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Speeches

2007-2008 BUDGET DEBATE

PRESENTATION BY
AUDLEY SHAW, M.P.
OPPOSITION SPOKESMAN ON FINANCE AND THE PUBLIC SERVICE

TUESDAY, APRIL 17, 2007



PREAMBLE

Mr. Speaker, the budget presentation by the Honourable Minister was devoid of any clear direction for the country and was nothing more than a statement on the challenges we face as a nation with no solutions offered. But take heart Mr. Speaker because today I will outline a clear alternative for Jamaica’s economic development.

THE STATE OF THE NATION

Mr. Speaker, as we embark on this Budget Debate, what is the background of our daily existence in our country?

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While the Government claims that poverty has declined in Jamaica, most Jamaicans still do not enjoy a good quality of life because they are stressed out by the challenges of daily survival, juggling the supermarket bill with the light bill, the school fees with the prescription money. And God help poor people in this country who are struck by major illnesses. Our TV stations are now the new avenues of begging for assistance to needy people, because they have been abandoned by the Government.

And while the Government was able to allocate nine thousand million dollars ($9B) for a few days of World Cup Cricket, hundreds of people are dying of kidney disease because they cannot afford dialysis treatment. As we speak, the UWI is reported to be short of a special fluid that is required for dialysis and patients are unable to receive this life-saving treatment.

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And while the Minister of National Security boasts of a marginal reduction in crime, our justice system is in crisis, rampant indiscipline is overtaking our schools, and the government has failed to deliver the primary responsibility of any government, which is to maintain public order.

And while the Government boasts of super highways, our small farmers cannot get their produce to market due to bad roads and it is 2007 and thousands of citizens still do not have reliable access to potable water.

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And all of this is taking place because after 18 long, long years in power the Government has failed to develop the economy, grow the country and create jobs and prosperity for the people – in fact the main area of growth appears to be debt corruption and waste in Government, where extravagance and waste is the order of the day, where expensive gas guzzling vehicles are used for messenger service and the Bank of Jamaica that is to set the tone for fiscal prudence is now the seat of vulgar opulence with its fleet of expensive SUVs, BMWs and Mercedes Benz motor vehicles.

THIS IS THE STATE OF THE NATION.

THE REAL MEANING OF THE BUDGET

Mr. Speaker, as we gather in this honorable house to debate the budget it is important that we reflect on the significance of this exercise.

The people of Jamaica have entrusted us in this House with the stewardship of the nation’s finances. As we begin this exercise, let us remember that we are not debating the Government’s money; we are debating the people’s money.

Politicians, especially in an election year, are prone to rhetoric. I have never met a politician who claims not to “love the poor.” Some are even bold enough to pronounce that they love the poor more than anyone else. Mr. Speaker, you do not have to be an economist to know that talk is cheap.

But, the budget is the time where the “rubber hits the road.” Limited funds means that every dollar spent in one area could have been spent somewhere else. Put differently, each time the government decides to spend money; it is telling the people of Jamaica that it is the best possible use of their hard earned tax dollars. The budget therefore provides an opportunity to move beyond talk and beyond empty speeches to examine the real priorities of the government.

Mr. Speaker, how many Jamaicans realize that based on the Minister of Finance’s budget, out of every dollar of taxes they will pay almost all of it will be used to service debt this year? And as a percentage of the total budget, 54 cents will go to pay debt service, 23 cents will go to pay government workers and just 23 cents will be left over for everything else? And of that remaining 23 cents, a good chunk has in fact already been spent, and is only now in the Budget because the bill has to be paid.

As we begin this debate, I would like to make it very clear to the people of Jamaica, and especially to the poor and vulnerable: this is the cold hard reality of the budget. This is how your money will be spent over the next year. These are the priorities that the Minster of Finance and the Prime Minister have set for the nation.

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OUTLINE OF PRESENTATION

It is in the context of this discussion about national priorities that my presentation will be structured.

First, I will briefly review the state of the economy. Mr. Speaker, I will show that the Jamaican economy continues to grow so slowly that we are falling further and further behind our peers around the world and virtually every country in the region.

Second, I will give particular focus to the issue of the debt. Jamaica has one of the highest levels of debt in the world. Mr. Speaker, I will show that this massive debt is principally to balance for our lack of growth and development, keeping the ordinary Jamaican deep in poverty.

