In response to the presentation of the 2010/11 Budget tabled by Minister of Finance and Planning, the Hon. Audley Shaw on April 8, 2010, Caribbean Policy Research Institute (CaPRI) would like to comment on a few key points.
Our research suggests that the administration's aggressive privatization strategy is an appropriate and vital first step in addressing the country’s debt problem. Soon to be released CaPRI analysis of the Jamaica Debt Exchange initiative (JDX) indicates that non-central government obligations (i.e. debt originating from outside of central government, such as Air Jamaica and the banking crisis of the 1990’s out of which Finsac was born), combined, are the major contributing factors to the country’s increasing debt problem.
In light of the costly experience with the earlier, failed privatization of Air Jamaica, and the critical lesson that partial privatizations impose continued contingent liabilities on the public purse, the administration should ensure that entities on its divestment list are privatized wholly or not at all. Furthermore, the administration ought to review all current cases in which entities pose a similar threat because of partial privatization, and that steps be taken to ensure that those ties are severed. The whole point of government disposing of assets is to get rid of the associated contingent risks. If that objective is not achieved then the action is self-defeating.
As promised in last year's budget presentation, the Golding administration focused on developing cheaper borrowing. This approach appears to have been beneficial as loans from multilateral institutions have replaced financing from the international capital market which has been unavailable since the start of the global financial crisis.
Our research indicates that expenditure contraction, tax reform and public sector restructuring are all crucial to creating a platform for economic growth. In fact, every effort must be made across all contributing factors to improve the fiscal balance and decrease the debt. As such, public sector restructuring and contraction is a necessary sacrifice.
According to Minister Shaw, there are seventy-four (74) inactive public sector bodies slated for restructuring; of these thirty-one (31) will be closed, thirty-four (34) merged and nine (9) under review. The ambitious deficit target of 6.5% will depend on, inter alia, creative and aggressive public sector restructuring, and it is imperative that the government follow through. Public sector restructuring must be done in a strategic manner if it is to be effective; analyzing carefully the purpose, benefit and potential of each body and making an informed decision to downsize based on that analysis. Critical public sector services must be maintained and in some cases improved, so as to facilitate and ensure efficiency rather than indiscriminately cutting.
The promise of a central treasury management system is welcomed, as it was when it was also announced last year, as savings are to be had from optimally managing cash surpluses and needs across government ministries and agencies. At the same time, the fundamental tax reform (in the form of a revision of what is taxed and by how much), that was promised in the Minister’s presentation last year has not materialized and that promise has not been renewed. The Minister spoke instead, to an aggressive enforcement effort and gave examples of measures he will take to ensure no one escapes the tax net. He cited, for example, making it mandatory for professionals to demonstrate their tax compliance when submitting applications for certification to the relevant professional bodies. Such enforcement tactics are likely to garner much less revenue than reforms done from a structural stand point to encourage greater compliance and increased collection across the board – this is being proactive instead of reactive.
With regard to the expenditure side of the budget, Minister Shaw spoke on the PATH programme and his administration's success in almost doubling the number of beneficiaries over the total that existed under the previous administration, however he did not specify the percentage increase in benefits per beneficiary. If this is not significant, then we would be looking at a situation where a similar amount of resources are now shared over twice as many individuals. In a situation of deepening hardship in the country, it is imperative that the most vulnerable elements of our society receive the protection they require: PATH is widely seen as one of the country’s most successful social welfare initiatives of recent years, and its erosion must be prevented.
The cause of transparency will be well-served by more information on the PATH programme in relation to increased benefits and beneficiaries, the actioning of the unmentioned tax reform proposal and the decision-making process to be used for the public sector restructuring project. As this brief commentary is based on viewing the live broadcast of the budget presentation, together with insights garnered from past and current research, CaPRI looks forward to further details regarding these and other items presented by Minister Shaw as well as periodic updates throughout the fiscal year on the effectiveness of stated reforms in order to proffer a more complete analysis.
On April 19th CaPRI, in association with Jamaica National Building Society, will host an event to release our latest report entitled “Achieving Fiscal Sustainability: The JDX & Beyond”. The presentation will assess the significance of the JDX and its implications for Jamaica's future. It will explore the potential damage of defaulting on old debt obligations, how big a difference successful completion has made to Jamaica's debt trajectory, how far the programme takes the country towards restored fiscal sustainability and economic growth, and what else needs to be done to put the country on a road to development for all.
For more information or to attend this event, please contact CaPRI offices at the numbers provided, or visit our website at www.capricaribbean.org .
Friday, April 9, 2010
FOR IMMEDIATE RELEASE
CaPRI RESPONDS TO MINISTER SHAW’S PRESENTATION OF THE 2010/11 BUDGET
