Friday, May 04, 2007

What is the budget's role?

At the Observer Business Leader Awards, 'Butch' Stewart spoke to one of the main issues affecting the economy - the need for a friendly business environment. He commented that in his business exploits throughout the Caribbean, Jamaica was the least friendly in terms of business. I would be a lot more inclined to believe comments about the business climate from a business person, such as Butch Stewart, than those from any multilateral agency or government official, many of whom had never had to contend with the business environment they have created.

One point of note is the need for greater tax compliance, which very importantly must be accompanied by tax reform. The government is now trying to rope in the estimated 40 per cent of the informal economy, which by their own policies they have assisted greatly to create. But while much greater tax compliance is extremely important, it is also essential that it be handled correctly for the protection of the economy. I say this because if tax administration does not take care in bringing the informal sector into the tax net, it could create a whole lot of judgements for tax payments and end up destroying many of the businesses. In other words, if 50 per cent of the informal economy shuts down because of stringent compliance measures, then we could end up losing 20 per cent of businesses (50 per cent of 40 per cent of the informal economy).

I recently had an experience where in trying to assist a small business to get compliant, I called the tax authorities and outlined the following situation: this person was in a bad way with all tax issues and wanted to make everything right. In order to do so, of course, he would need income and so I asked what needed to be done to bring this company into compliance while at the same time issuing a conditional clearance to allow them to proceed with business, while the compliance steps are being taken. Of course the "business-friendly" tax person said he was not willing to discuss any forward movement until certain filings were done. By this time of course the business may have to shut down, resulting in lost employment and economic activity. But the surprise of course would have been if the response was, "Sure, we can have this done within X timeframe if X is done."

Budget process
This brings me to the budgetary process. If the budget can be presented with no consideration of strategic direction, and policies on how we intend to move this country forward, then what could I expect from a public sector employee? The key to not being disappointed with government services is to have no expectations.

Almost every commentator on the budget, including myself, believes that the process lacks any policy direction for the country. In fact, the budgetary process has turned into a grand waste of time that slows down business activity for approximately two months every year, while we ponder our fate based on what the finance minister has to reveal. If the minister is kind enough not to introduce any new taxes, then we scamper back to our businesses to see if we can eke out profits for another year. If, on the other hand, the tax package and the increased debt burden cause us too much strain then we go back to see if it is beneficial to close down, given the high cost of redundancy and other closing costs. At the end of the main budget debate, who can say that they feel energised and enthused about the plans we have for the development of the country? If there is anyone out there who feels this way, please contact me and give me hope, because I do not feel that we have achieved anything from the budgetary process except some giveaways, although we have said that we have no money.

The budget process needs a major overhaul. Every company that aims to survive in a competitive world (not just make money from government paper) goes through a constant process of reinventing itself. This takes the form of looking at the business processes (internal and external) and conforming to what will add greatest value to the company. We also need to take a serious look at our budget process, which is certainly not geared towards developmental activities, but rather at balancing revenues with expenses.

Strategic plan needed
What we need is a focus on a wholesome strategic plan, supported by the budget, and not the budget setting the stage for policy objectives. Wouldn't it make more sense to have the sectoral debate as the main part of the budget and then the presentation by the finance minister as the support, advising how these policy objectives are to be financed? So then the security, education, and health ministers would present their policy directions to the nation, after a strategic process where the various sectors justify the value-added of their expenditures to the finance ministry. After these debates the finance minister would present to the nation how these plans are to be financed. But much is always made of the expenditure and revenue estimates, which without the policy directions are meaningless numbers.

So at the end of the main budget presentations this year, the conversations are not about the relevance of the development plans presented (because there were none), but rather the discussions focused on (1) How are the various promises to be justified? (2) What level will the debt end up at? (3) What will the fiscal deficit end up at? (4) How much money did Mirant get for the sale of JPS? (5) What was the response of the multilateral agencies in respect of borrowings? (6) Who did what, when and where?

Is this the best that we can do after 45 years of political independence? In a time when the world is celebrating growth rates of 5 per cent and above and our neighbours show growth rates of 9 and 10 per cent, we are ecstatic with 2.5 per cent. And, as if to show our complacency with this anaemic growth rate, we present a budget that provides no direction on how we will move forward with the development of Jamaica. So we do not know what the specific plans are to consistently achieve world-class growth rates and create the environment needed for greater private sector investments.

My hope continues to be that the sectoral debate will provide some greater insight as to how we will address problems such as crime, education and health. And these policies need to be credible and not just commitments made that are not kept. We need to know how we intend to restore the public's trust in our institutions, such as the courts and police force. We need to know what we intend to do about public entities such as Air Jamaica, SCJ, and JUTC which every year remain an increasing burden on the country's resources, without any light at the end of the tunnel.

The role of the annual budget should be about providing not only an update on the state of the economy, but what the plans are for moving the country forward. If at the end of the budget the objectives are not met, then the sectors with responsibility for policy, and the prime minister ultimately, should be held accountable by the opposition and the people for any failures. Until we get to this stage, then the annual budget will be nothing more than a ceremony of parading the latest outfits and a bunch of meaningless numbers being bandied about.

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