Third, I will discuss the performance of certain selected public sector entities and examine some current issues that reveal mismanagement, incompetence and misplaced priorities.

Fourth, I will outline a plan to grow and develop the economy and will put forward a credible debt reduction strategy that will form an important component of this Growth Plan.

Fifth, I will close my remarks with a message to the Jamaican people about the significance of this budget debate particularly as we face a general election.

STATE OF THE ECONOMY

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Growth

GDP remains the best metric by which to judge the standard of living of the Jamaican people. The Minister of Finance boasts that over the past year the economy grew at 2.5%. The only way this growth rate is impressive is when it is compared to the administrations’ past performance. On average, the Minister of Finance has been able to generate an annual growth of less than one percent (0.8%) in his 14-year tenure. (This is not the best growth rate in 11 years, as the Minister asserted it is the best growth rate in the entire 14-year tenure of the Finance Minister).

Let the record show that while the Minister celebrates 2.5% growth this year, Latin America grew at an average of 5% and the global economy grew at over 6%. In fact, with the exception of Guyana, Jamaica grew at a slower rate than every other Caribbean nation over the past year, and even Haiti’s growth rate was at Jamaica’s level. This means that Jamaica has gotten poorer, not richer, relative to the rest of the world over the past year. In fact, the GDP per capita of the average Jamaican is now roughly the same as it was in 1971. Mr. Speaker, this is a shameful statistic.

By comparison, in 1970, Jamaica’s per capita GDP was US$752, while Barbados was US$800 and Singapore US$914. By 2005 – 35 years later, our per capita GDP is a mere US$3,657, while Barbados has leaped to over US$11,088 and Singapore has sky-rocketed to over US$26,836.

Not surprisingly, in the 2005 Human Development Index of the UNDP of 177 countries Jamaica was ranked 104, Barbados ranked 31, and Singapore ranked 25, the lower the figure the better the ranking. This tells us that the Omar Davies/PNP economic model is just not working.

Unemployment

The Government claims that the unemployment level is 9%. Mr. Speaker, when I repeat this number to business people or my own constituents they literally laugh out loud. Today I ask the members of this house: in your constituency, are 9 out of every 10 people employed? Mr. Speaker, the numbers do not reflect reality. The truth is that over four hundred thousand Jamaicans of productive working age do not have jobs and a large percentage of the 425,000 persons listed as “self-employed” are involved mostly in low productive, hand-to-mouth existence and are barely able to put food on the table and take adequate care of their children.   They are among those unable to fill a prescription critical to survival notwithstanding the existence of Government drug windows.

The Minister himself concedes that among our youth and our women, the rate of unemployment is above 20%. Mr. Speaker, this is a shameful record.
In order to grow the economy and raise the standard of living of every Jamaican, we must put people to work.

Interest Rates

Mr. Speaker, the Government likes to boast that interest rates are at historic lows. In the days of 40% plus interest rates which dominated much of this administration’s time in office, it was the Jamaica Labour Party that advocated a low interest rate policy. But the truth is that in an open globalized world, the real measure of interest rates is to compare our rates with those of our trading partners. Are we competitive?

The Treasury Bill rate in Jamaica at the end of 2006 was 11.6%, compared with 5.01% (United Kingdom); 4.84% (United States); 4.18% (Canada); 4.14% (Guyana); and 6.74% (Trinidad). The fact remains that our business people have to pay more than twice as much for capital than their competitors in the examples given. Mr. Speaker, the truth is interest rates remain far too high, and the Minister has publicly admitted that it is unlikely that interest rates will fall further.

And for the Minister to wring his hands in frustration, claiming that the commercial bank spreads are in excess of 12 percent, is not good enough. What has the Minister sought to do about it? Has he sought to get the spread disaggregated by administrative charges, profits and risk premium?

The JLP on the other hand, fully intends to deal with this issue as part of its partnership for progress alliance with the Private Sector, when it forms the next Government of Jamaica later this year.

Inflation
The government also boasts that inflation is under control at 6.6% in the last fiscal year. Again I would like to remind the government that they are the ones that hijacked the workingman and woman of this country with hyperinflationary rates in the early 1990s. In 1991 the inflation rate was over 80% and in 1992 was over 40%.

Since 1991, inflation has gone under 10% only for 7 of those 16 years and the average for the 16 years was 19.5%. So when they are boasting about inflation being the lowest in 16 years, it is deceptive. The fact is that they have ravaged the pockets of the Jamaican people over the 18 years they have been in power.

