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Shaw's Mayberry speech well received


Friday, January 19, 2018

On Wednesday, Finance Minister Audley Shaw gave the traditional presentation at the Mayberry Investor Forum, now in its twentieth year, on the outlook for the Jamaican economy in the coming year.

In a well-received speech, Shaw made news by suggesting that there would be no new taxes, or specifically, “it was not the government's plan to introduce a new tax package next budget”, as up to December, revenues were $13 billion ahead of target. He added that going forward his main interest was “fairness”, and an end to “banduluism”. He advised that several European tax consultants were here in Jamaica (presumably working on the issue of transfer pricing and the wider global issue of tax base erosion), and that he had requested help from US customs to change the “culture” at Customs. He noted that if everyone paid their proper duty at the ports, the government could lower the duties.

He observed that consumer confidence (on Tuesday the Jamaica Chamber of Commerce Business and Consumer Confidence Indices had revealed that business confidence was up significantly although consumer confidence had fallen) was “weighed down” by crime, and that “we have to get a handle on the situation”. Importantly, he stated that roughly a third of the capital budget (it was not clear which portion he was referring to, as this would be a huge increase if it meant the overall capital budget) would be allocated to security in this year's budget. He cited the myriad needs, in areas ranging from non-functioning X-ray machines at the ports to the fact that Jamaica has only one functioning helicopter.

With respect to the ongoing public sector wage negotiations, Shaw stated that the government was “staying away from allowances”, the now traditional means of giving a back-door wage increase (and one of the reasons the government wage bill always continues to climb despite freezes), as he observed these now represented “40% of total compensation”, and instead were trying to be “creative” in areas such as housing (using the NHT), and the planned new pension arrangements (the timing of the payment of the new required contributions), adding that the negotiating period of the Memorandum of Understanding of two years was too short. He added, however, that although the NHT's $5.5-million loan cap was being reviewed, it can't continue to be “raided”, as they were planning to triple the average number of houses being financed from 5,000 to 15,000 this year.

Referring specifically to the salary issue, he observed that “fair is fair”, and the public sector unions can't just ignore the move in the personal income tax-free threshold from $594,00 to $1.5 million, which meant that out of 79,000 employees (central government workers), 67,000 received an increase in their take-home pay of between 6 and 20%. He added that in evaluating the current offer of 3% per year, for two years, recognition also needed to be made of the additional 2.5% salary “increment” (3% for the police), which is in addition to the standard increase. He observed that Jamaica has been talking about public sector reform for a long time (plans were in place when he went on his “forced vacation” in 2011), and that the reforms had been put off by the previous government until 2016.

Minister Shaw also hit some of his favourite themes. He once again called for lower (single-digit) interest rates for the productive sector, saying he was willing to consider lowering the asset tax on banks in exchange for them bringing down interest rates more quickly, but that he needed “a sign of good faith” from the banks. He added that despite good credit growth last year, credit to the private sector in Jamaica remained well below 40% of GDP, versus 130% of GDP in the US. This compares with his target for the government debt to GDP ratio of 107.1% this March, down from close to 150% in 2013. He stressed his desire to move businesses from the informal to the formal sector (one of the benefits being that they would now be able to borrow money), noting again his personal experience with high interest rates in the 1990s (with interest rates on a loan moving from 15% to 70% or 80%), and promised that the long-delayed Finsac report would be ready within weeks. Commenting on the exchange rate, he observed that the dollar was sustainable as long as all of us buy into the need for a sustainable exchange rate. He added that a lot of people didn't believe the Jamaican dollar could revalue from $131.50 to $125 to one US dollar, and had consequently lost money, and noted that the Bank of Jamaica now had over US$4 billion in gross reserves, and $3.4 billion in net reserves, and had just cut their policy rate again, not including the US$790 million undrawn at the IMF.

Appropriately for a seminar that was also on the stock market, Minister Shaw stated that he was proud that the Jamaica Stock Exchange was once again one of the best-performing (in the top ten) stock exchanges in the world last year, and advised that it was projected that the Junior Exchange would have at least 53 companies listed by the end of 2018, having raised additional equity capital of $17.9 billion, in areas that included medicine, pharmaceuticals, real estate, microfinance, services, information technology, shipping, transportation and retail, a huge increase over 2017. All in all, a very positive outlook by Jamaican standards.