Budget positives and room for more

Martin Henry, Contributor

Things are happening in the Budget which have not been seen for decades, perhaps not since the end of the 1960s, early 1970s. But we may be now too tired and cynical from years of lifting the massive debt burden, or too party-loving, to even notice, much more to celebrate.

For the second consecutive year, debt-servicing costs have fallen below 50 per cent of Budget. This year, debt payment has been assigned just over 48 per cent of the 2011-2012 Budget. I really don't care who did it! This is still a horrendous debt burden, but we are climbing down from up to two-thirds of the Budget being earmarked for debt management. The Jamaica Debt Exchange programme, which has pegged down interest payment on the domestic debt, has had a lot to do with the fall of the debt-servicing costs.

Freeing up more revenue dollars for domestic expenditure on development activities is a sea-change reversal of the continuously climbing debt-servicing costs over more than a generation.

The Estimates of Expenditure for the new financial year is only a marginal nine per cent higher than last year. When the annual inflation rate for last year, around seven per cent, is taken into account, this is virtually a flat Budget. So there will be some pain. Already, various sectors have come out bawling about cuts or the absence of increases.

The Opposition has, hypocritically, called a press conference outside of the parliamentary Budget Debate by the Standing Finance Committee (the whole House) to, among other things demand more money for health and education. They had, the very week before, threatened to lead national protest action if the ad valorem tax on gasolene was not reduced to take some pressure off motorists and the general public in the face of rising prices, and having a revenue-impacting reduction conceded by the Government. Politics may have wrung blood out of stone in the past, but that magical power has dried up.

True, the present Government had foolishly and intemperately and politically removed user fees from public-sector health services and from secondary schools.

Closing the Budget deficit and reducing the debt burden are simply massive steps in reversing the spendthrift habits of a country which has racked up one of the highest debt-to-GDP ratios in the world and was borrowing more and more to continue living beyond our means. It could not continue. The two options confronting us were structured, albeit painful, adjustment, or chaotic collapse.

Time for action

The governor general, for what it is worth after years of dissonance between pronouncement and action by all administrations, has announced that long-awaited tax reforms and the reform of the public sector are to vigorously proceed this year. These would have been better done before the Budget, providing a platform for greater credibility and less recourse to the Supplementary Estimates route, which has been the order of the day for decades of fiscal mismanagement. Meaningful tax reform should be driven by the objectives of simplifying an excessively complex system, widening the tax net, efficient collection of taxes due, and lowering the overall tax burden on human and corporate persons, freeing up more money for production and consumption activities which stimulate economic growth. The reports and recommendations are in. Let the action begin! And the Government will discover, to its pleasant surprise, that if it chooses to go that route, as it should, the population will psychologically and economically absorb a wide range of relatively painless real cost recovery of user fees for public services, freeing up even more money for capital development and for recurrent expenditure in areas, like policing, where cost recovery can't work.

Public-sector reform has to cap and reduce the wage bill, the second biggest Budget line after the debt, while delivering greater efficiency in public services. For years the public service has been politically forced to act as a labour mop with little regard for either efficiency or real wages to workers. While budgeting to begin paying a number of retroactive wage settlements which have been dishonestly withheld for years, the Government has confirmed what civil servants knew they were to expect: a third year of wage freezes.

No time for games

The memoranda of understanding, which began with the last administration and have continued with this one, have been a tacit agreement of protecting jobs in exchange for accepting salary freezes. At some stage, that 'agreement' will have to give way to a straight-up rationalisation of jobs and wages if we are serious about public-sector reform, efficiency in Government, and a reduction of the cost of the Government to the economy. We cannot forever play around with belling that cat.

And in a flat, tight Budget under International Monetary Fund manners, where should the money go preferentially? That question cannot be answered without first dealing with another more basic one: What is the core business of Government which nobody else can do and which, therefore, cannot be divested?

A Budget has to have some overarching philosophy and a policy framework on which to hang. I am absolutely delighted and heartily commend the Government for allocating this year an eight per cent ($3 billion) increase to the Ministry of National Security on the recurrent side and a slight increase of the capital side.

The first business of government, indeed, a primary reason for government, is the security of the person and property of citizens. Crime trended down dramatically in the second half of the last financial year.

The pressure must be kept up, and for this, adequate human and physical resources are required. For years I have been advocating that the Government top-slices a small, flat percentage off every other Budget line and top up allocations to security and justice. An eight per cent increase to security is not nearly enough, but is a policy recognition of the primacy of security in the responsibilities of Government and a single-digit step in the right direction.

The World Bank has just released another report indicating that crime is costing the Jamaican economy around five per cent of GDP. When crime is pushed down, and law and order and public safety improved, the productive sectors will perform better, health services costs, of which a big chunk is dedicated to crime trauma care, will go down, and education performance will go up.

Securing law and order

There is hardly anything more important that Government can do to stimulate economic growth than improving law and order, which also benefits all citizens in the security of their person and property. The manufacturing, tourism, agriculture and other productive-sector people must be firmly told this without blinking when they come bawling for more from the little for their special interests. The Budget must preferentially promote the general public interest as first claim.

Among the other core responsibilities of Government are justice and public infrastructure. While spending on capital projects is projected to increase by some 40 per cent, I was hoping to see a clearer and more coherent commitment to restoration and renewal projects, particularly in the inner cities and with the environment, coupled with job creation and crime reduction from degarrisonisation. Using a preponderance of unskilled and low-skilled labour, a few billion dollars could go a long way.

Despite the revenue pressures on the Budget, the Government must honour its commitment to transfer the minimum 20 per cent of the special consumption tax on gasolene to the Road Maintenance Fund (RMF). And the RMF, like other cess funds including the Tourism Enhancement Fund, must be vigorously deployed for infrastructural upgrades with job creation.

A key function of government which is not treated with sufficient seriousness, even by economists and economic analysts, is the protection of the stability and integrity of the currency. Right up there with crime, the ninetyfold devaluation of the Jamaican dollar against its United States counterpart, with which it was on par in 1969 when the Jamaican dollar was introduced, is a telling index of the failure of government. The debasement of the currency, through devaluation and inflation, has done more to undermine the productive capacity and the wealth of individuals and of the country than any other single factor.

keeping dollar firm

The Budget is an important tool for currency management and this year's offers hopeful signs that the protection of the Jamaican dollar from the ravages of inflation caused by printing money to support expenditure, and from devaluation caused by import consumption demands outpacing earnings of hard currency from exports, are serious policy decisions. The dollar, against the critics, has revalued in recent times and has been holding pretty firmly in the region of 85-86 to the United States dollar.

The Standing Finance Committee of Parliament which debated the Budget last week brought unprecedented vigour to the exercise. But it is highly unlikely that the probing questions of the Opposition and the interventions of Government members will significantly affect the shape of the Estimates of Expenditure which are presented as fait accompli by ministers of finance. I have long argued that Parliament should have, indeed should demand, greater control over the Budget process.

The long-winded Budget Debate with its slate of government and opposition speakers laboriously orating to the deaf is a waste of time. An intensive dissection of both the Estimates of Expenditure and the Revenue Budget by the Standing Finance Committee, with some guaranteed real latitude for change, would be far more useful. This year's lively engagement suggests that the Parliament is at least facing in the right direction.

Martin Henry is a communication specialist. Email feedback to columns@gleanerjm.com and medhen@gmail.com.