Poverty levels
The Government claims there is a continuing decline of poverty in Jamaica. But is this really the case? While we acknowledge that remittances play a critical role in the consumption pattern of Jamaicans, in other critical measures of wealth creation we are found wanting.

For instance, there is a general rundown of the housing stock, particularly in rural Jamaica. This is because many households are unemployed while others have seen a reduction of income flows from their livelihood and lack of purchasing power. Inflation in the housing sector as reported by the Consumer Price Indices 2006, has been running at double digit well above the general level of inflation.

A telling example is that despite the announcement of the former Prime Minister that interest rate of NHT was reduced to 2% and loan amount to $3M per contributor, it is the case that a significant number of beneficiaries were unable to benefit because of a failure to qualify for these loans.

Indeed, the rate of repossession and auction by the NHT has jumped from 8.0 percent three years ago to almost 17% last year.

Even the inner-city housing scheme, which was recently launched in the constituencies of the Prime Minister and the Minister of Finance, many recipients are already in arrears in mortgage payments. This is not because people don’t wish to pay but the fact is that the mortgage is unaffordable. And this is for basic housing.

And more fundamentally, this Government has been unable to attract investment and grow the economy in order to lift the earning power and overall living standards of the people, so they can take better advantage of the NHT benefits.

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THE BUDGET

Mr. Speaker when I examine the budget I am struck by the inability of the Minister of Finance after nearly two decades in office to address the most important challenges faced by the Jamaican people. I am struck by the warped priorities, incompetence and political favoritism in the way this government has squandered the people’s money.

Mr. Speaker, when this Government took office it inherited a budget surplus. Last year, the budget deficit was 5.4%. The Minister projects that next year it will be 4.5%. After two decades, this Government has failed to come up with policies to address the deficit. The Minister tells us that the deficit is 2.0% of GDP higher because $14 billion was taken on board for capital expenditure in previous periods. This underscores the point I have made over the years that the Minister has corrupted the budgetary process by carrying out expenditure illegally and unconstitutionally and then brings the bill to Parliament for mere rubber-stamping. Where is the parliamentary scrutiny and approval of these expenditure items?

But in discussing the Budget the number one issue that faces us and which must be confronted in blunt fashion is the national debt burden.

THE DEBT

Mr. Speaker, debt is by far the largest cost in the Budget at $204 billion or almost all of revenue and 54% of the budget dollar. But the real cost of the debt and debt service is far greater than this figure and it is important that the people of Jamaica understand this cost.

The real cost is the biggest missed opportunity in the history of this country. The real cost is all the good that could have been done to develop this country and improve peoples’ lives with the billions and billions of dollars we continue to spend on the debt. Mr. Speaker, the debt is by far the biggest economic challenge we face as a nation and lies at the heart of many of the challenges we face as a society.

This year, 54 cents out of each budget dollar in 2007/08 will go to service debt. Again, it is important that the people of Jamaica know what this means. Mr. Speaker this is like earning $100 per week and before you go home you give away $54 leaving your family to fend on only $46. Mr. Speaker, this government acts like they are for women, but they are certainly acting like an irresponsible father that drinks out the money before he takes it home to his wife and children.

At the end of January, the debt problem was $920B. Based on the budget just presented, next year our debt is expected to grow by $40B. So Mr. Speaker, we are officially fast approaching the $1 Trillion dollar mark, and if we add the debt of Air Jamaica, SCJ, JUTC, and the new debt queen (ENROC) we are well above the $1 Trillion mark already.

What this means is that every man, woman and child will owe about $359,000 by the end of next year. Even before our children start to work they already owe $359,000. What this government is saying to these children is that when you graduate from school next year, in addition to student’s loan, in addition to the money your parents may have borrowed to send you to school, in addition to the massive school fees your parents had to pay, you will owe our creditors $359,000, and growing, because the government had to purchase SUVs and BMWs for government officers, and build a stadium and you will have to figure out how we can earn from it because the government cannot.

Mr. Speaker, not only is this debt huge at nearly one trillion dollars, but it is dangerously unstable with 50% of the debt linked to foreign currency and almost 50% due to be paid in the next five years. This means that we have put ourselves in a position where even a mild devaluation would lead to billions more to service our debt. This means that we have put ourselves in a position were we are totally dependent on short-term trends in the capital markets just to meet our basic needs as a nation.

