There has been a renewed round of debate, following the supplementary estimates and PSOJ tax reform proposal, on what policy prescriptions are required to move the Jamaican economy forward. This local debate has been happening at the same time as some international economists and financial commentators have been espousing the benefits of the Keynesian approach of the US versus the fiscal austerity measures of Europe. Even Mervyn King, after the UK went the austerity route some two years ago, in the ECB's February Inflation report is quoted as saying that the current fiscal austerity measures will stymie growth.
Two of the limitations we suffer from in Jamaica are short-term and extreme thinking. In the first case we always seem to be thinking about the short-term fiscal and economic solution, which is why we seem to be constantly making sacrifices, and in the second case we condemn the for Keynesian approach as if it is mutually exclusive with fiscal discipline. I don't think anyone who argues for stimulus is saying that we should be fiscally irresponsible and spend in a scattershot approach. Rather, just as Obama did in the US, we are saying that specially designated stimulus funds should be targeted towards employment, for those with the highest propensity to spend, and also at value-added projects.
Our failure to do so will result in social and comparative advantage deterioration. My own view is that Greece will sink further with these fiscal austerity measures, because fiscal austerity doesn't address the underlying problem, similar to Jamaica's of the balance of payments. It is also a blinkered way of thinking to speak about improving the fiscal and economic situation, without giving much consideration to the social realities.
If we therefore truly want economic and social development, we must look at not only the inhibitors, but also how best to utilise our resources, present and to future. This simply means doing the proper financial analysis to determine the greatest value added, and can be seen as a SWOT analysis focus where we build on strengths / opportunities and eliminate weaknesses / threats.
One of the first things to understand is that our blinkered focus on the fiscal accounts over the years is one of our primary problems. The most important measure of our economic (and ultimately social success) is the balance of payments, and more specifically the trade deficit. Over the years, however, we have ignored this and have instead chose to borrow money to close that gap, rather than address the underlying problems of international productivity and comparative advantage. This is fundamentally what has caused our debt crisis.
So if we take a careful look at our balance of payments we will see where oil and food make up 37% and 10% of imports respectively. Isn't it therefore logical that if we focus on reducing these, and substituting them with local solutions, that this will provide an automatic boost to our trade numbers? So when the Energy Minister speaks about competitiveness in energy and putting solar solutions at home, why is the first reaction that poor people can't afford it? It is this inability to think outside the box that keeps us poor. I support 100% of what he is saying because I had solar equipment installed two years ago and my electricity consumption is 50% of what it used to be. Increasing electricity rates are no longer a problem for me. Isn't it therefore cost effective to get a loan from NHT or a financial institution, such as RBC, to install the equipment?
Dealing with food and oil imports by even 30% to 50% will eliminate our trade deficit and be a positive for the fiscal, which is a symptom, not a cause.
It is also very important for us to understand that investments in capital infrastructure, around our areas of comparative advantage, such as tourism and agriculture, are critical if we are to remain competitive. So while I understand the need to cut the current capital expenditure budget in the fiscal accounts, we must ensure that we increase the capital spend around our areas of comparative advantage; otherwise we will lose the competitive edge and push our balance of payments further into decline. I happen to think also that the renewable energy solution is a new area of comparative advantage for us.
We also need to realistically focus on policy reforms that can take place in the short versus medium term. I have always maintained that (i) public sector rationalisation, the way it was approached, was never going to happen in the short term; and (ii) pension reform is a medium-term project. We fool ourselves into unrealistic projections when we project outcomes way before they are possible.
So the only realistic short-term project now is tax reform (and some legislative reform), which needs to be approached in a way that drives economic growth, and provides the spending stimulus needed for the economy. This is why I am in favour of (i) reducing, with a view to eliminating, direct tax at the PAYE level; and (ii) implementing a sales (as opposed to value- added) tax on all items and services, while at the same time reducing the consumption tax rate and having more targeted welfare funds to persons below a certain income category. Many might not agree, but my responsibility is to provide the most logical financial solution.
Very importantly also, we must take steps to improve law and order, because if we do so then areas of crime like murder, praedial larceny, and tourism harassment will decline. On the other hand a focus on one specific area of crime, without a general law and order focus, will not achieve the desired long term-effect. I again support the initiative of the Security Minister in this matter. We must now move further and address the "in your face" disciplinary issues of traffic and night noise. No one wants to live and raise families in an undisciplined and boisterous society.
What we must understand is that Jamaica can never truly move forward unless we make the citizens, and consumers the centre of development. After all, isn't this what a society is all about?