Keith Collister, Contributor
DAVIES
THE FISCAL deficit for the first half of the fiscal year was nearly $3.77 billion higher than budgeted at $18.58 billion.
Revenue and Grants were over $8 billion below budget, mainly due to a shortfall in tax revenues which were nearly $7.32 billion below budget. The majority of the shortfall appears to be due to the underperformance of consumption taxes, which are over $4.5 billion below budget.
The Government has cut nearly $4.3 billion from planned expenditure, $1.867 billion representing a reduction in current expenditure, particularly interest and wages, while over $2.4 billion represents capital expenditure. Without these significant cuts, there would have been a much greater deviation from the Government's budget targets for the first six months of the fiscal year.
RISE IN DOMESTIC INTEREST RATES
The recent addendum to the Memorandum of Understanding (MoU) giving public sector workers a hardship relief payment, while no doubt deserved, combined with the further damage to the road network from the recent heavy rains, makes it extremely unlikely that the recurrent and capital budgets can be cut back much more to meet further shortfalls in tax revenue. In addition, continued pressure on the dollar raises the unwelcome prospect of a rise in domestic interest rates. On balance, such an increase in rates would probably prove to be very undesirable as savings in interest costs has been the main area (other than wages) where recurrent costs have been below budget.
STIMULATING THE ECONOMY
David Hall, CEO of Digicel Jamaica and a trained economist, says he genuinely believes that Jamaica needs to take measures to generate renewed growth and stimulate the economy. "In any measures it takes, however, it will need to spend the money wisely as in our precarious financial position, it cannot afford to spend money and not see benefits. Business must see a multiplier effect."
In his view, the appropriate measures could include increasing the tax-free allowances for the workforce to increase its disposable income thereby recognising recent sacrifices, or allocating additional funds to promote tourism so that the coming November - April tourism season gets back to where it needs to be to move the economy forward. He believes that the private sector, particularly its two premier representative organisa-tions the Private Sector Organi-sation of Jamaica and the Jamaica Chamber of Commerce (and their sister organisations such as the Jamaica Manufacturer's Asso-ciation), need to collectively put forward solid suggestions to the Government on the way forward for the economy.
Another influential member of the PSOJ has argued that the issue of a tax amnesty, originally discussed as part of the proposed "Partnership for Progress", should come back on the agenda. The current penalties, on interest particularly, discourage many small businesses from coming fully into the formal system as to pay the penalties could in many cases "kill the business", particularly those surviving from payroll to payroll. If interest penalties were eliminated, he argues, this would encourage a dramatic increase in compliance as small businesses would be able to go to the bank to borrow the money to pay the taxman and perhaps recapitalise their business. In any case, there is little doubt that a "meet the numbers" driven approach by the fiscal authorities could simply drive many Jamaican small businesses into bankruptcy, without adding one dollar to the Governments coffers.
Mr. Hall's choice of PSOJ and the JCC to lead the charge in making suggestions as to how to put the economy back on track is not surprising, as it was these two premier private sector organisations that led the "Partnership for Progress" initiative - an attempt to create a social contract between the Government, Unions and Private Sector. This initiative was a key factor in helping turn around economic confidence representing as it did a consensus on economic policy with the Government. The resulting increase in private sector confidence in economic policy was a critical factor in the currency stability achieved in 2004. The failure to sign the long-awaited agreement in August, which aimed at institutionalising a positive policy consensus on the economy and crime, appears to have largely coincided with the recent economic downturn and the weakness in the dollar.
