Delroy ChuckWHEN THE Government imposed a $14 billion tax package in this fiscal year, it did so to make the budget credible, to reduce fiscal deficit and debt to GDP ratio and to keep inflation under control. What a calamity, no target or anything worthwhile has since been achieved. In fact, if the truth be known, the country is much worse off now than a year ago. Our debt has increased by at least $100 billion, inflation is running at 15 per cent, the fiscal deficit deepens, the transfer of wealth from the poor to the rich worsens, and the Govern-ment is hopelessly lost.
The Government fails, and will continue to fail, for the simple reason that it breaches simple economic principles, succumbs to loose fiscal policies and dishonestly prints money to feed its fiscal profligacy. The recent revelation that the government relied on Bank of Jamaica's support to pay its December bills is tragic and likely to send shockwaves through the economy. When the government relies on Bank of Jamaica's accommodation, it is tantamount to printing money, unbacked money, which simply fuels inflation. Sadly, enough commentators do not readily understand the monetary disaster and economic tragedy of allowing unbacked money to enter the financial system. Only the Sunday Herald with its leading story in the Dollars and Sense section "BoJ prints money to help government pay bills" has so far discussed the issue in the print media, noting that the BoJ provided the government with nearly 12 billion dollars. Now, pressure must be brought on the Government to return this high-powered money to BoJ in this fiscal year, otherwise the inflationary effect will be ruinous.
TRANSFERRING WEALTH
Interestingly, I have kept an article from Morris Cargill, published in The Gleaner on the May 25, 1995, in which he quoted from the Wall Street Journal of June 14, 1982, part of which is worth repeating. He quotes: "The government officials in power who cause every inflation know exactly what they are doing. They are transferring wealth from the poor and middle class to themselves. They do it, however, on the pretext of helping the poor and middle class. Every super inflationary period ends when some courageous individual simply stops the money printing presses Those who become wealthy or maintain their wealth during the inflation are usually: 1) Government officials who know exactly what they are doing with the money supply and 2) private individuals who observe what their elected officials are doing and take advantage of the situation by investing properly."
Naturally, it is incumbent on the private sector and knowledgeable commentators to demand that government takes corrective action, otherwise inflation will ruin the MoU with the unions, threaten the Partnership for Progress and damage the economy even more. Lest we forget, inflation is the most onerous tax on the poor, who are the least able to afford the rising prices and reduced purchasing power of the Jamaican currency.
ECONOMIC FUNDAMENTALS
The Government fails, and will continue to fail, primarily through its lack of commitment to the economic fundamentals, and its failure to take immediate corrective action when things go wrong. When the government spends more than it earns then it needs to curb expenditure instead of seeking more taxes, which it tries to do in an already distressed economy. When inflation is wreaking havoc on the economy then the solution is to reduce money supply, not to increase it as the government does with its borrowing from the BoJ. When the private sector is collapsing, it is time for the government to cut public spending and give more room to the private sector to recover; instead the government increases its share of the GDP, the size of its workforce and the level of domestic loans, thereby further crowding out the private sector and wrecking any prospect for real growth in the economy. When the economy fails to expand and develop, it is time to reduce taxes, lower interest rates and correct an overvalued currency to make the productive sector more competitive, yet this present Government does the reverse and still expects the economy to grow! Can we now understand why the economy is in trouble and only a complete change of macro-economic policies can extricate it from its present downward spiral?
When the JLP government was faced with a similar disastrous situation in the mid-80s, it made the unpopular decision of cutting the Local Government Ministry but history will record the economy recovered in spite of the legacy of being unfriendly to Local Government. It is now time to make the hard decisions if we are ever to recover. If we continue on the same path more taxes, more loans and more printing of money it will only be a matter of time before the whole economy collapses.
Still, I am not sanguine that the Government has the good sense to make the right decisions and, thus, will continue to fail. The leaders of this government are not reluctant capitalists, they are unrepentant socialists and once they continue to be guided by socialist principles, Jamaica will end up in the dustbin, which is the sure receptacle for socialism and its adherents.
Delroy Chuck is an attorney-at-law and Opposition Member of Parliament. He can be contacted by e-mail at delchuck@hotmail.com.