Mr. Speaker, Bear Sterns, in downgrading our bonds to under-perform status, the second downgrade in a month, predicted that our debt/GDP ratio will increase from 133% to 136%, and seemed dumb founded that the government would have allowed such a slip in fiscal discipline after having been assured that we were on target. Bear Sterns stated,

“The official deficit figure for FY2006/07 was 5.3% of GDP, significantly higher than our revised forecast of 4% and the original target of 2.5%. Moreover, the budget for FY2007/08 calls for a deficit of 4.5% of GDP, with the balanced budget target now pushed out to FY2009/10 (it was originally targeted to happen in FY2005/06, and then pushed back to FY2007/08). This is a significant deviation from previous medium-term targets that will ensure that, barring unforeseen positive surprises, the debt/GDP ratio will remain above 100% beyond 2010.”

Mr. Speaker, no other English-speaking nation that Bear Stearns covers is rated under-perform. The government has misled Bear Stearns in the same way that they have been misleading the Jamaican people. The truth is that the government never had the intention to stick to any fiscal targets this year, especially after the JLP has revealed their “Trafigurian ways”.

Mr. Speaker, our debt level is directly responsible for low investment. Low investment is directly responsible for low productivity and low productivity is directly responsible for low growth. This chain of logic is not just shared by the JLP or Bear Stearns. The IMF itself wrote about the effect of debt on growth in paper it released last October appropriately called: “Public Debt and Productivity: The Difficult Quest for Growth in Jamaica.”

Mr. Speaker, in 2007/08 we are planning to borrow over $137B and amortize only $102B of debt. This means that we are continuing to borrow money to pay back what we borrowed in the past. We are borrowing from Peter to pay Paul. This is the essence of our policy and this, Mr. Speaker, is a fundamentally unsustainable economic model.

Mr. Speaker, the JLP has a CLEAR ALTERNATIVE to this irresponsible debt management strategy. We have developed a comprehensive strategy to address the debt burden. I will discuss this plan in more detail towards the end of my remarks.

Public Bodies
Mr. Speaker for the last three years I have included a section of presentation on Selected Public Bodies.

Let us look at some of the major entities, briefly:-

Sugar Company of Jamaica

Unaudited Losses for 2005/2006 J$2.4B

Projected Losses for 2006/2007 $1.1B

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To date, at least $7Billion has been either written/off or taken over by the Ministry of Finance, adding to the already heavy debt burden that poor Jamaicans have to bear. What is the plan going forward? Thousands of rural citizens in this Country depend on this Industry and yet we cannot come up with a plan to rescue it.

     Mr. Speaker, the Minister also needs to advise us on the privatization of this Industry. Where are we and why is it taking so long?

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NROCC (The new Debt Queen)
Mr. Speaker what I am about to say shocked me when I was preparing this speech. As the Members will recall, the Government with great fanfare launched Highway 2000 prior to the last General Election. Since then we have been told how successful the Highway is; the relevant Minister, keeps reminding us how successful the Highway is and that traffic count targets are being met.

NROCC is projected to incur a loss of $2.5B for the period 2007/2008. This is a deterioration of $822m over the estimated loss of $1.6B for 2006/2007. An approximate increase of a ‘whopping’ 50%.

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Projected Accumulated Losses of $6.8B.

One of the reasons for the above is that NROCC, and I quote, “…has not realized any profits since 2003 and losses have been growing. As per contract, the entity has not begun earning any toll fees as the TransJamaica Highway Company has not reached its targeted traffic flow on the two completed highways”. Mr. Speaker what kind of deception is being committed on us Jamaicans?

As the members probably know, the Government decided to build this Highway, and as Sponsors for the project they have to invest a certain amount, which they did through the issuing of Bonds on the local and international markets, in different tranches. As I recall, the average interest rate was approximately 8%, a rate which I had complained was too high for Highway construction.

But Mr. Speaker, again, as is the tradition of this Minister of Finance, we have been deceived, as the interest rate is linked to inflation, so that every time inflation changes the effective interest rate is adjusted. The provision for this Bond Inflation is $615M for the next Fiscal Year, and the total to date is almost $1B. 2007/08 Bond Inflation provision represents 37% of the total interest expense projected for the year.

Mr. Speaker we need answers.

