Towards a legacy of low debt
The Mark Golding-led People’s National Party (PNP) is itching to get back into power.
In furtherance of this objective, they have been promising the Earth. But just where would 89 Old Hope Road get the hundreds of billions of dollars that would be needed to fulfil its mountains of promises?
This is another critical question that all well-thinking Jamaicans need to ask as we head towards national elections. A friend of mine, who is skilled in the area of budget forecasting and analysis, added up the cost of all the promises the PNP has made to date. He told me his calculations show that the PNP would need in the region of $1.5 trillion extra per year to adequately fulfil all its promises.
Those who believe that Santa Claus and his reindeer are real might very well be thinking: “The PNP is a socialist party, its members love the poor and the downtrodden, so they will tax the rich to get the money they will need to fulfil their promises were they to get back into Jamaica House.” There is a huge problem with that “reasoning” though. We don’t have enough rich people in Jamaica. It, therefore, means the PNP would have to implement a series of considerable tax increases on everyone. The reality is, at the end of the day, governments raise revenue primarily by taxation and/or borrowing. Contrary to what some might believe, Santa Claus does not deliver revenue on his reindeer sleigh.
Last Sunday Golding was again in Trelawny campaigning. He has criss-crossed the island several times in the last two years. He again reeled off a trailer load of promises regarding fixing long-standing problems in health, crime, and education. He also pontificated about how other long-standing challenges in our society would be remedied by a future PNP Government. For the umpteenth time, Golding did not mention a single, solitary word about how he would finance all his promises. I think we need to be afraid — very afraid.
Reason for alarm
Some with their heads deliberately buried deep in the sand and others with self-induced amnesia will doubtlessly grab for their default position and bellow: “Higgins, you are just being an alarmist.” Really!
Consider this: “[Finance Minister Nigel] Clarke pointed to previous finance ministers under a People’s National Party Government who announced no increase in tax rates, which was followed by newspaper headlines of ‘No-tax budget’.
“When your political mentor Dr [Omar] Davies announced ‘no new taxes’ in 2001 and in 2004 and in 2006 and tax revenues went up that year, did you, as you did in your presentation last week, did you tell him how hollow the refrain is?” Clarke asked Golding. “Because you know full well what no new taxes means.”
The minister said it was only five times between 1989 and 2007 and again between 2012 and 2016 that the PNP had years without any new taxes.
“In other words, Madam Speaker, in 17 of the 22 years they were in power, they spent what the country did not have and heaped tax on top of tax on the Jamaican people to make up the difference,” said Clarke.
The finance minister argued that it was normal and to be expected that even when no new taxes are introduced in a fiscal year, tax revenue inflows still increase over the prior year. He said this happened on five occasions over the 22 years that the PNP was in power.” (The Gleaner, March 22, 2023)
Facts matter! In the mentioned article, “Clarke boasted of the Government’s achievements as he reiterated that the Holness Administration has gone six years with not one new revenue measure that introduces a new tax or increases a tax rate, claiming it was a first in 50 years.” The Andrew Holness-led Administration has legitimate cause to give itself a pat on the back. It was not so long ago that the immediate period prior to every budget presentation by ministers of finance and planning was a time of great trepidation. How much more am I going to have to pay for land taxes, licence plate, stamp duty, food, building materials, utilities, bus fare, etc? Questions such as this was commonplace.
The anticipation of nearly debilitating increases on a yearly basis caused, I believe, thousands of Jamaicans to suffer severe anxiety attacks, high blood pressure, and numerous other physical and mental hardships. No well-thinking Jamaican relishes the idea of going back to the hellish past of frightening yearly taxation increases.
It is not alarmist to insist that Golding and the PNP tell the country where he will get the funding to finance his tons of promises. As a matter of fact, I believe it is not just a responsibility, it is the duty of every well-thinking Jamaican to demand, not request, that the PNP provide us with detailed information.
I believe the more promises the PNP churns out, the more good citizens need to demand an answer to: Where will the money come from? I maintain that “puss-in-a-bag” politics and economics are antithetical to Jamaica’s good health.
Monstrous Tax and Spend
Inflation, someone famously said, is the cruellest crime against the poor. I agree.
As I see it, the three best ways of ensuring fewer and fewer poor people are continued low inflation, decreasing the country’s debt stock, and simultaneously growing the economy in a sustained manner, all three with the single objective of getting Jamaica to escape the long-standing trap of a low output, low-wage economy.
We need to find our way on to the highway of a high-productivity and high-wage economy.
Contrary to what some have been preaching, the mentioned transition will not happen by waving a magic wand called redistribution in the absence of prior increased production.
We have been that route before and the results on especially the poor and downtrodden were catastrophic. I remember a time when inflation peaked at 49.4 per cent (1978).
There was a time when our debt put a chokehold on everything.
There was a time when our youth unemployment numbers were among the highest in the world.
