When our new government was elected in September 2007, the assumption was that it would take bold initiatives that would revive a stagnating economy. Many people thought that Jamaica would finally make a decisive break with policies of the past, allowing us to finally achieve our long suppressed potential. Indeed, Minister Shaw’s mantra, which like a good salesman he repeated everywhere he went, could be summarised by the acronym DEBTI — debt reduction, energy (cost reduction), bureaucracy reduction, tax reform, and investment promotion. The acronym had the clear advantage of expressing a set of simple priorities for the action required to move the economy forward.

In retrospect, if we review the government’s performance three years on, it is clear that the combination of Jamaica’s internal economic weaknesses (particularly our very high debt) and the worldwide economic crisis has almost continually distracted the government from achieving the implementation of these objectives. The result is that from day one the government has been in a constant fire fighting mode due to Jamaica’s ongoing fiscal crisis.

Notwithstanding both the Prime Minister and the Minister of Finance’s clear focus on the issue of tax reform at the beginning of their term, the process appears stalled. Despite the success of the Jamaica Debt Exchange (the “real” value of the debt has been reduced by 20 per cent according to Standard and Poors) the fiscal breathing room it provided may already be shrinking. The fallout from West Kingston (tourism’s performance in September and October looks weak), and the disruption of tropical storm Nicole, have eliminated any prospect of a domestic economic recovery in the third and fourth quarter.

To date all the interest savings from the JDX have been used to reduce the deficit. Whilst a worthy cause, this basically means continued deflation of the domestic economy. Our massive fiscal and current account deficits meant some deflation was unavoidable, but the deflationary impact has been massively pro-cyclical (accelerating the downturn in the economic cycle) in contrast with the measures taken by the U.S. and China. This pro cyclicality has recently been further increased through the freezing of incentives, which is likely to have increased taxation on business sharply at the margin (where economic decisions are taken), reducing the number of transactions even further. All reports suggest the slowdown (other than bauxite) is continuing and will get worse in the fourth quarter. Key indicators such a demand for gas have been falling, and some suggest that what is now a key early indicator — “mobile phone top up credit” — may also be turning down.

When this is coupled with the likelihood of a much weaker than projected international recovery, and a continued slowing down of growth in our main US trading partner (particularly in the New Year), this suggests that now is the time to re-negotiate the IMF programme, extending it to 2014, to coincide with the planned period of fiscal adjustment and not the political cycle. This would prevent early repayment of IMF loans compromising the success of the programme by coming due at the crucial midpoint of deficit reduction.

For more than a decade, virtually all our fiscal targets have consistently been missed. For the most part, we have responded with a series of short term revenue raising measures, rather than tax reform. The only way to avoid this excessive short termism is to negotiate the fiscal space to allow a true medium term (at least three year) tax reform programme.

The programme needs to have enough fiscal space for current critical priority expenditures such as roads, and to create a fiscal cushion for a tax reform which over a medium term period, say two to three years, can be expected to more than pay for itself.

The economic modelling required for such a pro growth tax policy could be provided by the PIOJ, which is able to access foreign expertise as required. Its current mandate is to drive the 2030 vision, but to be meaningful, this needs to become a succession of shorter term three year objectives.

The partnership for transformation (the new name for the long awaited social partnership between the union movement, the private sector, the government and civil society) needs to be restarted immediately, but with the critical difference that it has to involve money. It should be the centrepoint of a transparent fiscal and budgetary process. This process must integrate private sector needs and union movement concerns (who now face the serious prospect of headcount reductions) in a negotiated budget outcome of shared pain as opposed to destructive strife.

The goal would be to provide credible forecasts of the fiscal numbers to allow a sensible negotiation of the fiscal space between the potential partners so as to allow a tax reform that would reduce prices, create jobs, spur economic growth and therefore ultimately pay for itself to actually take place.