THE 2010-2011 budget presented along with the economic programme by Finance Minister Audley Shaw last Thursday seemed well planned, but is rather tight. On a whole, I found the programme challenging. It is clear that there is a tough time ahead for Jamaicans. Given the state of the economy, people should be prepared to live with it.

Government came up with a budget of $503 billion for the 2010/2011 financial year. It could settle for less by cutting the social programme and infrastructural work, but this would have political consequences. So it continues to do what governments have been doing for many, many years: borrow money to close the fiscal gap. It could have raised taxes, but the country is considered to be at its taxable limit, and only one tax – property tax – has been increased. So government has to borrow $176.3 billion to cover the fiscal deficit of 6.5 per cent while putting money aside for debt payment. The remaining $326.3 billion will come from revenues and grants, an increase of 8.5 per cent over the financial year 2009/10. Eighty eight per cent of this will be from taxes.

Beyond the raw figures, it is necessary to look at the conditions that, according to Shaw, created generations of people who are used to spending, but have no idea of creating wealth; entertained the view that wage increases have no bearing on productivity increases; laboured under mistaken belief that real wealth can be created as we continue to borrow more while recording annual declines in productivity growth; falsely assumed that we can have annual growth in the budget without a commensurate growth in output as a country – Gross Domestic Product against which, I may add, many critical areas are measured; ignored tax cheats, tax evaders and instead borrowed more and more money to finance the national budget.

An efficient and equitable tax collection system is vital to reduce the fiscal deficit – the difference between what government earns and spends – and reduce the burden of the national debt which has been getting out of hand. The deficit is expected to move downwards from 10.9 per cent of GDP in the last financial year to 6.5 per cent of GDP for the financial year 2010/2011 and a balanced budget in 2013/2014. This is a steep task and I would be surprised if the burdensome target is achieved unless there is taxation.The deficits really mean that we have been spending far more than we earn; that is to say, we are living beyond our means. We are well below the comfort zone which economists say should be between 3 per cent and 4 per cent of GDP as a small economy. The proposal to increase penalties under the GCT Act is inequitable to individuals, and government should have another look at it. For failure to apply for registration the penalty for individuals has increased from $5,000 to $100,000, while for a company the penalty remains at $10,000. For failure to file GCT returns, the penalty for individuals has been increased from $1,000 to $10,000 while for companies the penalty remains at $2,000.

High public debt servicing, high interest rate, unimpressive tax compliance and high spending have thwarted our forward movement to a strong economy, which in fact contracted in 2009 by an estimated 2.7 per cent, reflecting primarily weak external and domestic demand. The fall in external demand resulting from the global recession led to a significant reduction in exports. Falling real incomes, increased unemployment and reduced remittance flows led to weak domestic demand and lower consumption. As far as the public debt is concerned, at the end of March 2010 it stood at $1,434.8 billion, an increase of 19.5 per cent over the $1,200.3 billion recorded at the end of March 2009. As a percentage of GDP, total public debt at the end of March 2010 was 129.4 per cent, an increase of 115.7 per cent over March 2009. External debt stood at $676,055.4 million at the end of March 2010, the highest recorded to date. This represented an increase of 23.2 per cent, compared with a stock of $548,668.5 million at the end of March 2009.

Debt-servicing accounts for $240 billion or 47 per cent of the budget this year, but this has been significantly reduced compared to a share of 60 per cent last year. Yet because of shortfalls in taxes and other factors, the government has to continue to borrow heavily to carry out important national programmes, even when it cuts expenditure judiciously in certain areas. A master initiative to reduce interest on domestic debt was put into play last January when government introduced the Jamaica Debt Exchange. The JDX is both positive and progressive and is one of the most far-reaching financial measures introduced in Jamaica. There was 99.2 per cent participation in the JDX, far above what was expected.

I write this in spite of the fact that many pensioners, like myself, will suffer considerable reduction of interest on savings in financial institutions. In simple language, the JDX saved the government at least $40 billion in interest on domestic debt by exchanging existing high-cost debt for new instruments that have lower coupons and longer maturities. It brought the interest rate on government instruments down to 12.5 per cent on government instruments. The interest on Treasury Bills, for example, declined from 15.95 per cent and 16.80 per cent to market rates of 10.18 per cent on the three-month and 10.49 per cent on the six-month instruments, the lowest in 24 years. The general fall in interest rates should lead to increased production and employment. However, some financial institutions are offering between 6 per cent and 6.5 per cent to savers. I do not think this is equitable.

It seems to me that the government is on the right track, but I am looking forward to hear what Opposition finance spokesman, Dr Omar Davies, will say today.