FINANCE Minister Omar Davies yesterday eschewed new taxes for the current fiscal year, but said that he will borrow up to $153 billion to finance the Government’s spending and pledged to maintain the fiscal deficit to the promised four to five per cent of gross domestic product (GDP).

In fact, after last year’s tax package of over $14 billion, or nearly four per cent of GDP, Davies yesterday offered taxpayers two small offerings:

. a roll back, from June, of the 15 per cent general consumption tax (GCT) on health insZurance premiums, that was imposed last year; and

. the removal of duties and taxes on solar water heaters manufactured in the Caribbean Community (Caricom). Solar water heaters manufactured in third countries will face the common external tariff (CET).

He also announced an $80-million fund, to be managed by the EX-IM bank, for loans to the information and communications technology (ICT) sector, as well as a US$8.4-million facility by the bank for on-lending to exporters. The latter programme will be jointly managed by the Jamaica Exporters’ Association.

Davies did, however, warn that property taxes were insufficient to cover the cost of street lighting and solid waste management and would have to rise, but indicated that it would not happen this fiscal year. He promised to give the issue his “personal attention”. For now, property owners will pay what they paid last year.

Davies told health insurance providers, as well as a doctors and pharmacists, that the removal of GCT was not roaming space for inefficiency and the passing of costs to patients.

“Our decision to remove the GCT has a cost, as it implies diminishing revenues,” Davies said. “.The Government and the workers will be watching to see how these costs move and the justification provided.”

Borrowings apart – which will account for only 67 per cent of the Government’s debt servicing bill of $228 billion – the biggest contributor to the Government financing the $328-billion budget is the $155-billion to be raised from existing tax measures.

Tax collection is projected to rise 17 per cent, compared to last year’s growth of 27.4 per cent.

“We project to collect this based on improvements in our administration, as well as in terms of certain legislative amendments, to make the various tax collection machinery more efficient,” Davies said.

“Simply put, there will be no new taxes,” the finance minister added. “There is no tax package.”

But the absence of a tax package was not the only surprise served up by Davies yesterday.

He also announced that the Government had run a deficit of 5.8 per cent for the fiscal year just ended – 0.2 per cent within the outer limits the administration had set itself at the start of the year.

Late last year, the Government had told trade unions that on the present trajectory the deficit would be 10 per cent of GDP, but in recent months had been saying that the out-turn would be 6.9 per cent.

But while the Government has been priming people for the worst, it has been aggressively reining in expenditure, aided by growth projected at 2.2 per cent and the impact of inflation of 16.7 per cent.

“We have made the target of a deficit of five to six per cent of GDP,” Davies crowed. He repeated the Government’s intention to balance the budget by the end of the 2005/2006 fiscal year and run a surplus of up to one per cent of GDP in 2007.

His only deviation from macro-economic targets, Davies said, was inflation, which was initially projected at seven per cent. That was thrown off rails a year ago when there was a strong run against the Jamaican dollar, to which the central bank responded with a steep hike in interest rates. Rates have been trending downwards in recent months.

But for the high domestic interest rates, which jacked debt servicing cost $11 billion higher than projected, the Government’s expenditure last year would, in dollar terms, have been in line with projections and the deficit would have been 5.6 per cent of GDP, Davies said.

“There is a clear message for our creditors at home and abroad,” the finance minister added. “Judge us in terms of our performance and we expect that the reward will be lower interest rates, thus allowing us to dedicate more sums to address the social and economic needs of our people.”

With a debt-to-GDP ratio heading towards 150 per cent last year and the deficit out of whack, the rating agency, Standard and Poor’s downgraded Jamaica’s instruments, and foreign creditors turned skittish until December when the administration was able to raise US$150 million from Bank of Nova Scotia in Canada. Early this year, it raised another $250 million on the eurobond market.

Davies attributed the changing attitude to improved confidence in the economy, evidenced by the announcement of several major investment projects and new engaging attitudes by trade unions and younger private sector leaders.

“Their activities have changed the mood in the business community and facilitated interaction with Government and the trade union movement in ways which will redound to the national good,” he said.