EDITORIAL - Dr Phillips must not yield

Dr Peter Phillips, the finance minister, can expect to be rounded on by the textbook Keynesians after the formality of the J$21.6-billion cut from this fiscal year. He must not flinch.

For the critics apparently do not grasp the depth of Jamaica's fiscal crisis. Nor, it seems, do they apprehend that the budgetary adjustments, at this time, make the exercise largely an organising of the ledgers.

Worse, though, is the failure to offer ideas for the creative and deft use of government policy to help stimulate economic activity, without placing grave additional burdens on the national debt. Hence the glib complaints that the Budget cuts will put the economy into recession, and demands and uncritical calls for so-called counter-cyclical measures on the part of the administration.

A few facts about Jamaica's situation are pertinent, not least the country's debt of more than J$1.6 trillion, the servicing of which, despite the restructuring of the domestic portion two years ago, accounts for more than 40 per cent of the Budget. Indeed, after debt servicing, what is left, including taxes and grants, can pay only two-thirds of the wage of public-sector employees.

So, the Government has to borrow to fill the gap and meet other expenses. Fixing Jamaica's economic problems is, fundamentally, about slowing or, preferably, halting the debt momentum, reducing the Government's competition with the private sector for capital and allowing for investment in activity that drives growth.

It is against this backdrop that when he took office last month, Dr Phillips discovered tax inflows for the first nine months of the fiscal year were $14.6 billion, or six per cent behind projection. Overall, revenue was $25 billion, or seven per cent, below target and the fiscal gap was J$10 billion planned. Additionally, the Government faced another $12 billion in payment arrears.

an unwise minister

It is an unwise finance minister who, in these times, would have "run with it".

In any event, Budget cuts only eight weeks to the end of the fiscal year suggest that the reduced spending would, by and large, have already permeated the system and, therefore, be of limited consequence, going forward.

Of greater importance is what Dr Phillips does with the Budget for the new fiscal year that starts in April. He has already warned that there will be little room for significant new spending.

While we expect that the administration will provide some cushion for the most vulnerable, people who can afford to pay must contribute to the provision of government services. We expect action, too, on tax and pension reform: the former to have more people to pay their fair share, and the latter to have all government employees contribute to their pensions. We hope, also, to see movement on modernising the public sector to enhance its efficiency and remove unnecessary jobs.

At the same time, he can effectively use other policy instruments to stimulate private-sector activity, such as our proposal for the use of the Government's School Feeding Programme, for which $2.5 billion was budgeted in the current fiscal year, to promote investment and production in agriculture.

As we proposed, it is easy to mandate that the programme be predicated entirely on domestically grown foods, or foods processed locally and meeting a specified domestic value-added.

The possibilities are obvious.

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