ONE of the most important things to understand when confronting your personal finances is what standard of living your net income flow can afford. Notice I said net income flow, as it is not an income level at a particular point in time, but the projected flow of income. So if you can afford to maintain and drive a Toyota Corolla, or if you can afford a mortgage payment of $50,000 per month, then pretending that you can afford more is really putting a nail in your financial coffin. You may enjoy it for a while, but sooner or later it will catch up with you, and it is always better to be poorer when you are younger than when you get older.

Similarly, when one is going into business, it is always critical to know what your financial projections are and determine what sort of working capital you will need to carry you through to profitability.

These are examples of facing the reality of your situation, in order to progress in the future. In other words, the only way to solve a problem is to face the reality of the problem and understand it. Failure to do so will only result in living in the land of Mother Goose until eventual financial ruin, as many persons have discovered.

This is no different in the case of a country. If the country does not understand and face its reality, then it cannot sustainably solve its problem.

Two things that I have been saying for a while that come to mind are (i) the impracticality of the now defunct IMF agreement; and (ii) the fact that the only way for us to finance our development was to incur value-added debt.

I don’t think that much needs to be said about the first, as we are all aware of the status of the IMF agreement and the fact that the targets that were set could not have been practically met. If we had faced our realities at the time we were crafting this agreement then I think the fiscal accounts and economy would have been in a much better situation today.

On the second point, I see where it is reported that the Finance ministry has filed an application for approval by the FSC of up to US$1 Billion of securities to be issued by the GOJ in the US market. This to me seems like borrowing, which many have been saying we cannot afford to do and should not do. I consider this an impractical approach, because if you have $100 monthly debt payment, $50 monthly income, and $45 non-discretionary expenditure, how do you deal with the debt problem outside of securing value-added financing?

If we had faced the reality of what we needed to do, when we needed to, then proper value-added borrowing and investment would have resulted in a more vibrant economy today. But this is now water under the bridge and we must move forward from here.

So it seems evident that the debt will increase, while the GDP has remained relatively stable, which means that the debt to GDP ratio may go up. The practical approach would have been to borrow for value-added projects, increase the GDP, and thereby reduce the debt to GDP and ability to pay back the loan.

What we must do now is hold the government accountable for how future debt is spent, as the only way for us to survive and grow is for us to expand our debt, because resisting it will only result in the further stagnation of the economy.

The US was faced with this budget crisis last year, and Obama went ahead and expanded the debt in order to provide the much needed stimulus for the economy to grow. The result of this we are seeing in the US today, while Europe continues to languish and Greece will see further trouble, because austerity when you are hungry only means you starve longer.

I am therefore in support of the government’s decision to seek further loans, but will seek to hold them accountable for how it is spent.

Online tax filing

As I am writing this article I am in the process of filing and paying my 2011 tax return online, and I think everyone has the responsibility to do so. This is a part of our responsibility as citizens, and when we do our part in this way then we can say to the government, you need to now do your part.

I have always maintained that Tax Administration Jamaica (TAJ) is the example that we want all public sector bodies to follow. They don’t advertise, like some other places, how great they are. They just do their job. I am impressed by the significant improvement in their customer service, the assistance and education they provide (being a member of the ICAJ I know first-hand), and I’m very impressed with the online filing and payment process.

The online process is actually very inviting and will go a far way in encouraging persons to pay their taxes. Now what we have to get right is how the taxes are spent, and this new enlightenment will certainly increase the awareness of taxpayers about this.

If we could get the entire public sector working as efficiently as TAJ, then we would be well on our way to significantly improving the much needed productivity in the public sector, which is more important than cutting salaries.

Kudos to Mrs. Lattibeaudierre and her team.

Dennis Chung is a chartered accountant and the author of “Charting Jamaica’s Economic and Social Development – A much needed paradigm shift”. His blog is dcjottings.blogspot.com

Email: dra_chung@hotmail.com