Devaluation & bank tax - a bad combination

Orville Taylor

When I heard that the Jamaican was about hurdle over the 110m, I, of course, was jumping for joy over the projected exploits of young Jaheel Hyde at the Carifta Games last weekend. However, the 110 reference was the value of the American dollar versus ours - and not track and field, which has mined more gold for us than we could have expected.

Still, Hyde, one will recall, broke the IAAF World Youth Championships record last summer and would have snatched the world record had he run 0.01 of a second faster. One might think that it is an insignificant fraction, but it means the world. It might not have been running or hurdling, although the finance minister opted out of an in-studio discourse with me last Thursday, but the apparently infinitesimal decimal popped up again.

Just over a week ago, Minister Phillips announced a small 0.1 per cent tax on financial transactions. Withdrawals of less than J$5 million will attract this levy. This is separate from the eye-sucking charges that the banks already stick to the customers for cheque encashment, over-the-counter withdrawals, and dormant accounts.

CHANGE OF HEART?

Jogging my memory to last fiscal year, one got the initial impression that he was going to trim ... at least, the excesses of government and the only additional 'tacks' were in our trousers, as we banded our collective belts. Now, that implicit promise has been broken, as Government seeks to earn J$377.6 billion in additional tax revenue - an increase of almost 10 per cent over last year.

Banks are in the business of making money the easiest way possible, and it is not their concern that the working poor are suffering. Nobody elected them. Therefore, unless they are mandated to absorb the new costs, it is the consumers who will invariably feel it. This new tax now puts pressure on credit unions and other people-oriented 'socialist-type' entities in which the working class, the real heroes and sacrificants of oppressive economic policies, save their stash. Previously, the electorate could have evaded some of the fees, by doing their transactions electronically. However, the taxman now touches ATM, Internet, cheques and point-of-sale transactions. This is really bad news for the populace, because as if thrown in the briar patch, "Everyweh wi go, we get juk." Indeed, the only way to avoid having your money sucked or chipped away is to put it in, leave it, while being moderately active, and not whine too much, if you can avoid taking it out. Worse, it is money which is progressively losing its value.

I didn't want to rain on the Government's parade, because some good economic signs are on the horizon. So said the finance minister. There has been a percentage increase in GDP and a fraction of a per cent decline in unemployment. Furthermore, the country's human development index (HDI), which has moved constantly upwards since the 1980s, has continued to hover around 0.73. The HDI measures the overall progress of citizens and was developed by the UN in the 1980s, because economic data like GDP and average income obscure factors such as poverty.

ECONOMIC GROWTH AND POVERTY

While any patriotic Jamaican must be thankful for the improvement in the economic indices, we must be also mindful that the poverty levels have increased in the past few years. Thus, again we are having the paradox of growth and poverty dancing together.

One will note that during the last few IMF programmes, and the policies that the Government pursued after, the gap between rich and poor never narrowed. Moreover, the majority of persons listed as poor were also measured as being employed. Simply put, the working poor always seem to suffer and never feel the benefit of any progress. And although we ask workers to make sacrifices until things improve, and hear of trickle-down economics, there is no basis for that belief, because no such economic theory exists. Any redistribution of income or benefits from GDP growth must be from government policy. And it has never happened in this country. Words, slogans and tag lines are not the same as pro-poor or pro-worker strategies. A new bank tax is not pro-working class.

Yet, what scares me in all this is not the internal tweaking of the tax net, but the old prescription of devaluation that thwarted the economic prospects of the country over two decades of structural adjustment. As I outlined in two of my columns last year, the data do not bear out the theory of devaluation increasing our exports and reducing our imports. Rather, it leads to a balance-of-trade and, possibly, balance-of-payment deficit.

Jamaica's Government direct externally issued debt, according to the Bank of Jamaica's data, stood at US$5.985 billion in October 2012. Last October, this figure was US$6.177 billion. Now, to the credit of the present administration, this was US$6.376 billion when it defeated the JLP in December 2011. Nonetheless, unless we are using a different type of mathematics from that which we learned from infant school to the Department of Economics' offerings at the University of the West Indies, the total external debt grew in real and relative terms.

As I have always maintained, devaluation, for me, is a four-letter word, and it always spelled D-E-B-T and decay. In December 2011, the American dollar was purchasable for J$86.70. Today, it is US$1: J $110. Devaluation, from the standpoint of a country with a large external debt, must be a frightening prospect. So, let me make it even simpler. The devaluation of the local currency, even if we did not reduce or increase the debt since 2011, increases our debt by J$44 billion, and we have to earn that.

Don't fool yourselves. If the dollar continues to slide, no economic growth will rescue us and we won't have any money to deposit or withdraw. I'm not an economist, but that is my 0.01 cent.

Dr Orville Taylor is senior lecturer in sociology at the UWI and a radio talk-show host. Email feedback to columns@gleanerjm.com and tayloronblackline@hotmail.com.