The politics of debt management
A week after his finance minister presented a $22-billion tax package to Parliament, Prime Minister Bruce Golding took to the airwaves Wednesday night to offer a revised version which he hopes will fare better than the original package that was universally rejected.
With the Christmas break coming right after the prime minister’s about-face, it may be some time before we know if the new package is any more acceptable and whether it is politically saleable.
Details of the revised package were not available at the time of writing. However, given the nature and extent of the howls of protest to the initial taxes, it is safe to say that political ‘saleability’ of the measures will depend largely on whether they are equitable, in the sense that the greater burden is borne by those best able to.
Specifics of the measures aside, the issues will be hotly contested well into the new year and are likely to frame the political rivalry in 2010 between the ruling Jamaica Labour Party (JLP) and the opposition People’s National Party (PNP), led by a rejuvenated Portia Simpson Miller who is clearly sensing a return to Jamaica House as a distinct possibility.
Among the issues for contestation are the approach and the process by which the Government has introduced these large tax measures; the strategy to get the country out of the economic and social quagmire in which it is now mired; and the capacity and abilities of the leadership in Jamaican politics at this time.
On the matter of process, the Opposition leader has been complaining about the Government by-passing Parliament to introduce taxes.
My understanding is that what has been done is legal under the Provisional of Tax Collection Act, which gives the government of the day power to impose taxes and then have them ratified by the House of Representatives within six months.
However, common sense and good governance would suggest that such an approach should be reserved for emergencies and not used for a package of this kind, which amounts to two per cent of gross domestic product.
Hence, Mrs Simpson Miller’s request for an emergency reconvening of Parliament and a full debate on the measures was reasonable and should have been accepted. The prime minister’s response to have the debate early in January is a missed opportunity to strike a blow for good governance. What’s the point of a debate after the taxes are in effect?
In an interview with Nationwide Radio Tuesday, Karl Samuda, the JLP general secretary and minister of industry and commerce, suggested that a debate could not be entertained because “time is running out”. The Government must put the new taxes in place by January 1st as a pre-condition for clinching the agreement with the International Monetary Fund (IMF) for a US$1.3-billion loan facility that would also trigger additional resources from other multilateral institutions.
Government has itself to blame
What the JLP general secretary should also have said is that the Government must take most of the blame for finding itself up against such a sharp deadline.
From the onset of the global financial crisis two years ago the Government was in denial, asserting that it would have no impact on Jamaica. Further, there was no need for a renewed borrowing relationship with the IMF. The suggestion was that the economic fundamentals were sound. So they dithered, as they do on the Christopher Coke extradition.
Then the administration said the Fund had adopted a softer approach to the draconian conditions that Michael Manley and Edward Seaga had to contend with when they held the reins of government in the 1970s and 80s, respectively. So Mr Golding and his finance minister, Audley Shaw, were late in understanding the nature of the crisis and how it would worsen an economy that had been living on other people’s money for far too long.
On the matter of economic strategy, the administration has been even less forthcoming. We know that in order to get the MF assistance, the Golding administration has committed itself to reducing the gap between what it earns and what it spends through a combination of cutting expenditure and increasing revenue by, among other things, spreading the tax net. The devil will be in the details.
What is not known are the strategies to grow the economy and create the jobs and the hope especially for young people entering the workforce, many of whom now see migration as their only hope to a better life.
Then there is the matter of political leadership, an issue in which Mr Shaw is at the centre, as the opposition has demanded his resignation as the point man in the economic mess.
In one sense, Mr Golding can dismiss the PNP’s call as ‘politics as usual’ and no different from calls that his own party made routinely for the dismissal of former finance minister Omar Davies for his unspectacular handling of the finance portfolio for most of the 18 years that the PNP ran the country between 1989 and 2007.
After all, it was during that period that economic growth averaged less than one per cent a year. It was the period of the collapse of the financial sector and the very expensive FINSAC recovery that laid the basis for much of the current debt crisis.
But this is hardly a time for tit-for-tat responses. The prime minister must seriously examine whether Mr Shaw is the right person in the right place at the right time.
From the 2008-2009 Budget — the first for which he must take full responsibility — the minister has repeatedly presented figures and assumptions that turned out to be wrong. He did not do any better in the Supplementary Estimates to the 2008-09 Budget, nor the $556.7-billion 2009-2010 Budget which has already been subjected to a Supplementary Budget, a tax package by parliamentary statement and yet another by prime ministerial broadcast.
What we do not know is whether Mr Shaw has been a victim of bad advice or failure to provide clear, coherent and consistent policy leadership. We know that under his leadership, two financial secretaries and the Bank of Jamaica governor have been shown the door for reasons that have not been made clear to the public.
In one case, former governor Derick Latibeaudiere has gone on the record asserting that the prime minister had not been apprised of all the facts about his contract or a personal loan from the bank for some $50 million; facts, he said, that were known to Mr Shaw.
These events and incidents do not inspire confidence when the economy needs to turn around as quickly as possible to provide the tax base for meeting the revised revenue targets. So Mr Shaw’s tenure as minister of finance cannot look secure as we end a year when the economy was not the only bad news. Crime and corruption were also front and centre.
At the same time, the Opposition cannot merely point to Mr Shaw’s failings and lack of credibility. They need to present the Jamaican people with clear alternatives to those policies that laid the base for the mountain of debt and high interest rates, both of which have worsened under the JLP.
kcr@cwjamaica.com