Finance Minister Dr Nigel’s Clarke 2022/23 budget has received a passing grade in some circles for being comprehensive, but the presentation also left gaps for the minister and the Government of Jamaica to address.

Following his presentation last Tuesday, auditing, tax and consultancy firm PricewaterhouseCoopers (PwC), led by Caricom Tax Leader Brian Denning, has provided its own assessment of the budget presentation. So too has Victoria Mutual Investments Limited (VMIL), which, on Wednesday, March 9, hosted its Post-Budget Forum 2022 with executive director of Caribbean Policy Research Institute (CaPRI) Dr Damien King as a panellist.

Chief among the concerns of PwC was the “$5.6-billion gap which the Government proposes to fund utilising prior year cash balances. The 2022/23 National Expenditure Budget is forecast has a bill of $912 billion, with revenues estimated for the year of $906.4 billion.”

With tax revenues projected to be $671.5 billion, the Government also expects income from capital initiatives including divestment of State assets that will contribute $14.1-billion and a $4.9-billion grant.

While Clarke announced that for the fifth-consecutive year there will be no new taxes, PwC asserts that “Post-pandemic growth economic recovery inflation generally and dramatic increases in oil prices will undoubtedly contribute to the increased tax take.”

Still, the audit firm commends the minister for recognising that “the Jamaican public will bear more taxes due to increased prices” as a result of local and global inflation, as well as higher import charges and the Special Consumption Tax (SCT) on fuel.

On the matter of the SCT on fuel, and calls for a roll-back on the tax given inflationary and geopolitical pressures, Dr King noted that the finance minister made the right call. He argued that one needs to look at the strategic objective in maintaining the tax on petrol, which is to provide “relief for the citizenry who are facing economic hardship”.

The CaPRI executive director pointed out further that the Government can lose revenue from reducing or repealing the SCT or it can expend funds through a give-back.

“It is much better to do it in a way that will [benefit] the people who are neediest and the minister’s proposal does that in a very targeted way, especially focusing on the PATH programme,” King stated.

He, however, believes that Dr Clarke’s budget does not go far enough to protect the vulnerable and financially marginalised, even with the announcement of an unemployment insurance. Responding to a question on the effectiveness of the unemployment insurance, King said that “it’s a positive”, especially given the importance of social safety nets to protect the vulnerable.

But he highlighted that the unemployment insurance will only serve those who have been formally employed.

“The neediest in our society, the ones who are really struggling to get by, don’t have formal sector jobs. Some of them have never had formal sector jobs. Those…in the bottom 25 per cent are going to be little helped by unemployment insurance,” the economist told the audience at the VMIL forum.

“It is going to help some people but it is not where the greatest need in society is when you talk about our social safety net,” he continued.

To this end, King recommended a restructuring of the “economy and the regulations that incentivise people to be informal”.

As an example, he pointed out that employees and employers pay a total five per cent in National Housing Trust contributions but some have yet to qualify for a mortgage. The CaPRI head added that even when contributors reclaim their returns, the interest rate applied is lower than inflation.

Regarding National Insurance Scheme contributions, King said, “Inflation erodes the pension that you get so rapidly that you end up not getting back value for money.”

The issue of payroll deductions was also a ‘key audit matter’ raised by PwC, who stated that the finance minister did not adequately address the issue.

“Minister Clarke announced the GOJ’s intention to consolidate these into a single payroll deductions but no further information was provided as to how it is proposed to be done. This announcement is welcome as reform in this area is overdue,” the audit firm remarked.

Though PwC prefers a harmonisation of the “tax base”, it indicated that the finance minister’s intentions are still unclear.

In the meantime, the firm hailed a number of announcements that will enhance the regulatory, fiscal and business framework. Among them were the promulgation of a new Customs Act and the establishment of a Fiscal Commission to ensure adherence to Jamaica’s fiscal rules.

The Fiscal Commission has gained the interest of the Inter-American Development who last week announced the disbursement of a US$100-million loan on the premise of its establishment to oversee the management of funds.

In his preamble on Wednesday, King listed the formation of the Fiscal Commission as an opportunity for the Jamaican economy’s recovery from the impact of COVID-19. Declaring that “the pandemic over”, the economist pointed to recovery in productivity levels and employment and a stable foreign exchange reserves as positive indicators.

“We have seen the trajectory of debt has steadily and consistently come down,” he added.

Notwithstanding, King highlighted that high shipping costs, inflation, rising cost of oil, and the Russia-Ukraine war as possible risks.

“The ongoing geopolitical and economic turmoil caused by Russia’s invasion of Ukraine could constrain the anticipated rebound and impact projections as the year progresses, so time will tell as to whether a Supplemental Budget may be required,” PwC stated in its review.