My Two Cents » Budget Debate : A Jamaica Gleaner Blog

Budget Debate

The budget debate has just ended and the arguments have just begun about who won the debate, whether the budget was poorly constructed and were the tax measures announced the best way to raise taxes. There are some things that one should think about in assessing the budget.

This year’s budget was an extremely difficult one to prepare because the worldwide financial crisis has severely impacted on the revenue that the government will earn. I don’t care what the analysts say, no one knows how long or how bad this financial crisis will be therefore it is difficult to know exactly how much our revenue will be affected. What compounds the crisis is that we are ill prepared to meet it. There has been little growth in the economy in the last 20 years and there are no reserves that have been put aside for emergencies. This is a lesson that all individuals need to learn, one should always put aside something for those unexpected circumstances.

Another point to consider is that for too long Jamaica has been living on borrowed money and now in the time of crisis there is no more money to borrow. The principle here is to live within your means in other words the country needs to have a balanced budget. For too long we have borrowed to support the budget and nothing has been left over for development. In addition too many persons refuse to pay taxes but yet expect that education and health must be “free”. If all persons who should pay tax were to pay their taxes we would have no problem in paying teachers, doctors and nurses.

It is time to return to our senses; living on credit will only lead to bankruptcy. Whether we like it or not it is time to make some difficult decisions but if each one will play their part it will be easier on everyone.

Feedback question: What ideas do you have for Jamaica to cut expenses?

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6 Responses to “Budget Debate”

Teflon says:

May 19, 2009 at 10:31 am

The 2009/10 budget is not credible. Revenue is grossly overstated and expenditure grossly understated, especially interest expenditure. Fact: tax buoyancy is 1, which means that a 1% growth in nominal GDP will result in a 1% growth in revenue. Real GDP will fall by at least 3% points this FY! The gov’t proposes to mobilized 22% more revenue than the outturn in FY 08/09. This includes the $18.5bn plus over $23bn from the collection of arrears. In the face of a downtown in the economy–the fallout in the bauxite and tourism sectors, and a slowdown in remmittance flows and FDI– consumers/producers will not be able to consume/produce more plus pay back taxes in addition to their current tax liabilities.

On the expenditure side, the GoJ assumes an average interest rate of 17% in the budget, i.e. predicated on an average 6-mths T-bill yield of 15-16%. The 6-mths T-bill in April was 21.17%! Given the prevailing economic vagaries and gov’t monthly borrowing requirements, the 6-mths T-bill will not fall by 600 basis points this year. It’s not realistic.

There is likely to be a fallout in revenue of between $20-25bn when compared to budget. Likewise interest expenditure is likely to be $6-10bn more than is budgeted based on realistic forecast for the interest path.

The fiscal deficit is likely to be anywhere between 8.5-12.5 of GDP%!

T’is best to tell the truth and hope for a more favourable outcome than to ‘sugar coat’ the rotten apple. I know for sure that I won’t eat it because I know what is under the icying.

And for the record I am not aligned to any political party. I am just being pragmatic in my assessment of the 09/10 budget.
Charlie says:

June 10, 2009 at 8:01 pm

Produce and consume more local foods. Lower the interest rate and encourage manufacturing thereby creating exports. Encourage the diaspora to invest and offer investment incentives. Lower the crime rate so investors will feel comfortable when taking risk. Create a more sophisticated tax base. Streamline the beurocratic process so that land titles, intellectual property and export procedures can be quickly addressed. Develop an evaluation policy for politicians. keyed to proven saving programs for their community. Renegotiate external debts so less interest is paid and direct more money to capital development Every programs. Introduce savings and thrift as part of the school curriculum. Take a close look at Bermuda and the Singapore model The list could go on and on
Charlie says:

June 10, 2009 at 8:04 pm

Oh !! get real lets tax the drug dealers
Charlie says:

June 15, 2009 at 6:58 pm

Invest in alternate (green) energy.Devalue yes devalue the dollar this will encourage export. Assuming the net reserves improve after 5 years,then go for a single Caricom currency. This will put us in a stronger position when negotiating with external financial agencies
Charlie says:

June 19, 2009 at 12:46 pm

Teflon, An excellent breakdown. The credibility gap widens when one realizes that Shaw seemed to have initially underestimated the nature of the global financial meltdown and did not make early corrective moves. Case in point, when akked how would the initial failure of the investment houses on Wall Street affect Jamaica. Shaw said the impact would not be much. This of course was unreal.What we need however are practical suggestions on how to deal with this current shortfall. I look forward to your reply
Pasty Lute says:

May 24, 2011 at 8:05 pm

Its like you read my mind! You seem to know a lot about this, like you wrote the book in it or something. I think that you could do with some pics to drive the message home a little bit, but other than that, this is wonderful blog. A fantastic read. I will definitely be back.