Editorial | Stability budget, but …

The J$1.44 trillion expenditure budget – with its J$18 billion in new taxes – presented by Fayval Williams last week has to be read in the context of Hurricane Melissa.

It is a stabilisation plan drafted under pressure: an attempt at balancing domestic needs and providing comfort to rating agencies that the administration will avoid excessive debt-driven financing.

However, the degree of the shock of the hurricane, which caused an estimated US$8.8 billion in damage – 41 per cent of GDP – calls for a bit more than stabilisation. For example, the Government ought to use the crisis to address Jamaica’s chronic problem of low productivity, which also raises questions about Prime Minister Andrew Holness’ promised “pivot to growth”.

These are among issues that Ms Williams, the finance minister, and Prime Minister Holness, will be expected to address in their further, and deeper, discussion of the budget.

In addition to the expenditure figure, Minister Williams projected revenues of $1.338 trillion – including the new taxes plus J$11.4 billion in transfers for the National Housing Trust. This leaves a fiscal gap of roughly $103 billion to be financed, likely through a mix of project financing from multilateral institutions and financial market debt.

The largest single revenue measure is the new Special Consumption Tax on non-alcoholic sweetened beverages, expected to raise $10.1 billion. This is followed by the increase in alcohol and cigarette taxes. These are politically defendable instruments if framed around public health and revenue recovery.

The proposed flat per-millilitre tax will raise money once the unforeseen kinks are ironed out. However, a graduated, sugar-content-based tax could encourage reformulation and innovation leading to improved national health outcomes. Non-communicable diseases are not merely a health issue; they are a labour productivity issue as well. Healthier workers are more productive workers.

MOST IMPORTANT REFORMS

The proposed application of GCT to digital services and intangibles supplied from abroad but consumed in Jamaica is one of the most important reforms. In the modern platform driven economy, failing to tax digital imports is fiscal leakage. But beyond revenue, this reform could catalyse digital formalisation. If paired with electronic invoicing and digital compliance systems, it could reduce informality, lower transaction costs, and improve firm efficiency. Formalisation is a major driver of productivity for productivity growth.

The increase and base expansion of the Environmental Protection Levy (EPL), while revenue-enhancing, can be seen as a missed opportunity. As commentaries from stakeholders have pointed out, the EPL is not currently structured as a true environmental price signal. In a post-Melissa Jamaica, environmental taxation should not simply accrue to the Consolidated Fund. It should finance climate resilience and energy efficiency upgrades.

The budget does contain some material for productivity improvement, but it needs a sharper focus.

One promising element of the proposed measures is the accelerated capital allowance regime. Encouraging firms to rebuild and retool after disaster is wise. But this instrument could go further. Enhanced allowances could be targeted to automation, digitisation, renewable energy retrofits, logistics equipment, and export-oriented production. The government’s own data are showing that Jamaica now enjoys full employment. Meanwhile, many companies are finding it difficult to find suitable labour. This suggests that there is a need for capital deepening – more and better equipment per worker is the foundation of sustained productivity growth.

Similarly, the proposed increase in GCT on tourism activities from 10 per cent to 15 per cent effective April 2027, projected to yield $11.4 billion in 2027/28, should not be viewed purely as a revenue measure. If structured carefully, it could be linked to backward linkages. Partial credits or rebates tied to local agricultural and manufacturing sourcing could strengthen domestic value-added and reduce import leakages. Tourism productivity improves when more of each visitor dollar circulates locally.

LEAST DISTORTIONARY

The update of the Property Valuation Roll – currently based on 2013 values – will significantly affect property tax assessments once implemented. Property taxation, if well designed, is among the least distortionary revenue instruments. It can also encourage efficient land use. Higher effective rates on idle urban land and redevelopment incentives in underutilised zones would stimulate investment and densification.

Even the controversial continuation of annual transfers from the National Housing Trust (NHT) invites a productivity conversation. Housing is not merely social policy; it is labour infrastructure. Workers who live closer to employment centres and in resilient housing environments are more productive. Rather than relying on NHT transfers as quasi-fiscal financing, the country should explore resilience bonds and housing-linked reconstruction strategies that strengthen, rather than weaken, the housing ecosystem.

The 2026/27 Budget does what it must: it stabilises. It preserves credibility. It distributes fiscal adjustment across consumption categories that are politically defensible. It maintains key commitments such as the continued increase in the personal income tax threshold.

But productivity growth does not emerge automatically from fiscal prudence. Post-disaster moments often provide real opportunities to use fiscal levers to upgrade production systems, energy systems, land use systems, and institutional capacity.

Jamaica’s long-run challenge is not only debt sustainability, which it has done a good job handling. It has suffered for a much longer period from productivity sustainability. Without sustained gains in output per worker, fiscal stability will remain fragile, vulnerable to the next external shock – climatic or geopolitical.

So, the next step must be a productivity-centred reconstruction strategy that links tax design, capital incentives, digital formalisation, energy transition, housing resilience, and industrial upgrading into a coherent framework.

When Minister Williams speaks in the budget debate she must lay out a plan linking all these elements into a coherent national strategy.