'There is a hole in the fiscal bucket'
published: Friday | November 28, 2003
TAMING THE fiscal deficit is proving even more difficult than slaying the mythical dragon. As the fiscal year (April 2003 - March 2004) moves into the second half, the first-half numbers are disappointing. Expected revenue is below projections; figures for wages and salaries are above projections; and interest payments also exceed projections (with the depreciation of the first quarter merely worsening the situation). In short, there is a hole in the fiscal bucket, that is proving difficult to plug.
Last week the Finance Minister, Dr. Davies, indicated that he will be employing drastic capital cuts, but this only postpones the fiscal problem, it will not deny it. The record tax hike of April has not closed the gap as the growing expenditure needs (for wages and interest payments) is gobbling up any revenue intake. There is no end in sight unless drastic action is taken.
NOT TOO LATE
It is still not too late to seek a social contract that involves substantial wage restraint (wage freeze even better), no new taxes pledge; a commitment to reduce debt costs; and consistent efforts to stimulate the economy. The horse has already bolted so that the choice of a wage freeze is no longer possible in December, since our leaders don't believe in setting examples of sacrifice, but given that Jamaica has no intention of delaying its debt obligations, then the only other immediate option is to control the most major expenditure item (after debt payments), while trying to reduce government borrowing (to lower interest rates).
Taxing the economy heavily is not working as it is not drawing in enough revenue from the economy (especially the informal sources) to keep the debt burden tolerable. We are fast getting onto the path where measures are being taken in the economy to meet the government's needs, rather than the economy being run by the government to suit the economy's needs.
If we don't make that drastic shift now, we will continue on the path that could be likened to a driver travelling, with worn tyres, on a mountainous road, with precipices on both sides, hoping that the tyres don't blow out. We will then either need a skilled driver or one who prays a lot.
