Wed | Oct 18, 2017

Ian Boyne | Andrew must not squander it

Published:Sunday | May 29, 2016 | 12:00 AM
Prime Minister Andrew Holness before giving his presentation to the Budget Debate in Parliament last Tuesday.

It seemed the whole Jamaica went green last week after Prime Minister Andrew Holness gave his Budget presentation. From the same evening on radio, people were gushing in praise over his two-and-a-half-hour speech. TV was the same. The next day, The Gleaner's Page 2 seemed like a government page.

The people canvassed were all in harmony singing Andrew's praises. 'High marks for Holness out west,' beams one headline. 'Holness impresses young men,' informs another. 'A step in the right direction,' offers another set of endorsements. Even the People's National Party went green last week - with envy over the goodies he was able to announce and the "socialist budget" he presented with the full blessing of the International Monetary Fund (IMF).

Stunningly to many, when Opposition Leader Portia Simpson Miller was asked by Television Jamaica what she thought of his speech, she said he gave a reasonable speech. But you didn't have to wait on that comment to know her reaction: Her body language while in Parliament said it all, with her nods at several points, especially when the prime minister was announcing benefits regarding housing for low-income people.

The opposition members, on a whole, seemed impressed, or at least deeply respectful. One Comrade said to me: "So you see the socialist speech weh Holness mek inna Parliament? The PNP should feel shame!" As Cliff Hughes put it on his Power 106 show, Holness now has the wind at his back. He must make sure it stays there and that he is not blown away by hubris, arrogance, or any sense of invincibility.

Other political leaders have squandered our goodwill before. He must avoid that pitfall. As I had written recently, the Jamaica Labour Party would win the propaganda war over its tax plan as the dynamics were in its favour. Strong private-sector backing for its revised plan, coupled with support from the press and influential media people, and significantly, no militant opposition from the trade unions and civil society, were major positive factors for the administration.

Importantly, the imprimatur of the IMF was crucial. And before the prime minister and his minister of finance spoke last week, the IMF, the Friday before, issued its latest review of the economy in which the Government's tax plan and Budget got unequivocal and decisive support.

 

SHIFT IN TAXES

 

"The shift from direct to indirect taxes will reduce marginal and average tax rates for the majority of income tax payers, improve work incentives, and encourage workers and employees to move of out of the informal economy," the IMF said in praising the Holness administration's move.

Yes, the JLP had to phase in its 1.5 plan rather than implement it on April 1, but it has managed to successfully reframe that backtrack as a '1.5-plus' deal that benefits far more people. But the fact is, it was able to give a significant income-tax relief while retaining the stamp of approval from the IMF. In fact, the IMF lauded the Government's raising of taxes, saying, "The decision to take offsetting measures to safeguard revenues and avoid undermining debt sustainability was both bold and essential."

There were some mutterings of protest over the $7-per-litre tax and some concerns about its inflationary effect, but that soon dissipated, and the taxi men who would have been depended on to mount protests soon withdrew their verbal protest and worked with the programme. Again, as I had written, no traction would be given to any opposition to this tax package. There would be no blocking of roads.

You have to understand the changing dynamics. The give-with-one-hand- and-take-back-with-two argument is being answered by the fact that auxiliary fees have been abolished; significant new housing benefits have been announced for the lowest-paid workers, with zero interest rates being charged for those earning up to up to $12,000; and $2 billion in extra social spending has been pumped into this year's Budget.

The other main fear raised by the PNP, that this Government would be fiscally reckless and would endanger the IMF programme, has been answered by the IMF itself, which in its statement last week commended the Government for its programme. It is clear that the Government intends to pass IMF tests and to stick with the programme. But it also seems clear to me that this Government, particularly its minister of finance, will be standing up to the IMF and its neo-liberal dogma.

Audley Shaw made that very clear in an interview he did with me last week after his Budget presentation. He noted that the IMF was uneasy about the retention of the Junior Market of the Jamaica Stock Exchange, as we heard before the elections, and in Opposition, Shaw opposed the IMF position. After his party won, incentives for the Junior Market were renewed. Now Shaw is pointing to Jamaica's significant decline in export earnings over the last four years of the PNP administration, saying specific incentives are needed to reverse that.

 

GIVING INCENTIVES

 

I reminded Shaw that the IMF's dogma scorns specific incentives as distortionary. But he made the point correctly that major cities in the Untied States, as well as many countries, still depend on incentives to attract investors and boost export and manufacturing earnings. He said he intends to have serious dialogue with the IMF team coming to discuss taxation in July to have them accept a proposal to give incentives to companies to retain part of their profits in Jamaica, rather than repatriate it all.

I have written while the PNP was in power that Shaw was less accepting of IMF neo-liberal theology than Peter Phillips, who seems too much of a true believer. I will always credit Peter for his disciplined management of the economy, for his bold steps in tackling our debt albatross, and for his courage to go against populism when it was tempting. Also, there must be no attempt to minimise his fiscal discipline by pointing to low oil prices as being solely responsible for our changing macroeconomic indicators.

There were significant achievements quite independent of that factor. And even with low oil prices, Peter could have succumbed to the temptation to be reckless and not take the fiscally responsible decisions he did.

But, in my view, he was too compliant with IMF dogma. You now have a finance minister who is more in line with the thinking of Jamaican producers and people like Claude Clarke, who have long decried our disincentives to production.

It is one thing to push economic reforms and macroeconomic stability, but as Bruce Golding told us years ago in that CIN lecture, we need an IMF-plus programme to move us from fiscal consolidation and contraction to increased production. Tax policy and incentives can do that. There is an abundance of empirical research to show that what the developmental economist Ha-Joon Chang describes as the "kicking away of the ladder" of incentives and state action cannot bring about economic development.

Holness made it clear in his Budget presentation that he was not going to be relying only on monetary policy to grow the economy. He made the important point that "macroeconomic stability can be undermined by the inability to sustain it". His debt-for-policy swaps and debt for asset swaps is a good strategy. Even more crucial is his Economic Growth Council, with two high achievers, Michael Lee-Chin and Oxford-educated Nigel Clarke, as key players. The announcement of his creation of a National Policy Office and the Jamaica House Fellowship Programme, which will increase the human capital available to the public sector, is most welcome.

It is a pity, though, that he did not accept the opposition leader's invitation to resuscitate the Partnership of Jamaica. He must tell us what possibly could be a good reason for not continuing with that important mechanism for dialogue with key partners, including the Opposition. Especially in light of his emphasis on partnership. The Partnership Council is an excellent model that should be continued.

And it is an important forum to keep him grounded and consultative. Jamaicans want him to succeed. We are tired of the no or low growth. Tired of underperformance. A lot of hope has been invested in him. He must reward that with a leadership characterised by humility, fairness, high ethical standards, non-discrimination, fairness, and trust. He must not squander it. History would not absolve him for that.

- Ian Boyne is a veteran journalist working with the Jamaica Information Service. Email feedback to columns@gleanerjm.com and ianboyne1@yahoo.com.