- Economist and University Lecturer, Dr. Andre Haughton, says the Government had no better option than to raise new taxes to help finance the budget this financial year.
- Finance and Planning Minister, Dr. the Hon. Peter Phillips, announced a $6.7 billion tax package during the recent 2014/15 budget debate.
- Dr. Haughton said the options available to the Government to fill the gap in the budget and meet the primary surplus were either to borrow more, cut spending or introduce new taxes.
Economist and University Lecturer, Dr. Andre Haughton, says the Government had no better option than to raise new taxes to help finance the budget this financial year.
“The additional taxes that the Government is collecting this year are really in an effort for them not to borrow any additional sums,” Dr. Haughton argued.
The Economist gave his views during an interview on the JIS television programme, Issues and Answers, with Ian Boyne.
Finance and Planning Minister, Dr. the Hon. Peter Phillips, announced a $6.7 billion tax package during the recent 2014/15 budget debate, explaining that it is required to meet the primary surplus target.
Dr. Haughton said the options available to the Government to fill the gap in the budget and meet the primary surplus were either to borrow more, cut spending or introduce new taxes.
He argued that borrowing would increase the country’s debt, while a reduction in spending would impact developments such as roads, schools and health facilities. He added that a marginal increase in taxes, with little impact on the most vulnerable in the society, was the best option,
“So, that is the trade off and it’s a plausible trade off, because we have to think long-term. Everything cannot be about today and what is happening today…that has been our problem,” Dr. Haughton said.
Noting that the Government continues to operate within a tight fiscal space, Dr. Haughton emphasized that the budget has not changed in real terms to that of last financial year, which is a good indicator that the Government is willing to tighten spending and increase efficiency.
A total of $233 billion has been allocated in the 2014/15 budget to service the debt, which currently stands at approximately 140 per cent of Gross Domestic Product (GDP). A critical target of the Government’s economic reform programme is to achieve a debt to GDP ratio of no more than 60 per cent of GDP by 2025/26.
Meanwhile, addressing the issue of the devaluation of the dollar and calls for a fixed exchange rate, Dr. Haughton informed that the changes in the exchange rate, inflation and food prices are caused by macro-economic conditions and are essentially “nominal movements.”
He said modern economic theory suggests that the Central Bank should focus on inflation targeting, “which is trying to control how prices change from one year to the next.” However, the Economist says “it is better to let supply and demand determine the true value of the exchange rate, similar to any other product.”
Dr. Haughton further explained that, “Jamaica does not have the volume of reserves to really practise these sterilization policies to keep the exchange rate fixed.”
He pointed out that the shortage of foreign exchange was the main reason for an International Monetary Fund (IMF) deal and noted that at the moment, the right focus should be on creating an inflow of foreign currency to prevent additional IMF support in the future.
“So, the important thing is not to focus on how fast the dollar has been depreciating, but look at what we can do to earn foreign currency, what we can do to make our exports look more appealing to the people abroad,” he added.
During his presentation in the budget debate, the Finance Minister said a market determined exchange rate would continue for the country. He pointed out that other approaches have not worked in the past and have led to the emergence of a black market for currency.
“The only tried and proven way is to operate an exchange rate system where the market sets the rate, which allows relative prices to change in ways that alter the choices we make, as to what we produce, where we sell, and how much income we make as a result,” Dr. Phillips added.