Recall this screaming headline in the “Old Lady of North Street”: ‘High youth unemployment worries PNP’. (The Gleaner, Monday, July 27, 2015)
Among other things, the story said, “Robert Pickersgill, chairman of the PNP, has conceded that the governing party is not yet where it wants to be in addressing some of the social and economic ills bedevilling Jamaicans.
“After yesterday’s meeting of the National Executive Council (NEC) at The University of the West Indies, Mona, Pickersgill told The Gleaner that joblessness among youth as well as bad roads and water challenges are major worries for the party.
” ‘If the unemployment level — especially among the youth — is not improved, you are going to have some amount of basic resentment,’ Pickersgill predicted.
“He added, ‘It’s the first time in the history of Jamaica that you have so many qualified young people, including secondary degree and doctorate, and they are having difficulty gaining employment.”
This was the same Pickersgill, then chairman, now emeritus, who publicly said: “We believe that it is best for the People’s National Party to form the Government; therefore, anything that will lead or cause us to be in power is best for the PNP and best for the country.”
“Anything” excludes nothing.
“Anything” includes latching on to the globally discredited model of tax and spend, borrowing at high interest rates even though low interest money was possible/available, choking debt, and redistribution in the absence of increased production.
There is a cursed name for this debilitating model — ‘Run Wid It’. I am yet to be convinced that the PNP, a socialist party, understands the stifling impact of its decades of reliance on tax and spend.
I believe this awful model has sent thousands of Jamaicans into abject poverty and even to an early grave.
Populists, like those running the PNP, just do not get it that you cannot spend what you don’t have and expect to achieve economic growth, which is necessary for the social harmony they claim is the cornerstone of their beliefs and principles.
Ghana, Sri Lanka and Laos
Some are saying, “Higgins, easy yuself man, the 70s and the 90s cannot happen again.” I don’t share their confidence.
I have advocated here that ironclad mechanisms need to be set in place to ensure that no future Administration is able to repeat the trauma that was inflicted on the people of this country, especially in the 1970s and 1990s — our wasted decades. I stand by that.
Consider this from the British Broadcasting Corporation (BBC), October 4, 2023: “How did Ghana go from economic darling to economic chaos? It was once seen as a model of African progress, but that all changed in 2022.
“With surging inflation and rising prices, the nation is facing its worst economic crisis in decades.”
Some in the Government of Ghana say external factors, like the novel coronavirus pandemic and the Russian invasion of the Ukraine, are the major culprits.
Others, including noted economists, say that is far from the real story. They say Ghana went on a borrowing binge and attendant spending spree. Massive inflation and devaluation followed. And prices have skyrocketed in the West African nation.
Demonstrations are commonplace these days, inflation is near 50 per cent, food prices are shooting up, and the Ghanaian Government is having grave difficulty providing many basic services.
Debt is forecast to reach 99 per cent of gross domestic product (GDP) by the end of this year. And Ghana’s currency, the cedi, has devalued by nearly 60 per cent against the US dollar in less than three years.
Sri Lanka today is struggling to get off its face because of similar reasons. No country wants to be described as being “broke like Sri Lanka”.
I have talked about the economic fall of this country previously.
On October 9, 2023, the BBC carried a feature on the tragic economic fallout in Laos.
The feature was entitled ‘I feel hopeless: Living in Laos on the brink’. It noted: “The economic crisis has been caused by a rash programme of government borrowing used to finance Chinese-backed infrastructure projects, which has begun to unravel.
“The crisis shows little sign of easing, with public debt spiralling to unsustainable levels, resulting in government budget cuts, sky-high inflation, and record-breaking currency depreciation, leaving many living on the brink in one of South East Asia’s poorest countries.”
Under the subheading, ‘The debt trap’, the mentioned BBC item also said, “All of this has added to Laos’s ballooning debt, which is now ninth highest globally as a share of its GDP, according to the International Monetary Fund.
“Around half of that is owed to China, and Laos is now having to borrow more from lenders in the country just to stay afloat.
“Laos is so heavily indebted to China that their negotiating position is compromised,” the article stated. “It’s having to borrow just to service the debt. That’s the definition of a debt trap.”
There was a time when Jamaica was borrowing to service her debt, the equivalent of borrowing from the proverbial Peter to pay Paul, as we say in local parlance. The problem with this model was that we were constantly amassing more and more debt. As a consequence of prudent management of our economy, especially in the last eight years, Jamaica’s debt is just about 78 per cent of its GDP today. It was not so long ago that it was 147 per cent (2013), making Jamaica one of the most indebted countries in the world.
Golding and the rest of the PNP need to heed the advice of Dr Peter Phillips, former Opposition leader and PNP president: “The biggest legacy we can give to future generations of Jamaicans is low debt.”
If they understood the generational and consequential importance of Dr Phillips’s warning/recommendation, they would cease the foolish promise binge that has consumed their campaign for the last two years.
I maintain that a focus on continued regeneration — and not the resurrection of redistributive, minus production, leftist politics — is the way forward.
In carrying through the process of reimagination, among other things, we need to generously factor in it a reorientation of how citizens understand the functions of Government.