NHT drawdowns understandable, but …
NO ONE should be surprised or, in the circumstances, find it unreasonable that the Government, as Finance Minister Dr Nigel Clarke formally announced on Tuesday, will continue to tap the National Housing Trust (NHT) for J$11.4 billion annually over the next five years. Over that period, to the end of the 2024-2025 fiscal year, the withdrawal will be J$57 billion.
Calculated differently, during the 13 years, from the 2013-14 fiscal year to the projected end of the new drawdowns, the NHT will have provided the Government with nearly J$150 billion in direct budgetary support. That is a lot of money (nearly seven per cent of 2019 GDP), which, presumably, might have gone to financing homes and mortgages to the NHT’s contributors. However, the context within which the NHT has been, and is again being called upon to shore up the Government’s finances is important.
First, the NHT, by the standard of Jamaican institutions, is asset-rich and enjoys strong cash inflows. Established in 1976 to support the provision of housing to Jamaicans, the trust is funded by a three per cent payroll tax on employers, while employees contribute two per cent of taxable incomes, with each year’s deduction repaid after seven years, at low interest. In exchange, contributors can receive benefits in the form of below-market rate mortgage loans.
According to the NHT 2018-19 financial report, the latest that is publicly available, the trust sits on J$291.6 billion worth of assets. In 2018-19, it received J$37.4 billion in contributions, of which $21.2 billion (approximately 57 per cent) was employers’ contributions. It also earned J$11.35 billion in interest income on a mortgage portfolio of J$239 billion, and posted after-tax profit of J$23.7 billion. The trust’s housing expenditure was J$37.5 billion, roughly equivalent to its payroll collections.
It was not overly surprising, therefore, when in 2013, as Jamaica embarked on a tough economic reform agreement with the International Monetary Fund, which required the Government to run a primary balance of 7.5 per cent of GDP, that the administration looked to the NHT for cash. It has been called on before to help fund education. Andrew Holness’ administration continued these appropriations when it came to office in 2016. But the previous order, in 2017, for an annual drawdown of J$11.4 billion should have expired at the end of the current fiscal year in March 2021.
That won’t happen. The economy has been plunged into a deep recession by the coronavirus pandemic. The country’s GDP is expected to contract by as much as 12 per cent in 2020. The Government estimates it will lose J$84 billion in tax revenue this year, or a 15.5 per cent decline on last year’s collection. In addition, it is spending an extra J$25 billion on its COVID-19 response efforts. This revenue fallout and extra spending, combined, amount to roughly five per cent of the island’s pre-coronavirus GDP.
No threat to NHT
These new raids on the NHT’s treasury will not, in the near term, threaten the trust’s viability, or its capacity to deliver mortgages to those of its contributors who can afford them; which is far too few. Indeed, the large majority of them, as many studies have shown, are too poor to, by themselves, qualify for even the NHT’s subsidised mortgages.
The current situation perhaps provides an opportunity to reassess the NHT’s mode of operations. More specifically, the question being posed is, on which category of its contributors the trust should be focused? In this context, it is worth debating, this newspaper believes, whether the trust’s generalised system of subsidised mortgages, whose logic was undeniable during Jamaica’s period of stratospheric interest rates, continues to be relevant and, in the current environment, the best use of its resources.
Indeed, on the face of it, the existing approach allows those contributors who already have an advantage even greater access to NHT’s resources, without the trust sufficiently addressing the section of the Jamaican society where the crisis of shelter is most profound. In this regard, the trust’s policies, in our view, ought to be directed more towards providing pricing subsidies for homes for low-income contributors, most of whom are now effectively locked out of its benefits.
We invite Prime Minister Andrew Holness and Dr Clarke to encourage the NHT to begin to move more aggressively in this direction.