HIGHER EXPENDITURE on public sector salaries, as well as interest payments on Jamaica's almost $500 billion stock of domestic and foreign debt have combined to bring about a deficit in the Government's fiscal performance for the first quarter of the current financial year.
The Planning Institute of Jamaica (PIOJ) said there was a $12.4 billion deficit for the quarter, 32.9 per cent more than the figure recorded for the same period last year.
In its Economic Update & Outlook for the first quarter of the 2002/2003 financial year, the PIOJ said the increase in the deficit was due to a $2.8 billion upward movement in expenditure, combined with a $200 million decrease in revenues when compared with the first quarter of the previous financial year.
There was a $3 billion increase in wages and salaries as a result of new packages that were offered following negotiations for the 2000-2002 contract period and reclassification of some groups in the public sector.
In addition, there was a $2.5 billion increase in interest payments, which corresponded to a higher stock of debt, which stood at $494.9 billion at the end of March, this year, compared with $380.6 billion the previous year.
However, the PIOJ said a $1.7 billion decline in capital expenditure and an $800 million decrease in programmes partly offset the increases in salaries and interest payments.
The decline in revenues resulted from a $1.55 billion decrease in capital revenue because there were no divestment proceeds relative to the $1.6 billion collected from sale of the government's major stake in the Jamaica Public Service Company (JPSCo) last year.
That decline was partly offset by a $1.4 billion growth in tax revenue, reflecting increases in production and consumption, as well as international trade, but receipts from income and profits declined for the first time in eight years.
The PIOJ said a $300 million decrease in tax on interest - because of lower tax on interest - as well as $200 less from other companies, contributed to a decline in revenue from income and profits during the period under review.
Lower returns from tax on interest continued to reflect the effects of issuance of tax-free instruments as rebates increased significantly during the quarter.
The decline in returns from other companies was due to lower profits from a large company as a result of increased competition, in addition to a tax break given to a major manufacturing firm as an incentive to increase investment. The PIOJ did not name those companies, but it is public knowledge that Red Stripe, brewers and bottlers of the world famous beer, has been granted a five year income tax break.
According to the Economic Update, relative to the budget, the fiscal deficit was $700 million or five per cent less, despite a $2.3 billion or 8.6 per cent shortfall in revenue. The lower deficit relative to the budget was due to a $2.9 billion reduction in interest payments, resulting from a lag in payments being reflected in the accounts during the quarter.
The deficit was financed from loan receipts of $28.5 billion, including a US$300 million bond offered in June.
Relative to the budget, the PIOJ said, loans were lower by $2.8 billion, while amortisation was $6.2 billion higher. Higher than programmed payback during the quarter reflected an early payment of a bond, which would have fallen due in August. "Given loan receipts and higher amortisation payments, the result was that the overall deficit was $6.1 billion, compared with a budgeted surplus of $2.2 billion," the PIOJ said.
