Today the Government of Jamaica (GOJ) presented its plan to Parliament to fund the 2020/21 National Expenditure Budget of JA$853.5 billion. In his Budget Speech, Dr. the Honourable Nigel Clarke, Minister of Finance and the Public Service outlined a series of revenue measures designed to provide an economic stimulus to Jamaica’s economy through a reduction of taxes totalling JA$18 billion for the 2020/21 fiscal year. This follows a JA$14 billion tax reduction announced by Minister Clarke last year in his maiden 2019/20 Budget Presentation.
This is a first for Jamaica: no Minister of Finance has previously had the fiscal space to reduce taxes either to this extent or on a ‘back-to-back’ basics. This space has been created as a result of strong fiscal discipline demonstrated by successive administrations (with support from the IMF) and underpinned by extensive sacrifices made by the Jamaican public along with the private sector. While prudent management of Jamaica’s finances remains critical, this must be balanced against the urgent need to achieve economic independence while protecting the poor and vulnerable.
Significantly Minister Clarke announced the GOJ’s intention to reduce Jamaica’s primary surplus target.from 6.5% to 5.4% of GDP. Under the IMF programmes, this target was originally set at 7.5% in an effort to get Jamaica’s finances under tight control. While meeting this target improved the country’s fiscal position, it also had material trade-offs including a contractionary effect on the economy. The proposed further reduction in the target is estimated to free up an additional JA$25 billion in fiscal space.
Jamaica’s fiscal performance has been commendable - tax revenues continue to keep pace (notwithstanding tax reductions) while the country’s Debt:GDP ratio continues to track downwards - Minister Clarke noted that this key ratio is forecast to be less than 84% by March 2021 with rates of 68% and 60% being targeted for 2023/24 and 2025/26 respectively. The GOJ seeks to reduce Jamaica’s National Debt through a multi-pronged approach involving (i) liability management; (ii) pursuit of performance targets; (iii) public divestment of stated-owned commercial assets and (iv) re-integration of certain public bodies.
Arising from a number of initiatives including the Wigton Windfarm and Trans-Jamaican Highway IPOs, Minister Clarke indicated that the GOJ generated JA$73 billion which will be used to repay National Debt (representing 3.3% of GDP) by the end of this financial year.
In terms of social protection, it is to be noted that only 28% of Jamaica’s senior citizens currently qualify for a National Insurance Scheme (NIS) pension. This leaves many of our elder citizens in a precarious position. In an effort to address this, Minister Clarke announced a welcome reform to the National Insurance Scheme whereby a modest pension will be provided to any senior citizen regardless of whether they contributed to the National Insurance Scheme once it is determined, following means-testing, that they are considered poor and vulnerable.
While acknowledging recent economic growth levels are not where the GOJ wants them to be (the GOJ had previously targeted economic growth levels of 5% of GDP within 4 years which was not realised), the Minister was exuberant about signs of progress made. He noted a 95% increase in new registrations at the Companies Office in 2019 (over 2018). He exclaimed several times that the economy and businesses across the Island are “bubbling up”, that the skyline dotted with many cranes and held aloft newspapers crammed with job adverts. The Minister also recounted an anecdote to illustrate that prosperity is being created for “all the P’s” - a reference to both sides of the Jamaican political divide (the JLP and PNP). Who knows, Minister Clarke may have just coined his campaign slogan for the next elections - “from strugglin’ to bubblin’ !”.
On a more serious note, Minister Clarke acknowledged that the economic growth levels assumed over the medium term (ranging between 1.2% - 2.4%) on which the GOJ’s fiscal projections have been premised may have to be scaled back (to between 0.7% - 2%) depending on the economic impact that the COVID-19 outbreak may have on Jamaica. The GOJ hopes that the economic stimulus to be generated from the 1.5% GCT rate reduction announced today will also help to counteract negative economic effects from COVID-19. Minister Clarke also announced that the GOJ is making a JA$7 billion provision for funding on a contingency basis for a comprehensive COVID-19 action plan should the need arise.
CARICOM Tax Leader, Partner, PwC Jamaica
Tel: 876 932 8423
Partner, PwC Jamaica
Tel: 876 932 8378