it) is focused primarily on businesses and people working in the formal sector. The givebacks are based on the:

• elimination of ad valorem stamp duty on financing security documents and property transfer;

• reduction of transfer tax on transfers of real estate, shares and other securities; and

• removal of asset taxes on certain companies.

Now, I am happy for all those who will benefit, those with real estate and those who have the means to buy real estate and those who trade and buy in large volumes. However, I believe that this just reflects the philosophy and approach to growth of the Jamaica Labour Party (JLP) Government.

With that approach, close to 1.6 million adult Jamaicans and their children get no real benefit. And I'm not counting the teachers, police, nurses, and others who are solidly middle class — they benefit very little in this budget as well.

These measures will likely lead to a pop in the top 15 per cent of the country (upper class and upper middle class primarily). Then potentially you may have a trickle down if employers in households and businesses choose to increase the salaries for helpers, drivers, clerical staff, and other workers. But, given their low starting base, that's hardly the basis for a “bubbling up”.

Options to impact all

A real ground-up, inclusive approach, as was being advocated by Dr Peter Phillips and Mark Golding in the 2019/20 budget debate, would mean freeing up dollars in the pockets of the majority and boosting revenues for businesses of all sizes to drive the economy. Remember, private consumption drives 80 per cent of Jamaica's gross domestic product (GDP).

Reducing GCT by two per cent would have put $16 billion in the hands of all Jamaicans. Or the JLP Government could have reduced the gas tax by the $14 billion and have that flow through the economy. Or they could have pursued a mix, reducing GCT by one per cent and reducing transfer tax by a smaller quantum. There are ways to work the maths to benefit all and be fiscally prudent if your mindset is so oriented.

A real challenge for SMEs

Micro and small business growth is the driver of inclusive and sustainable growth for Jamaica. However, Minister Clarke's budget misses the point that has hamstrung Jamaica for decades. In formal terms, it's called “credit transmission”, that is money is not reaching where it needs to go. Successive governments keep increasing the pool of funds available to small businesses but because the majority of those enterprises are informal, the flow through and impact has been limited.

Data indicate that for the period 2003-12 only 16.6 per cent of Development Bank of Jamaica non-Government of Jamaica loans went to the informal sector, and for formal banks it was only four per cent of their disbursement. Jamaica's economic performance since then indicates that it has likely not improved significantly.

Until there's a real understanding of how to resolve those constraints, more allocation of funding is not likely to yield any “bubbling” — no matter how enthusiastically the minister says it.

I must, however, thank Minister Clarke for helping to show Jamaica the difference between the People's National Party (PNP) and the JLP. The Government had the opportunity to take the advice and focus on measures to provide real impact for all Jamaicans. Instead, it stuck to the priorities with incentives mainly to the owners of capital and wealth. The JLP chose prosperity for a few over prosperity for all.

Imani Duncan-Price is chief of staff for the leader of the Opposition, a World Economic Forum Young Global Leader, Eisenhower Fellow, former senator, and former People's National Party candidate for St Andrew East Rural. Send comments to the Observer or fullticipation@gmail.com.

Now you can read the Jamaica Observer ePaper anytime, anywhere. The Jamaica Observer ePaper is available to you at home or at work, and is the same edition as the printed copy available at http://bit.ly/epaperlive




1. We welcome reader comments on the top stories of the day. Some comments may be republished on the website or in the newspaper � email addresses will not be published.

2. Please understand that comments are moderated and it is not always possible to publish all that have been submitted. We will, however, try to publish comments that are representative of all received.

3. We ask that comments are civil and free of libellous or hateful material. Also please stick to the topic under discussion.

4. Please do not write in block capitals since this makes your comment hard to read.

5. Please don't use the comments to advertise. However, our advertising department can be more than accommodating if emailed: advertising@jamaicaobserver.com.

6. If readers wish to report offensive comments, suggest a correction or share a story then please email: community@jamaicaobserver.com.

7. Lastly, read our Terms and Conditions and Privacy Policy

comments powered by Disqus



Today's Cartoon

Click image to view full size editorial cartoon