Friday, March 28, 2014

Jamaica’s road to prosperity

THE January fiscal numbers reveal a concern that many of us expressed at the start of the IMF agreement: that achieving the primary surplus target is going to be very challenging. The numbers show that up to January 2014, we were some $2 billion behind the primary surplus target of $69 billion, with the more challenging months (February and March) ahead of us. So a lot will depend on the tax collections, especially in March.

What we also know is that many businesses and individuals have seen significant fall-off in income levels, and local and international consumption tax revenues have been lagging behind. We also know that the Government has been making considerable cutbacks in capital expenditure, and to January 2014 we have spent just under $8 billion less than was projected. But even this was not enough to save the primary surplus target as tax revenues were some $13 billion behind projection, showing that it is all going to come down to the tax collections.

Based on this the question on many minds is whether the Government will be introducing new tax measures. It is important to note here that the thought process of the IMF continues to be that what we need is a widening of the tax base and lower tax rates, which implies doing away with special exemptions, as done with tax waivers, and eventually lowering the tax rates generally. This process is already in train.

Will there be new taxes introduced? Only the finance minister can answer that, but in my own view, this would be a very damaging thing to do at this moment when we are seeing improvement in confidence, and very importantly, from where I sit, a lot more interest in entrepreneurial activities from university graduates.

This last point is critical, as what it means is that young people are seeing a better way for themselves by going the route of starting their own business. The problem is that they are not the ones with the loudest voices; those really are the business people and people in the workforce, through unions, etc. The other problem with this is that some of the businesses and people who are having difficulty have that difficulty because they are not competitive enough. On the other hand, there are also many SMEs in particular that have challenges because of still existing inefficient government bureaucracy and government policy.

The challenge we face, then, is how do we distinguish between those who have a genuine problem and those who even, after we make the necessary bureaucracy and policy improvements, still won't be able to survive. And also, how do we help to transform to greater productivity those businesses and persons who are capable of being transformed to greater productivity and efficiency?

This is a challenge that is faced even when one is trying to turn around the fortunes of a company, or person. The fact is that there are some companies and persons who will not be capable of being transformed, and we need to quickly identify those and understand that they are incapable of being saved and put in place other ways to assist them. This could include retraining, refocus, or welfare. In the past we have tried to maintain the status quo, even when there are clear inefficiencies, and what this has resulted in is new taxes and continuation of outdated incentives that do nothing more than cause further pain for all.

On the other hand, there are many that are capable of greater things, as we see many times when companies and persons extend themselves abroad to other environments and excel. And all they need is that government policy to create an environment for them to excel in.

It is for this reason why last week I recognised the excellent customer focus of the TAJ. And also why my message to the Government now is that the most important thing for us to do to transform Jamaica to prosperity is to stay the course. In other words, we must have confidence that the current fiscal policies and legislative and other changes will work, and we must continue on the path with a certain amount of discipline and not panic. So if we see tax revenues below projection, this does not mean that we raise taxes in a panic as this will only result in what we have done in the past.

Instead, what we must do (as the IMF says) is continue to broaden the tax base and lower the rates, to make us more competitive. We must also continue to focus on reducing energy costs; strategically dealing with crime, indiscipline, and transforming the police force for better customer service; and we must address the bureaucracy impediments, such as the development approval process, which is not being worked on fast enough.

We must also continue our focus on legislative reforms to make the environment more facilitative and competitive. So the fiscal rule legislation (which must also include sanctions), insolvency act, and comprehensive tax reform is necessary for the transformation to prosperity.

I have always felt that the primary surplus target was going to be very difficult to meet, and I wouldn't spend too much time right now on whether we do or not. What I think is important is that we continue to do the things that are necessary to move us to a more competitive environment where businesses (and in particular SMEs) can flourish and plan, where citizens feel safe and can be rewarded with success if they are willing to work, where all children have access to a solid education (up to tertiary level), where government bureaucracy is focused on providing excellent customer service (such as at TAJ), and where discipline is maintained.

My own view is that we are on the right path to making all of this happen, and what we must do is filter out the valid criticisms from all the noise that will inevitably come as we go through this period of adjustment. The sign of a good professional is that he/she does proper due diligence and determines a successful plan and sticks to that plan after having ensured that it is the right one. The biggest mistake he/she can make is wavering at the first criticism that comes.

So if we want to get Jamaica to prosperity, then we must also stay the course.

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