Mon | Oct 23, 2017

Editorial | The Holness Government one year on

Published:Thursday | March 2, 2017 | 12:00 AM

In a sense, the basis of any meaningful assessment of the Andrew Holness government, on fundamental issues, is only now being established. For, as Prime Minister Holness suggested in a recent interview, the past year for the administration wasn't entirely its own within which to roll out its policies and being firmly in control of the strategies and tactics for their execution.

By the time his Jamaica Labour Party (JLP) assumed the government last March, Mr Holness argued, the new fiscal year was upon it. So, while it was able to tinker on the periphery, the budget it executed was largely the work of the previous administration. In effect, the JLP pursued a programme laid down by the previous administration.

Insofar that the inherited parameters of the pre-casted budget represented a constraint, the administration is now free of those. The J$710 billion package now before Parliament is entirely of the design and ownership of the Holness administration.

Yet, if the government is to be graded on the past year, there are two primary conclusions. One is that it came through it credibly, without major catastrophe. The second, which is crucial to the first assessment: the administration has been pragmatic.

Importantly, the government ended the year with most macroeconomic indicators positioned in the right direction. The budget, essentially, is balanced; the debt as a proportion of the economy continues to edge downwards; the gains on current account deficit remain sustainable; the economy is growing, with prospects for acceleration.

Mostly, these are rewards for five years of tough economic reforms under the tutelage of the International Monetary Fund (IMF). But we flirted with the danger of things going awry. Here is where the triumph of policy pragmatism over politics is significant.

Mr Holness' party had promised to more than double the personal income tax threshold, to J$1.5 million, or some iteration thereof. The government would absorb the giveback without new or increased taxes.

 

A BAD POLICY

 

Part of the problem was that the JLP got their arithmetic badly wrong. They grossly undercounted the J$30 billion that would have been forgone and didn't anticipate the anomalies the initial plan would have caused.

Happily, in government, they were persuaded of the error, restructured the plan and staggered its implementation. Critically, in the current fiscal year, the government introduced J$12 billion in new taxes to pay for the scheme and it is expected to add another J$16 billion in 2017-18. The scheme was, therefore, made tax neutral, with a shift from direct to indirect taxation.

The received message is that Mr Holness appreciates that what is worse than creating bad policy is implementing it. The income tax plan, as initially conceived, would have undermined the macroeconomic programme, and the platform upon which this administration has continued to build for stability and growth. The government's pragmatic shift affords it a basis for a larger success.

The other significant and positive signal from the government is its intention to accelerate public-sector reform, including the pension system, to extend the retirement age and for public-sector employees to contribute to their pension plans. The jury on these remains out, as it is on public-sector divestment.

The other big issues for which the glare will be on the government are corruption and crime, both of which sap the economy, and the fixing of which Mr Holness appears committed and pragmatic.