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Low earnings may cause Gov't spending cuts - Phillips

Published:Wednesday | October 15, 2014 | 12:00 AM

Daraine Luton, Senior Staff Reporter

JAMAICANS are being put on alert for a possible contraction in government spending in the economy as a result of lower-than-projected earnings from taxation.

Finance Minister Dr Peter Phillips, while tabling the Fiscal Policy Paper (FPP) 2014-15 interim report, noted that revenues and grants were running 2.1 per cent behind as at the end of July.

"The Government has noted the shortfall in revenue and, in that regard, Tax Administration Jamaica and Jamaica Customs Agency have initiated programmes in order to improve their collections for the rest of the fiscal year," Phillips said.

"Should these compliance measures not compensate for the shortfall in revenue, the necessary expenditure cuts will have to be made to ensure that the economic-reform programme remains on track," he added.

The Government has entered into a four-year extended fund facility with the International Monetary Fund (IMF) which, among other things, requires the country to run a primary balance of 7.5 per cent over the life of the programme, which is in its second year.

At the end of July, the primary surplus was 16 per cent better than the $21.79 billion targeted for the period.

The FPP said the Government has already identified the areas in which cuts would take place in order to achieve the primary-surplus target.

The Government has been cutting its expenditure budget in order to meet fiscal targets as a result of lower-than-projected inflows. Total expenditure for the April to July period was $139.7 billion, which was $7.69 billion below budget.

Capital expenditure has been the biggest casualty of reduced spending seeing a 34.8 per cent cut, while recurrent expenditure has been reduced by 2.6 per cent.

The FPP attributed the cut in government spending to savings in interest costs; lower-than-programmed recurrent demands from ministries, departments and agencies; and slower-than-planned execution of some investment projects.


Audley Shaw, the opposition spokesman on finance, said there were critical areas of government, such as the fire services, that were being shortchanged because of reduced government spending.

"While we pass our IMF tests and the macroeconomic picture looks good, we must not forget the micro picture," Shaw lamented.

He urged Phillips to take note of the results of the latest Gleaner-commissioned Bill Johnson polls, which show, among other things, that 74 per cent of Jamaicans think the country is heading in the wrong direction.

Phillips, meanwhile, said the Government has not kept it a secret that the adjustments under the IMF programme would be painful.

"It has been a difficult adjustment for the country. We don't resile from the fact that it has been difficult, but we are pleased that the results expected, including the results in reduced unemployment, are being realised," Phillips said.

He said the Government would not abandon the adjustment programme.