The JLP's has only a single line but on a crucial and costless proposal - to grant institutional independence to the central bank. If an independent central bank comes to pass, comparative research suggests that it will greatly increase the likelihood of low inflation, a critical component of a pro-growth environment. This is not a trivial component when the government is saddled with a fiscal deficit and burdened with debt - problems for which a little inflation is too easy and tempting a solution.
There are other minor but useful suggestions in the PNP manifesto that will have benefits across the board (trade facilitation, tax compliance, pension reform) and both manifestos promise to consolidate employee deductions, lowering the business cost of employment and thereby raising both employment and wages. But aside from their one major contribution each, the party proposals are otherwise largely uninnovative and silent on important economy-wide growth measures.
For instance, a major component of an environment conducive to pro-growth investment would be a simple and uniform, rule-based tax system. Such systems attract investment because of their relative simplicity; tax revenues are higher for a given average tax rate because investors cannot shift revenue across classifications, while the cost of collection is lower because of the simplicity of the rules.
The Final Report of the Tax Policy Review Committee of 2004 described the pile of "special treatments" in the present tax code as an "ad hoc" tax system that foregoes nearly a fifth of the revenue that could otherwise be collected. Further, it specifically identified the nearly 200,000 separate incentives and remissions as a "special problem".
But both manifestos promise to make this special problem worse! The JLP's includes a long list of new incentives for agriculture brokers, agro-processors, manufacturers, package-design enterprises, overseas marketing expenditure, hotels as virtual exporters, entertainment venues, and music promoters, among others.
The PNP's offerings, while not quite as copious as the JLP's, nonetheless promise incentives for small tourism properties to refurbish convention facilities, construct attractions, and hydroponics.
Remarkably, while providing the above specifics on how each intends to further complicate and distort the tax structure, each party has managed to contradict itself by saying that it intends to implement simplifying tax reform (the JLP in its manifesto and the PNP through one of Omar Davies' contributions to the televised debates). But with such detailed lists of promised incentives, the nod to tax reform is, as the cliché says, 'lip service'.
The most obvious obstacle to growth in Jamaica is the enormous public debt and the yearly fiscal imbalance that continues to pile on top of it. Jamaica now ranks as the fourth most indebted country in the world (behind Guyana, Lebanon, and St. Kitts/Nevis). At nearly every point in post-independence history, the country has suffered from either high inflation or high debt, bot consequences of our long-running fiscal deficits.
There will almost certainly be no long-term economic growth without a plan to tackle this problem, as both inflation and debt are inimical to growth. While the JLP manifesto does promise "prudent fiscal management" and the PNP's commits to "strong political leadership and resolve" on this issue, neither document provides any indication of how the required expenditure cuts or revenue increases will be effected.
On the contrary, both - and here again the JLP's manifesto appears to us to be the worse violator - offer increased expenditure along with the new tax breaks, the arithmetical consequence of which is a worsening of the deficit.
Both parties have addressed the debt in their manifestos, but not by way of blueprints to keep it from growing.
And they have addressed it in quite different ways. The PNP makesa pledge to continue large primary surpluses - recognising that, if interest on debt were taken out, the public accounts would reveal large surpluses which the PNP are promising to continue.
But to put a halt to borrowing requires more than a continuation of the status quo. It requires lower expenditure or more revenue. The PNP manifesto does not suggest how this will happen.
Fiscal management approach
The JLP approaches the issue of fiscal management as a governance issue. The party proposes to legislate a fiscal deficit limit and a public debt cap. In principle, the right governance structures can be effective means of achieving outcomes, even in the absence of a specific blueprint towards the outcomes. But several difficulties lie in the way of this particular proposal.
First, fiscal accounting at present remains too much a victim of off-budget items, accrued liabilities, and sloppy book-keeping for any such legislation to be effective even in the presence of a determined finance minister.
Second, no sanctions have been specified, in the absence of which legislation runs the risk of being just so much text on paper.
Third and most consequentially, the limit suggested, at three per cent of GDP, is loose enough to allow the debt to continue to grow substantially in perpetuity, and a tighter limit is impractical given the vagaries of tax revenue and economic shocks.
Improvement to environment
In the final analysis, the flaws enumerated above - the paucity of improvements to the broad, economic environment, the promises to further deviate from a simple, rule-based tax system, and the inadequacy of attention to the fiscal deficit and the consequence of indebtedness - are mere symptoms of a larger, more disturbing failing: either a failing of understanding, or a refusal to convey understanding. Neither manifesto articulates a philosophy of and a concomitant overarching strategy for economic growth. To promote growth, there must be an understanding of the process. In the absence of such understanding, we will continue to only have a random list of policies - not a cohesive set - loosely geared towards the growth of our economy.
We welcome contributions from our Gleaner readers, please email us at: takingre sponsibility@gmail.com The Caribbean Policy Research Institute (CaPRI) is a think tank which works to promote evidence-based national dialogue and create better policies.
