FOR the past 12 years, since returning to Jamaica, I have been a member of the PSOJ economic policy committee, a member and then chairman of the Jamaica Chamber of Commerce Economic Affairs and Taxation Committee — succeeding my father who had chaired it for several decades. I have reviewed 12 government budgets, served on numerous committees, been part of both the Partnership for Progress and the Partnership for Transformation, and represented the private sector on any number of other committees. I have also met literally hundreds of representatives of the multilaterals, the rating agencies, international investment banks, and many others, all asking about the Jamaican economy.

I mention all of this to note that it is my view that before this is all over, the current “special” period which we are now in will be much worse than even the very difficult period of 2003 and 2009 (both of which were also absolutely predictable), and may ultimately rival other even more difficult periods in Jamaican history. The combination of the great recession, Jamaica’s high indebtedness, our extraordinary high level of vulnerability even before the 2007 election, not the least of which is our almost total dependence on oil for energy, lack of industry and a number of social issues (crime, violence and attitudes generally) means that Jamaica will require the highest quality of leadership over the next five years to just maintain living standards, never mind improve them. Indeed, living standards for everybody are certain to fall over the next three years for reasons that we will go into briefly. The extraordinary problems in the world economy means that we will not be alone, but that we started from a much weaker starting point, having experienced nothing of the catch-up phenomenon with the advanced countries that other developing countries, not least China, have experienced over the period.

Without creating an enabling environment for faster economic growth, the planned fiscal austerity cannot work. Fiscal adjustment (whether achieved by a reduction in spending or an increase in revenue) is necessary when your banker wants to know how you are going to pay him back. However, even the man on the street knows very well that cutting your household expenses to pay your lender back at a faster rate only works if you have a job. The sharp fiscal contractions that have worked, such as Ireland’s in 1987 (not so much now, although they have done better than the other PIGS of Portugal, Italy, Greece and Spain), have all worked because exports filled the demand gap created by the domestic expansion. In short, successful fiscal contraction in a small open economy is only possible when a country manages to achieve major improvements in its competitiveness and thus exports to offset the reduction in demand.

In the case of Ireland, although there are many other examples, at the same time as they were cutting back on expenditure, they were attracting new industries including international financial services, information technology and pharmaceuticals to name but a few.

In the first instance, the tax strategy as outlined in the Budget will achieve the exact opposite effect. The gateway business into international financial services is typically company registration, such as seen with Chinese-based companies in the British Virgin Islands. Jamaica plans to impose a $60,000 tax on local registered companies when what we should be doing instead is encourage more company formation, particularly by overseas- based Jamaicans to give any meaning to our claims about wanting the diaspora to make more of a contribution. We also need more, not less businesses to register, and thereby become formalised and pay tax. Instead of encouraging business registration (and thereby access to capital), in an environment where most small businesses are already under massive pressure operating with very slim or non-existent margins, this cannot be a good idea. The asset tax is also a bad idea, as it will ultimately sharply reduce financial activity in Jamaica, and will immediately hurt the securities dealers. It may indeed be possible for the financial sector to pay more tax, but every effort should be made to base this on ability to pay and the need to minimise the overall negative impact.

For more than a decade, successive governments have seen the business process outsourcing industry in Jamaica as able to provide potentially tens of thousands of jobs, so it would be beyond a shame if the additional tax of US 7.5 cents made this industry uncompetitive.

Finally, the enormous increase in taxation on the tourism sector cannot be a part of a growth strategy of any sort. In a recent speech, the former German Ambassador, Volker Schegel, noted that Singapore, with a fraction of Jamaica’s land mass and no wonderful beaches and waterfalls, managed to attract several times Jamaica’s number of visitors. In 2010, Singapore attracted just short of 12 million visitors, excluding those from nearby Malaysia. Some of Singapore’s visitors were for health tourism, which has huge untapped potential in Jamaica. In Thailand, one hospital is responsible for US — $600 million in foreign exchange earnings, and is essentially a high-class hotel, with a medical facility attached. The proposed US $12 room tax per night, on top of an already high 10% GCT (relative to most of the region) could destroy the economics of an industry we are only just starting to create, in

a particularly difficult international environment.

In the end it comes down to prioritisation, and how much weight you give to fiscal discipline, growth and competitiveness, and social protection. If you take a very short-term view, say three to six months, you may believe that the correct strategy to achieve an extremely difficult fiscal consolidation is to go after those industries which you believe have the ability to pay, in the hope of achieving some level of social protection. If however, you thereby reduce either your foreign exchange earnings or foreign direct investment, in a country with a mammoth current account deficit of 12 per cent of GDP, then even in the short run you could see pressure on the currency, making any social protection achieved totally illusory. It only gets worse in the medium term, as the job losses in the productive private sector quickly outweigh any jobs you may think you are saving in the public sector.

All of this means that a honest conversation between the social partners (government, private sector and unions) on how to achieve a partnership for growth, with as much emphasis on equity and social protection as we can afford, is well overdue. The hour is late, the conversation needs to begin immediately, as this year will be one of a never- ending budget process and difficult choices. The sooner we start, the better chance we will have.