Tue | Dec 6, 2016

Why so quick to breach Fiscal Rules, Dr Phillips?

Published:Monday | March 9, 2015 | 12:00 AMDaraine Luton
Monroe Ellis
Phillips
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So, the Government has pushed back, by a year, the target of reducing the wage bill to nine per cent of GDP (gross domestic product).

This target, originally set for March 2016, was considered sacrosanct in the Government's agreement with the International Monetary Fund (IMF) for an extended fund facility (EFF), and was even written into the law, in what has become known as the Fiscal Rules, to demonstrate Jamaica's commitment to economic reform.

 

shift in the target

 

But without warning - except for the sounds of the trumpet and the bells which threaten to hold the reform hostage - Finance Minister Dr Peter Phillips has announced a shift in the target.

However, what the minister has not said to us is what precisely has brought us to the place where, at the first opportunity, we are making a mockery of the Fiscal Rules.

The law, as passed by Parliament last year, allows the rules to be breached under specified circumstances. For all we know, the Government is running from public-sector reform because of the negative political consequences that are likely to flow.

The rules, for example, impose limits on the finance minister, placing a burden on him to attain certain fiscal targets. For instance, as at the end of the 2017-2018 fiscal year, the minister is required to take appropriate measures to attain a fiscal balance, as a percentage of GDP, which would allow the debt-to-GDP ratio to fall to 60 per cent or less by 2026. The minister is also required to reduce the ratio of public-sector wages as a per cent of GDP to nine per cent by March 31, 2016.

The Auditor General's Department has been charged with the responsibility of monitoring the attainment of targets set under the regime, receiving data from the Planning Institute of Jamaica or the Bank of Jamaica, depending on the type of crisis, and determining whether escape clauses built into the legislation can be triggered.

Jamaica may divert from its fiscal plan under extraordinary circumstances, such as natural disasters, public emergency, or a financial crisis, but only if the impact on the economy from such events amounts to at least 1.5 per cent of GDP.

One should note that in the 2014-2015 Fiscal Policy Paper (FPP), the Government said the wage bill had been reduced from 11 per cent in 2012-13 and was "on track to satisfy the legislated requirement of nine per cent by March 2016".

The 2015-2016 wage bill is projected at $165.2 billion, which is 9.8 per cent of GDP.

Dr Phillips, when he opens the Budget Debate on Thursday, has a responsibility to explain to the country why it has taken the Government this long to realise that the nine per cent of GDP is not on. Dr Phillips should not use the wage negotiations with the public-sector workers as a basis for missing the target because not only was the Government aware that a new contract period loomed, but also that all agreements must fit within that nine per cent ceiling.

The finance minister has the responsibility to convince the nation that the Government is not willing to postpone making tough decisions for political purposes.

 

lack of information

 

It is not only as it relates to the public-sector wage bill that Dr Phillips must answer. Auditor General Pamela Monroe Ellis, in her assessment of the FPP tabled for the 2015-2016 year, said the lack of pertinent information from the ministry has affected her assessment of the reasonableness of the variances between established targets and the outcome of the fiscal indicators.

"My review of the 2015-2016 FPP revealed that although some fiscal risks were mentioned therein, they were not quantified or reflected in the projections. Consequently, it was not clear to me as to what extent deviations such as underperformance of revenue were due to forecast errors, deviations from assumptions, or unforeseen events/shocks," Monroe Ellis said.

The Budget Debate will give Dr Phillips an opportunity to allay our fears about all the aforementioned matters.

Meanwhile, if there was any doubt that the bastardised Westminster model of governance practised in Jamaica is unworkable, last week's Standing Finance Committee meetings should by now have convinced the Thomas' it's time to ditch that system.

The Standing Finance Committee is the place where the proposed Budget, including the estimates of expenditure and revenues, is examined.

All members are at liberty to question every line in the massive documents with a view to satisfying themselves that the spending proposed will result in maximum value to their constituents. But this does not happen, and cannot happen in the current system.

The probing examination has come only from the Opposition while the Government side provides the cheering. It hardly seems that Government MPs have a problem with the Budget as proposed.

But truth be told, Government MPs have to defend the Budget; they have to do so from a party perspective and they risk getting on the wrong side of a minister if they ask uncomfortable questions.

The exercise of examination of the Budget thus becomes nothing but a farce since, in the main, it would appear that ministers and spokespersons pay attention only to the provisions that concern their areas of interest. Others have to either watch from the sidelines or proceed with caution, knowing there can be consequences for stepping out of line.

If we move away from the Westminster system, where the minister is all powerful, maybe, just maybe, the participation in parliamentary affairs could rise, and members could do so in an unshackled manner. What exists now just is not working.

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