Interest rates still too high, $1.5m tax plan to be phased — Shaw
Finance and Public Service Minister Audley Shaw said that while interest rates on commercial bank loans declined during the last fiscal year, lenders must find ways to make loans more affordable for businesses and consumers.
He also announced a two-tier implementation of the new income tax threshold, saying that in seeking to implement the government’s plan to increase the threshold from just under $600,000 to $1.5 million, the government took into consideration comments from various sectors.
At the presentation of the Jamaica’s 2016/17 Budget in Parliament on Thursday, he said the threshold will move to $1 million, effective July 1, and to $1.5 million on April 1, 2017.
As to the cost of credit, weighted average lending rates on commercial bank loans denominated in Jamaican currency declined by 43 basis points to 16.67 per cent in March 2016, relative to March 2015, said Shaw, adding that this measure incorporates all existing loans.
However, “at 16.67 per cent interest rates are still too high. They militate against growth. We must find ways to make loan funds more affordable to businesses and consumers,” Shaw told Parliamentarians.
The benchmark 180-day Treasury Bill rate fell to 5.83 per cent in March 2016, a decline of 117 basis points since March 2015. In the April 2016 Bank of Jamaica auction, the rate also recorded a further decline to 5.82 per cent.
The Finance Minister said the government’s priority objectives for this fiscal year and through the medium term are to grow the economy, create meaningful jobs and in so doing to facilitate a faster and sustainable reduction of the public debt.
Accordingly, the medium term fiscal and debt profiles have been developed in accordance with the quantitative targets agreed under the economic support programme with the International Monetary Fund (IMF), the macroeconomic framework and incorporates the revenue and expenditure measures being implemented in the Budget.
The focus of the fiscal year 2016/17 Budget is on adopting strategies geared towards achieving the primary surplus target of 7 per cent of GDP, which represents the operational instrument being utilised to attain a public debt to GDP ratio of 96 per cent by the end of fiscal year 2019/20.
The key macroeconomic assumptions on which the budget was cast are: real GDP growth of 1.8 per cent, annual inflation of 5.5 per cent, and an average oil price of US$36.90 per barrel.
For this fiscal year, the consolidated gross expenditure of the public sector is programmed at $1 trillion, including $105.8 billion for capital expenditures. Of that, $58.8 billion will be spent through self-financed public bodies and $47 billion through central government ministries departments and agencies.
Shaw said the government is committed to honouring all commitments to public sector workers for which agreements are in place. In this financial year $9.9 billion has been provided to honour the second year of the 2015-2017 union agreements for salaries and allowances and a provision towards payment of long outstanding settlements.
The Finance Minister said that in seeking to implement the government’s plan to increase the income tax threshold the government took advice from the IMF, which was “concerned with ensuring that any plan addresses the issues of fairness, equity, transparency, non-distortion, simplicity, uniformity and that the revenue loss would be replaced by recurring revenues.”
“We consider the IMF’s input into the design of the tax plan to be immensely important and we took on board and incorporated into the tax plan everything the IMF required,” he told lawmakers.
He said the government is mindful of the 7 per cent primary surplus target and is committed to it and other structural benchmarks.
“We indicated this to our multilateral partners when we visited Washington in April and so whatever we do, we are mindful of this,” Shaw said. “It is our job now as government to move GDP growth to a permanently higher plane. We consider a shift from direct to indirect taxes to be an obvious policy to consider and implement,” he said.