Editorial | A reminder for the fiscal council
The assertion by Parliament’s Public Administration and Appropriations Committee (PAAC) of an inability to review the Government’s revised Budget until the auditor general has analysed its changes puts back on the agenda the promised independent fiscal council with the technical capacity to properly undertake that job.
The finance minister, Nigel Clarke, last September, gave “a public commitment to table a draft of the legislation” for the council “by April 2020”. If he has, it remains a well-kept secret that he and the legislature haven’t shared with the public. This legislation isn’t among the bills listed on the website of the House.
We, of course, understand the distractions of the COVID-19 crisis as Minister Clarke attempts to patch up the battered economy. However, even in times of severe stress, other work of the Government must continue, including that of the chief parliamentary council, whose job it is, operating on the instruction of policymakers, to draft laws.
The fiscal council – of which there are several models around the world – will have the responsibility of analysing the administration’s periodic fiscal-responsibility statements and fiscal-management strategies and declaring whether they comport with fiscal and macroeconomic targets, especially those relating to debt sustainability and budget out-turns. In a sense, the council would be like a souped-up Economic Programme Oversight Committee (EPOC), the private sector-driven body – which began life under the chairmanship of current central bank governor Richard Byles – that monitored the Government’s adherence to economic policy reforms that agreed with the International Monetary Fund (IMF).
EPOC’s effort, across administrations, helped to keep the Government focused on the targets and contributed to Jamaica’s successful completion of the IMF pacts.
Officially, however, it is the auditor general who, under the Financial Administration Act, has responsibility for ensuring that the undertakings in fiscal policy paper that finance ministers are required to submit to Parliament “comply with the principles of prudent fiscal management” to deliver on the target of a debt-to-GDP ratio of 60 per cent by 2026 as well as maintaining the public-sector wage bill at no more than nine per cent of GDP.
However, these targets can be varied in the event of economic shocks, such as those caused by the COVID-19 pandemic, if the auditor general validates that the “estimated fiscal impact of the eventuality is equal to or greater than one and a half per cent of gross domestic product”.
It is not clear how the overall fiscal impact is to be measured. The Government has said that the economy will decline by 5.1 per cent this fiscal year and has projected that it will lose J$81 billion in taxes, or over 13 per cent less than what was initially expected. Government tax earnings generally hover around 27 per cent of GDP.
Dr Clarke has signalled, including to the IMF, from which Jamaica is getting a US$520-million emergency loan, his intention to push back, by two years, the debt-reduction target. However, he will have to get formal parliamentary approval for that move while, at the same time, perhaps, using the opportunity to do a clean-up of his primary surplus target.
The fiscal policy paper for the original Budget indicated that the J$853.5 billion of planned expenditure – cut last week by 1.9 per cent – projected a primary surplus (the difference between the Government’s income and expenditure before debt servicing) of 5.4 per cent of GDP. But in the actual debate of the Budget, Dr Clarke indicated that the primary surplus target would be reduced to 3.3 per cent of GDP. He later explained that the change was because the Government had used divestment earnings to pay down debt.
It is not clear whether, in the current circumstance, the minister will further reduce the primary surplus target. What is known, though, is that notwithstanding the excellent work the auditor general does in monitoring how government ministries and their agencies spend taxpayers’ money, that office wasn’t designed, as this newspaper has argued before, to do the complex econometric modelling and analyses required for this exercise.
Further, while the Planning Institute of Jamaica and the Bank of Jamaica, which will also be required to provide Parliament with their own analyses of the situation, are highly professional organisations, but neither is independent in the sense contemplated for the fiscal council. And refereeing macroeconomic and fiscal policies is not their job.
We know that Minister Clarke is fully committed to the establishment of a fiscal council, and we also understand the pressures of the times. We, nonetheless, urge him to ensure that the law is published in short order so that analyses of its terms can begin.