Finance Minister Dr. Omar Davies estimates that Government will need to spend $380 billion in the 2007/08 financial year, a 2.2 per cent increase over last year's budget. Davies will open the Budget Debate in Parliament next week. - File

Keith Collister, Business Writer

Financial analyst Colin Steele, who has just completed a four-year run as chair of economic policy for the Private Sector Organisation of Jamaica, is recommending "radical change in thinking" if economic planners are to ensure fiscally responsible spending.

Steele, speaking with Wednesday Business days after the tabling of the $380 billion estimates in Parliament, said he was concerned about the debt.

After falling sharply from its peak of 150 per cent of GDP in 2003, to about 134 per cent by the end of fiscal 2005, Steele now contends that the progress inreducing the debt to GDP ratio could be reversed.

His take was a little less pessimistic than the International Monetary Fund, which projects "little decline, if any" in the ratio.

Despite good performance in revenue growth, in the current environment of lower inflation, Steele says it will be difficult for the Government to do much better than revenue growth of around 12-15 per cent over last year, in line with Bear Stearns' 'realistic' estimate for revenue growth of 10-15 per cent for this fiscal year.

But without a tax package ?— which he does not recommend ?— the budget as currently structured makes a deficit for fiscal year 2007/08 of 4-5 per cent of GDP a strong possibility.

He notes that his concerns are shared by United States investment bank Bear Stearns, which itself projects a fiscal deficit in the "3.4 - 4.8 per cent range."

HYPOTHETICALLY SPEAKING

In the hope, he said, of informing the budget debate, Steele has posed a few hypothetical questions for lawmakers to consider.

He is querying the need for separate funds ?— health, tourism enhancement, telecommunications, and several others ?— saying they are building up cash surpluses when expenditure is needed in other areas.

Referring to the national airline, he also asks why, if Air Jamaica is so important to the tourism industry, the industry isn't required to fund more of the bill for the carrier and the Jamaica Tourist Board.

"The cost is over $9 billion a year," said Steele. "Are there not many other needs that this amount could be funding?"

Government's pension bill has been increasing over the years, reaching $10.8 billion in this year's budget.

Steele, who was also heavily involved in the private sector's Partnership for Progress initiative of 2002, further quieries why public sector employees aren't contributing to a pension fund to help finance their retirement.

Education

Crime, he suggested, needed more resources, even as he questioned why education is given free to those who can afford to pay, while early childhood education suffers.

"Why should the children of the well off be subsidised at the tertiary level by the taxpayer?" asks Steele.

"Why shouldn't the children of the poor who receive tertiary education be required to repay the cost after they graduate even at zero interest so that the reflows can benefit the needy."

He also suggests that consideration be given to transforming the National Housing Trust (NHT) into a mortgage guarantee institution, thereby creating greater competition in the mortgage market.

"Why is the public being forced to contribute to the NHT when it already has $49 billion of capital? The excuse we constantly hear is that the NHT needs the money to lend to home buyers. The NHT has over $50 billion in mortgages on its books. All it needs to do is sell some of these mortgages for cash and use the cash to lend to new borrowers," said the financial analyst.

"In addition, if we would deal firmly with the fiscal deficit, mortgage rates would fall further reducing significantly the need for the NHT."

NON-BUDGET ISSUES

He also suggested that the $8 billion contributed to the NHT by employees and employers each year go to the central government budget to reduce the deficit.

Steele also appears to believe that simple measures to increase growth are being neglected.

"Why are there impediments to the issuance of corporate bonds?" he asks. "If these were removed, the corporate sector could borrow at much lower interest rates, forcing the banks to be more competitive and forcing financial institutions to look to small and medium sized businesses for loan growth."

In relation to governance, he also queries why representatives of the Opposition are not appointed to Government boards, noting that these institutions are are supposed to represent the interest of all Jamaicans.

"We are an immature society that has not been able to get over our sector interests ?— public, private and political ?— to forge a consensus which allows us to put in place positive changes that would benefit the majority of our citizens," said Steele.

"For the foreseeable future, Jamaica will have to face issues of scarce resources and, therefore, consensus on the allocation of resources is critical whoever forms the Government ... We require transformational leadership at all levels of the society. The unions have shown that it is possible," he said.

keithcollister@cwjamaica.com