PIOJ's ideas to kick-start the economy

In a September 28 speech the Private Sector Organsiation's Chairmen's Club, the new director general of the Planning Institue of Jamaica (PIOJ), Dr Gladstone Hutchinson, argued that fiscal consolidation and reducing crime and violence were critical measures to be undertaken by the government to create and environment for growth.

But Dr Hutchinson also highlighted a number of other initiatives that might be undertaken for businesses to help jump-start the stalled economy. The following is an edited version of Dr Hutchinson's proposal:

Incentives for the short term

Tradable tax credits for start-ups in emerging industries and capital market funding.

Tax break for companies employing new persons which would be capped at a pre-specified amount - a fraction of incremental revenue due to GOJ would be utilised to fund this initiative.

Business Incubator Network - Access to affordable rent (e.g. downtown Kingston), shared Internet, shared corporate services with technical oversight provided GOJ/IDP's funding.

Organic and Greenhouse Farming - Constituency Development Funds and IDP Grant funds.

Web-based employment bank which matches persons on the basis of skills sets and not previous positions held - GOJ.

Incentives for Short to Medium term

Establishment of a Real Estate Investment Trust for all Crown Lands - Capital Market

Incentives for the Medium Term

Abolition of Estate Duty - Needed to give the necessary fillip to the real estate market which remains dormant as beneficiaries are unwilling to apply for letters of probate for fear of losing the bequeathed asset totally. Initial fallout in revenue will be covered by an exponential increase in second sales. This is already being treated in part under the Special Provisions Act which governs LAMP communities - GOJ - likely to be substantially revenue positive in the Short to Medium term.

Local Authorities: Give local authorities (parish councils, KSAC) the latitude to vary property tax and other local rates and charges in an effort to attract new business activity. This would create competition, a natural tax reduction for firms, and an expanded tax base for local government. It would also 'de-kingstonise' the economic base of the economy and open up new markets for housing and land. Coupled with the earlier suggestions for the creation of a Real Estate Investment Trust and the abolishment of Estate Duty, the regional real estate market would have new reasons to experience a boom in activities.

Secured transactions - reform - funded by IDP's. This would allow borrowers to pledge movable property as security for a loan in a manner that removes ambiguity regarding the property that has been pledged, gives lenders the right to repossess these assets speedily in the event of payment default. Fast-tracking the implementation of this recommendation should result in reduced interest rates, lower transaction costs and increased access to finance for the 35 per cent marginalised business persons currently compromised by the financial system.

Medium-Long Term

Strengthen business clusters that are organically developing. Foster the organic development of clusters of economic enterprises and industries that share value-chain linkages and benefit from proximity to each other. These linkages may be at the national level, or at the level of specific regions of Jamaica, where we can already see such clusters emerging, for example, in the development of linkages between farmers and hotels in resort areas on the North Coast, or between farmers and food processing facilities in our agricultural heartlands, or between transport infrastructure and logistics and manufacturing zones on the South Coast. These and other examples all offer the opportunity for a proactive and agile public sector to provide supporting conditions through integrated spatial and land use planning, provision of adequate and targeted economic and social infrastructure, improvements to the business environment and labour markets, and other interventions.

Regional Development - The benefits to a strategy of regional development are many, including provision of sustainable livelihoods on a balanced geographic basis, and reduction in rural to urban drift. Most importantly, such a strategy will contribute to an expansion of the sphere of freedoms enjoyed by our citizens, who will be better able to make choices based on economic benefits and lifestyle preferences, and "vote with their feet" to relocate in geographically diverse manners for their long-term well-being and economic development aspirations.

Tax reform aimed at a general lowering and broadening the base of, and simplifying taxes to better promote equity, fairness and economic growth, industry competitiveness, and broad-based development. According to the ongoing World Bank growth diagnostic study of Jamaica, the complex system of tax incentives distorts the use of economic resources and is a major source of the misallocation of resources and inefficiency across industries. The tax system encourages 'enclave' development which has minimal linkages with the rest of the economy and direct investments flow to industries isolated from the violence which affects the other areas of the economy. This resulted in investment concentrating in areas such as All Inclusive Resorts, Mining & Quarrying and Export Free Zones.

As a result, according to the 2004 Final Report of the Tax Policy Committee, "government has significantly narrowed its tax base through its granting of a wide range of preferential treatments," and "Jamaica appears to be caught up in a culture of non-compliance (catch me if you can) and a path of finding the path of least resistance on the administrative side (I will catch who I can)."