Thu | Feb 23, 2017

Editorial | No new taxes without divestment

Published:Tuesday | January 10, 2017 | 12:00 AM

Andrew Holness is right. Jamaica has been too long at the business of public-sector reform. After nearly two decades, the outcome has been patchy, at best.

We understand the reason for this. Doing what successive administrations know is right, and have been coaxed by the International Monetary Fund (IMF) and others to do, is the kind of politically risky business that can cause government elections. That is why Jamaican administrations, rather than being radical in their actions, have opted for change by attrition and shying away from the upfront elimination of superfluous public-sector agencies and the jobs they support. They have also dealt with the problem of an unaffordable wage bill, with periodic freezes on wage hikes.

To put it bluntly, our governments, by their piecemeal approach, have been kicking the can down the road.

Prime Minister Holness, being urged by the IMF to get on with it, says that his administration has the will to do the job. If he does, it will be his administration's signal contribution to the major restructuring that the Jamaican economy has undergone in recent years. So far, we have dealt, with fair success, with the fiscal accounts.

Tackling public-sector inefficiency makes sense. It is widely acknowledged that an inefficient public bureaucracy that trades in red tape circumscribes private-sector activity and is a hindrance to robust economic growth. And it is costly.

Indeed, the public-sector wage bill accounts for around one-third of the central government expenditure and nearly 38 per cent of tax revenues. Wages and interests costs, together, consume just under 70 per cent of tax revenue. So when these big-ticket items are covered, the Government has little left with which to conduct its other business.

It is against the context of the foregoing that the IMF has been telling the Government, with which Mr Holness says he agrees, that it can no longer procrastinate in lowering the wage bill from around 10 per cent of GDP to the long-promised nine per cent of GDP.

 

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Mr Holness has brought in Maria Thompson-Walters, the latest addition to the seeming Conga line of gurus to manage the process. He has said that some public-sector entities, which are now of little value, will be closed, others merged, and some divested. Some jobs will inevitably be lost.

The latter factor has been the consistent speed bump that slows the administration. This time, however, we have a suggested guarantee of action.

Audley Shaw, in the face of the Opposition's suggestion to the contrary, has promised that there will be no new taxes in the Supplementary Estimates that he will soon bring to Parliament. That will be welcome. But with the need to cover the J$16-billion second phase of the income tax give-back and to off-set the J$11 billion that will no longer be extracted from the National Housing Trust, that promise is unlikely to hold for the new Budget in April.

Rather than raise taxes to close these gaps, the Government should instead accelerate the promised divestment of state-owned assets. That inventory includes enterprises such as the Norman Manley International Airport, Clarendon Alumina Production, Jamaica Bauxite Mines, and services like vehicle-fitness testing and registration. There are many others.

Not only will divestment mean cash to the Government's coffers, but the likely unleashing of entrepreneurial skills that ignites faster growth.