The 2022/23 budget has, in my view, showed us two very different approaches.

On the one hand, the presentation by the finance minister, while attempting to provide for the most vulnerable (low-income earners and small businesses), also made it clear that fiscal discipline was a priority consideration.

On the other hand, the presentations by the Opposition leader and the spokesman on finance were more about providing welfare for the less fortunate at the expense of fiscal discipline.

These two approaches have some merit, as while no one can argue with the economic pain being felt by Jamaicans, the fact is that Jamaica must ensure fiscal discipline so that it never returns to the dark days of the fiscal and debt crisis in 2013.

In fact, we need to remember that the economy is still not back to pre-pandemic levels. This simply means that if we were to have any relaxation of our fiscal discipline, such as debt-to-GDP ratio, then we will find ourselves in a worse position than we were in 2019.

Do we really want to go back there?

One of the main discussion points, to bring relief to the Jamaican consumer, is the reduction of the taxes on fuel, which is approximately 40 per cent of the final price.

The argument being made by many, including the Opposition, is that the tax should be capped to provide relief for citizens generally, at the pumps, and hopefully to also control electricity charges and pass through costs on food prices.

This argument I find to be an emotional reaction to helping who the politicians refer to as “poor” people. No one can deny that the most vulnerable in society need protection, and that is one of the primary roles of government.

It is also very politically tempting to say that one should reduce taxes and give reprieve to the “poor”, as it seems our politicians over the decades have seemed content with having “poor” people around so that they can use them to promote political points.

It does seem like the easiest way out — reduce taxes to provide a temporary reprieve for people, and enjoy the immediate thanks from everyone.

The problem is that, while it is good short-term political strategy, it is bad long-term fiscal and economic policy. We have been taking this sort of approach from as far back as I can remember, and the result was a near total fiscal collapse in 2013, an unsustainable debt-to-GDP, and continued new types of taxes on Jamaicans, until about five years ago.

We simply cannot, and must not, go back to those dark days. What we need is a new approach to managing our fiscal affairs and finally put Jamaica on a path of sustainable growth and development, and the economic and social elevation opportunity for all Jamaicans.

So what is my reasoning for resisting a reduction in the fuel tax, or any reduction in customs duty generally on imported products at this time as was proposed? It is important to note that I say “at this time” because I think tax rates are generally too high in Jamaica, especially income and corporate taxes. But timing is very important.

The first thing relating to timing is to remember that we have still not recovered to pre-pandemic levels. Despite the growth that we have seen over the last year, we still have a weaker economy and it would therefore be irresponsible to go on a spending spree. In fact, now is the time to be fiscally prudent.

The second reason is that Jamaica does not produce oil and we import 90 per cent of what we consume. This means that if we reduce the price of oil and imports by reducing taxes, then imports (including oil) become more affordable. This, in turn, will increase demand, and at these higher prices more pressure for US dollars in order to pay for them.

This is the vicious cycle that we have been on since the 1970s, like running on a treadmill while others are running on the track.

This is especially as we have seen two years of economic decline, which means we’re less able to pay for even current levels of imports.

So while the temptation is to respond with reduced taxes and giveaways, this will only lead to increased inflation, particularly thorough currency depreciation.

The solution is therefore to put policies in place that will reduce our dependence on imports, especially oil, and increase local production and labour productivity.

This seems to be the general approach of the presentation by the finance minister. No doubt we need to do more, such as elimination of duties on electric vehicles and renewable energy equipment, lower consumption tax for locally produced goods, and improve public transportation.

Hopefully, this is the direction in which we are moving.

— Dennis Chung is the author of Charting Jamaica’s Economic and Social Development, and Achieving Life’s Equilibrium.

Email: drachung@gmail.com