Shaw on his budget ... Read my lips, no new taxes


Sunday, March 11, 2018

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In his Thursday afternoon budget speech, Finance Minister Audley Shaw, in his characteristically ebullient fashion, showed his audience the pink sheet with “No Revenue Measures” printed on the front, which for the past 14 years has instead typically contained details of extensive tax packages.

Foreshadowing the IMF press conference the next day, he noted that at the end of December 2017, the Government of Jamaica had successfully met all the quantitative performance criteria and indicative targets agreed with the International Monetary Fund (IMF) under the current Precautionary Stand-By Arrangement, and that the programme had now advanced to the point where IMF support is essentially an insurance policy as Jamaica has had no need to access IMF funds.

He added that the GOJ has also met all 14 structural benchmarks for public sector transformation, public bodies and public service reform under the IMF Stand-By Arrangement through endNovember 2017, including a compensation review and employee census for central government, new recruitment rules for the public sector, and a time-bound plan to reintegrate eligible public bodies into central government.

The new budget will cover the last full year under the Stand-by agreement with the IMF, and the government will continue to meet all commitments and targets for reducing the debt-to-GDP ratio, moderniSing the public sector, increasing the social safety net, and strengthening fiscal and monetary buffers of our economy.

As evidence of rising confidence, he quoted the Jamaica Chamber of Commerce Survey of Business and Consumer Confidence for the Fourth Quarter of 2017, noting that Business Confidence hit a high of 142.6 points, compared to 135.2 in the third quarter, and that the index of Business Expectations for the future hit 135 points — “the highest level ever recorded in the history of the surveys”.

A further sign of confidence was the reversal of the long trend of increasing dollarisation, as at the end of 2016, the percentage of deposits held in US dollars was 46 per cent and this fell to 42.5 per cent by the end of October 2017.

While observing that Jamaica saw its fifth consecutive year of growth in Fiscal Year 2017/18, estimated at 0.9 per cent, Shaw noted the rate was disappointing in the context of “record-breaking level of tourist arrivals; a construction boom; historically high job creation; a fast-growing stock market; positive business confidence; and the strongest economic buffers in decades”.

He reported that the PIOJ's analysis found the miss in growth is due mainly to the negative effects of unexpectedly high rainfall on agriculture and delays in restarting the production of bauxite and alumina, without which they estimate growth would have been between 2 per cent and 2.5 per cent.

Tax revenues are estimated to overperform by a minimum of $5 billion (Shaw thought it will end up being more), with, notably, PAYE also performing well, with revenues for the fiscal year to January 2018 of $47.8 billion compared with budgeted amount of $46.5 billion, despite the increase in the tax threshold for personal income taxes to $1.5 million.


Government interest rates are at the lowest levels in recent history, with the 180-day Treasury Bills at 3.6 per cent in February 2018, well below the 6.1 per cent recorded in February 2017.

In January 2018, we auctioned $23 billion in three-year Treasury Bills at an average yield of just 5.3 per cent. The Central Bank's key signal rate was cut four times during the past fiscal year from 3.75 per cent to the rate today of 2.75 per cent. The $5 billion reopening of the benchmark Investment Note due 2021 was almost five times oversubscribed with an average yield of 5.4 per cent.

Loans grew 16 per cent in 2017 following an expansion of 14.1 per cent in 2016, a second year of strong growth.

Importantly, he noted, private sector credit to GDP in Jamaica at 26.4 per cent in December 2017 was still way below the roughly 46 per cent for other Latin America and Caribbean countries, approximately 95 per cent for other middle income countries globally, and well over 100 per cent in the USA.

Not coincidentally, he argued, interest rates were still too high — with the Bank of Jamaica estimating weighted average lending rates at 15 per cent in the banking sector at the end of December 2017 — stating he will not rest until rates to the real sector are in the low single digits.


Borrowing for fiscal year 2018/19 amounts to $103.2 billion ($78.1 billion is domestic and $25.1 billion is external), representing a 48.4 per cent reduction in total loan receipts when compared with fiscal year 2017/18.

The lower borrowing (year-over-year) requirement reflects the significantly lower amortisation costs for fiscal year 2018/19 and the planned utilisation of existing cash resources.


