Friday, July 29, 2016

We need a serious approach to development


The current government has economic growth as its main thrust. The phrase coined by the Growth Council — “Five in four” — refers to the objective to have five per cent growth in four years. If this is achieved this would be a significant boost to our economic fortunes, and already we are seeing increased economic activity and higher levels of business and consumer confidence.

As a part of the boost to economic activity, the government has started to implement it’s $1.5 million tax threshold promise, made in the run-up to the general elections.

So far we have seen the threshold move from $592,000 to approximately $1 million, with the final move to $1.5 million slated for April 1, 2017.

In addition, the government has indicated that the aim is to move completely from direct to indirect taxes — a very good move, and Finance Minister Audley Shaw indicated on the On Point discussion programme on Business Access TV, that the aim is for this to be done before the end of the current five-year term.

Shaw also indicated that there was the possibility of a small tax package next fiscal year to accommodate the threshold increase, but that this would be on the consumption side.

The fact, however, is that while this tax threshold increase will result in short-term stimulus to the economy, and the move to indirect taxes will assist with greater tax compliance, this by itself will not give us the much-needed development. And without certain other actions or policies being implemented, it will be improbable that we will see the consistent 4.0 to 5.0 per cent growth rates needed.

Further, even if we are to see improved growth rates, this does not equate to the economic and social development needed. Economic growth is one part of the equation — but by itself is insufficient.

Economic and social development means an improvement generally in earning capacity and living conditions for most Jamaicans. This means that the increased capacity of persons to earn, infrastructure development, and personal safety must be at the core of government policy.

The challenge that we have is that our politics, and government policies, have been too much focused on handing out a fish rather than teaching Jamaicans how to fish.

And the reality is that Jamaica will not see true economic and social development unless we build the capacity of everyone to improve their income, and create opportunities for them to earn — instead of policies that seek to increase income without increasing productivity.

We may think that we are doing good for “poor” Jamaicans by “giving” them more — but what we have effectively done by applying those policies is actually caused greater poverty.

The welfare type policies that we have applied over the last 40 to 45 years in Jamaica have done nothing more than cause more long-term impoverishment, as is shown by the devaluation of the Jamaican dollar.

Whenever our governments have talked about improving the lives of Jamaicans, we have spoken in terms of specially created job programmes, housing for the poor, land distribution, tax breaks etc. Instead we should be talking about greater educational opportunities, facilitating more private sector investments (particularly SMEs), and tax incentives for investments (such as the Junior Stock Exchange).

The effect of what we have created can be considered in the example of raising a child.

If every time a child says they want money or a car etc you give it to them — without insisting that they develop the ability to earn it for themselves — then what happens is that you create a child that becomes totally dependent on you to live and maintain the lifestyle he has become accustomed to.

If on the other hand you insist that the child goes and gets an education or starts a business, and puts what he has learned to work, and earns his own money, then the child would eventually be able to earn much more than you can give to him.

And in the end there will be two incomes in the household rather than one income supporting two persons.

So what our policies have done over time is create a dependency syndrome: which we have not only shared what we have earned, but in order to maintain a “high” lifestyle for everyone we have gone out and borrowed to supplement the income.

And because our government policies support more and more dependents, we have continuously increased taxes on those who are more productive — the result being that overall productivity declines, as capital stops working to escape the increased taxes and bureaucracy by becoming dormant or going overseas.

One person recently said to me that every time something starts to do well in Jamaica the policy is to tax it in order to earn more income for the voracious fiscal appetite. In other words, we always kill the goose that lays the golden egg and then when we end up with no goose we wonder why there is no egg.

Because of this approach to policy, and the need to “please” every five years, then we not only create a dependency syndrome, but we also fail to focus on the important issues that hold back development. These include law and order (as this is seen as fighting against the small man who wants to set up his house or business anywhere — squatting, illegal vending, tourist harassment), infrastructure development, and the creation of rules such as the procurement process because we don’t want to face the real monster of accountability and corruption.

So while we strive for much-needed economic growth, we must also support the Growth Council by ensuring that we have policies that support the development of the average citizen of Jamaica, through increasing his capacity, opportunities, and safety.

Adopting a serious approach to economic and social development is the only way to sustainable “prosperity”. This should be the primary focus of the Government and its Economic Growth Ministry.

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