'Don't look to Budget alone for growth'
Dr André Haughton, Contributor
The highly anticipated Budget has been carefully thought through, tabled and presented by Finance Minister Dr Peter Phillips.
The world economy remains fragile as the aftershock of the recent global financial crisis lingers everywhere.
Jamaican leaders are desperately seeking remedies that will enhance economic recovery, financial stability and ultimately restore economic growth.
The reduction in general consumption tax (GCT) from 17.5 to 16.5 per cent, the increase in the kilowatt threshold for taxable energy consumption per household from 200kWh to 300kWh per household and an increase in the income-tax threshold from just above $400,000 to little over $500,000 will be welcomed by the general populace.
However, many will be disgruntled by the broadening of the GCT basket which will make the consumption choice of households more expensive. Although the policy exempts some basic items, including poultry, cornmeal and flour, it now includes some items such as salt mackerel, milk and corned beef which will result in more expensive choices for the poor. This new tax inclusion will reduce the consumption choice bundle and reduce the standard of living of the poor.
In such a volatile global economic environment, Jamaicans cannot look to Budget solely for growth and development. All economic agents must collectively play their part in facilitating the process. The financial institutions, in particular, must make an effort to reduce interest rates on loanable funds. This reduction in the cost of capital (interest rates) is the key that will increase the availability of venture and expansionary capital for investors. Our financial institutions for the past several years have placed a grip wrench on the flow of capital necessary to increase productivity of the country.
The Government must also make sure that any loan agreements they negotiate on behalf of the country are done on sustainable repayment conditions and, most importantly, attract interest rates below 10 per cent. The Bank of Jamaica has been successful in maintaining single-digit inflation and Treasury bill rates and also a stable exchange rate which is indicating more stability in the local economy despite what others may think. Therefore, it should not be difficult for the Jamaican Government to negotiate lower interest rates on future debt.