The main macroeconomic assumptions upon which the fiscal year 2018/19 Budget was cast are real GDP growth of 2.4 per cent, continued low inflation and a competitive and flexible exchange rate. The passive forecasts for Revenue and grants and the Expenditure requirements for fiscal year 2018/19 generate a primary surplus of $141.1 billion, which will ensure the 7.0 per cent of GDP target.

Revenue and Grants for fiscal year 2018/19 are passively forecast at $590.6 billion, or 29.3 per cent of GDP, similar to the projected revenue and grants outturn of GDP for fiscal year 2017/18.

The forecast for fiscal year 2018/19 represents a 6.8 per cent increase over the projected outturn for fiscal year 2017/18.

Tax revenue is budgeted at $518.4 billion (25.7 per cent of GDP) and is expected to account for 87.8 per cent of total revenue and grants, compared with 88.8 per cent of the projected outturn for fiscal year 2017/18.

Non-tax revenue for fiscal year 2018/19 is projected to be $60.9 billion or 3.0 per cent of GDP. This represents a 14.0 per cent increase over the Revised Estimates for fiscal year 2017/18, which amounted to 2.8 per cent of GDP. These include receipts of $5.4 billion from the Customs administration fees; transfers of $12.7 billion from the de-earmarked entities: the CHASE Fund, the Tourism Enhancement Fund and Jamaica Civil Aviation Authority; and a special distribution of US$101.0 million from the PetroCaribe Development Fund.

Capital revenue is programmed to be $2.1 billion, a fall of 45.1 per cent relative to the projected inflows for fiscal year 2017/18, which had higher capital revenue associated with a one-time loan repayment by the Airports Authority of Jamaica during the fiscal year.

Grants are projected to total $9.1 billion, an increase of 101 per cent, including EU grant inflows of $3.6 billion ($1.4 billion is budgeted to support the Justice Sector Reform Programme while $2.3 billion represents the second tranche of EU “sugar” budget support receipts) .

Self-financed public bodies are expected to generate an estimated $344 billion in revenues for fiscal year 2017/18, transfer a net $45 billion to the Central Government in terms of financial distribution, taxes and other programme support, while making capital expenditures of $52 billion during fiscal year 2017/18.

Shaw emphasiaed the “absolute importance of reducing the high proportion of our economy that operates in the informal sector. It forces them to turn to lenders who charge exorbitant rates. It prevents them from forging business alliances. They cannot enter into formal supply contracts so they are excluded from the value chain with formal enterprises. They cannot export legally. This is an important reason for our stagnant productivity”.

He noted that during the period April to December 2017, a total of 15,106 new taxpayers were registered, some due to their compliance drive, and that the Government also plan to implement scanners with advanced technology in Customs at our various ports of entry to reduce revenue leakage. At the IMF press briefing the next day, he noted that other countries had experienced a 20 to 40 per cent increase in customs revenue from similar measures.

The largest allocation in the fiscal year 2018/19 budget to a single ministry was for the Ministry of Education, Youth and Information, around $101.6 billion, up from $98.9 billion in fiscal year 2017/18.

National security and the rule of law is among the main strategic priorities for fiscal year 2018/19, with an allocation to the Ministry of National Security of $78.5 billion, up from $63.6 billion in fiscal year 2017/18, or an increase of 23.4 per cent.


He noted that the Government has restructured their original wage offer, and entered into a four-year arrangement with several public sector unions which would provide an increase of 5.0 per cent in year 1, 2.0 per cent in year 2, 4.0 per cent in year 3, and 5.0 per cent in year 4 (not including annual performance increments of 2.5 per cent which almost every public sector employee gets) as part of the commitment to achieve a 9.0 per cent wage-to-GDP ratio by the end of fiscal year 2018/19.

In addition, instead of requiring public sector workers to contribute 2.5 per cent in year 1 and another 2.5 per cent in year 2 to get to the 5 per cent pension contribution, Government has allowed a 1.0 per cent per year for 5 years to ease the burden of this contribution.

Shaw added that the increase in the threshold to $1.5 million resulted in an average of 7.6 per cent more in net pay for the health care sector, an average of 8.0 per cent more in net pay for the police, an average 10 per cent more in net pay for the teachers, and an average of 14 per cent more in net pay for monthly paid civil servants.

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