By Lavern Clarke, Staff ReporterEVEN BEFORE he closed the budget debate, Finance Minister Dr. Omar Davies was on the road borrowing to plug 'budgetary requirements', at an expanded interest rate no less.
The latest domestic market foray netted the Government a record haul of $14 billion - even more than the Finance Minister hopes to raise in taxes over the next year, at the juiciest interest rate yet, fixed at 36.25 per cent.
Then on Wednesday, Dr. Davies again declares that 'interest rates must come down' but adds that Jamaica would get there only if Government's need to raise funds by acquiring new debt were reduced.
The Finance Minister appeared to be acknowledging that Jamaica cannot continue borrowing at present levels, but the actions of his Ministry and central bank governor, Derick Latibeaudiere, tell the opposite story.
SENDING A MESSAGE
Dr. Davies seemed more to be sending a message that Jamaicans could not, on the one hand, be decrying the new taxes he has imposed, while at the same time prodding Government to go on a debt-free diet so that interest rates can trend down, cutting off its other immediate revenue source in the process. Not now when he has a runaway deficit to tame, plus teachers, nurses, doctors and other public servants to pay.
The Minister seems to want it all. So even as he builds on the $601.2 billion the country already owed up to March, he has also set up a new task force, headed by Joseph M. Matalon, to review the GCT system with a view to 'de-complicating' it, to collect more efficiently.
But Davies is smooth. Very few finance ministers could actually increase taxes by appearing to be reducing them. With aplomb, he holds out $1 billion in cuts from the tax package as evidence of Government's willingness not only to listen but to heed the public's pleas, then turns around and takes back $2 billion from the $17 billion gambling industry. Smooth.
He also makes a concession on the import cess - giving new manufacturers only a three year moratorium - that turns out to be more of a public relations exercise as it will impact no more than a handful of the thousands of businesses islandwide, and is hardly likely to disturb the $3.4 billion projected tax intake.
To reduce its appetite for new debt, said Davies, Government either has to slash services or increase revenues. He categorically ruled out the former.
"There is not one ministry with unnecessary allocations, not one single ministry," says Davies - not even, it seems, the Ministry of Local Government, which got an additional $5 billion in a local government election year.
His comment comes in the face of continuous criticisms that the current budget is likely to have a contractionary effect on the economy, meaning that the tax measures would erode spending power and dampen demand for the goods and services needed to grow the economy. In other words, only Government will be spending this year; everyone else will either be paying or avoiding taxes.
TOUTING
Davies' critics are touting that the contractions will run at three per cent of GDP, versus Davies' own prediction of 2.7 per cent growth.
As for the suggestions of a symbolic expenditure cut, Davies, while noting that he accepted the point about its value, said nonetheless: "... the fact remains that there is still the deficit which has to be dealt with," seemingly missing or ignoring the point that the harsh measures he is now taking might have been more palatable coming from a Government that seems willing to share in the
sacrifice.
"I want to focus the country on closing the deficit," said the Minister, setting the stage for his closing comments on the tax package.
Having "consulted and reflected", the Minister announced that there would be no special tax rates for any group, but he has removed the GCT from fertilisers, herbicides and feeds, and also set up a special window for sports clubs and associations to avoid the tax.
The private sector had proposed to set-off the import cess against their GCT obligations, but Davies rejected the plan on the basis that it could corrupt his efficient GCT collection system. He gave no specifics to the House as to how it would.
The Minister, while announcing that he has had fruitful meetings with the private sector and was collaborating with them further on several matters, including an efficient means of collecting the new environmental levy, could not resist a pot shot at the business sector.
Having criticised the critics of the cess for not acknowledging the advantage it would give to the users of locally produced inputs, Davies barely kept his disbelief in check when he told the House that the private sector was claiming that the cess would hurt because they were barely trading at margins of four and five per cent, he said sceptically.
"I need further meetings with the PSOJ because I'm not so clear on the companies' cost structure," remarked Davies. "It is hard to accept that the operating margins are as low as businesses are
claiming."
His closing budget remarks followed spicy arguments in the House when the Opposition sought to have Government honour a two-year old commitment for a tax committee to review the budget and its accompanying tax measures before voting on the appropriations from the Consolidated Fund.
DISORDER
Amidst the heckling, shouting, and disorder - seemingly outside of House Speaker Michael Peart's ability to manage or control - the Government argued that to postpone the vote for two weeks as suggested would send the wrong signal and "imperil" Jamaica in the international markets.
Government, it appears, is very nervous about the three to four months of volatility that preceded the budget. Davies wants to head quickly to Washington to speak with the multilaterals, to seek some form of endorsement of his medium term plans in a bid to stave off or mitigate any harsh judgements by the rating agencies. A two-week delay in the vote, said the Minister, would derail that timetable, and make the markets even more fidgety.
Speaker Peart - in a comment that screamed 'partisan' - ruled against the Opposition's move, on the basis that the respective Standing Order 65A, referred to 'new tax measures', and not 'proposed new tax measures'.
But, the central bank's recent seeming erratic swing - the hiking of interest rates again last week, followed days later by a cut in repo rates - and the subsequent increase in the debt as a result, might well have already imperilled Jamaica in the market, especially given continuing fears internationally that Government might soon not be able to service its bonds.
DOLLAR SLIPPING
Despite Latibeaudiere's best efforts, the dollar is back above the $57 mark and, given the history and the options available, there is a good chance that the central bank governor might well use the 'interest rate hike' hook again to defend the currency.
Meantime, though committing to reducing interest rates back to their 2001 levels, the Minister is not saying on what rates he builds his budgetary and other projections, arguing at his post-budget press conference that the disclosure would produce a distortionary effect.
"It then becomes the Government's target. It becomes the rate around which everyone builds rather than a function of the market," he said.