I am recommending that immediately the Prime Minister commissions a report on NROCC. We need to know how we got to this sorry “state of affairs”. We also need to know how the Government is going funds these losses. Will there be more increase in tolls for the suffering people of Portmore and SpanishTown? Or is it that we the people of this Country, who have some of the worst roads I have seen in any part of the World will be asked to continue fund this massive transfer of wealth and resources to foreign creditors?

Other Concerns:

Clarendon Alumina Partners – Accumulated Deficit US$84M or $5.7B. How will this be dealt with?

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Jamaica Bauxite Mining - $1B in accumulated losses for the last three years.

Air Jamaica US$ 1.1146B or $67B (over 30% of the Country’ total revenue) in accumulated losses?

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Caymanas Track Limited $124M in losses. Where are we with privatization? Why is sugar and Caymanas privatizations taking so long?

Financial Services Commission – The Financial Sector regulators, making accumulated losses for the last three years of $120M. How ironic is this?

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Finally, Cocoa and Coffee Industry Board 2007 projected losses are J$100M. I thought the Minister’s “Economic Growth” of 3%, was expected to be driven by agriculture? Sugar in crisis, Coffee in crisis, Cocoa in crisis…. All the farmers in crisis but yet agriculture is going to ensure we have growth of 3%.

The merger of DBJ/NIBJ? What has happened to the loans that NIBJ issued to NetServe, and all the other companies? Are these loans/investments estimated at J$6B collectable? Who were the beneficiaries of these loans? Is this the continuation of FINSAC in a different form? We need the details.

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Finally, on this subject, I note that the Government has 156 active Public Bodies of which 40% are fully or partly funded from the Consolidated Fund. Mr. Speaker, I would like the Minister to advise us as to how many of these Public Bodies funded from the Consolidated Fund will be made “self sufficient” for the next Fiscal Year. Does this mean that we will see an increase in user fees for the Public Services once again?

INCOME TAX THRESHOLD

Mr. Speaker, we see here a serious credibility gap, the most recent example is the inexcusable turn-around on the income tax threshold which the Minister had promised the country to lift to $275,000 by January 2007. Incidentally, the Minister’s announcement that it would not be effected this fiscal year was met with resounding applause from Government members. Let the wage earners who are being deprived of an additional $1800 per month be aware of this position taken by the Minister and his colleagues.

When the Minister announced the threshold two years ago, why did he not immediately put his technocrats to work to sort out the issues related to the tourism workers?

Understated Expenditure
In last year’s Budget the Finance Minister deliberately understated the debt servicing cost by over $16 billion. In the Supplementary Estimates in December he juggled the numbers as best he could but still ended up with a net increase in the debt of $10 billion for FY2006/2007. This year, Mr. Speaker, the Minister has in all likelihood again understated the extent of the debt as he has consistently done in the past.

Mr. Speaker, how can we believe the Minister’s claim that this is not an election budget when he has built up a track record of understating expenditure, overstating revenue, while deceptively sanctioning off-budget expenditure without prior parliamentary approval, with the use of deferred financing mechanisms, letters of undertaking and PetroCaribe Funds (the value of which account for 2% of GDP projected deficit for this fiscal year).

And on the subject of understatement, what of the arrears of monies owed to the NHT, NIS, JPSCo, the Pension Funds and the Securities Dealers? All these combined represent billions of dollars that are obligations overdue for payment.

Is this what the Minister meant last Thursday while he bragged about the modest increase in the Budget, when he said he is “confusing them and leaving them to wonder?” Or is this not just another version of a “run wid it Budget?” What utter contempt for the people of Jamaica.

In light of this reality and in light of the precious few dollars that this Government makes available to spend on the vital needs of the Jamaican people, I am offended by the incompetence, wastefulness and political favouritism this Government has shown in the way it spends the people’s money.

THE WORLD CUP CRICKET AFFAIR

Mr. Speaker, in light of our fiscal imbalance the Cricket World Cup was wasteful spending.

The Minister of Finance on a radio programme recently made an alarming admission that he was unaware of all the financial commitments made on Jamaica’s behalf in respect of World Cup Cricket.

In this context, I would like to ask the Minister of Finance and Prime Minister directly, was the $9 billion spent on the games the best use of the people’s money?

Would it not have been better to cut the expenditure on cricket and put toilets in basic schools around this country that have pit latrines? Would it not have been better to use some of the money to equip hospitals with the equipment they need so that the poor Jamaican that pays GCT increases can go to the hospital to get treatment?

Does the decision of the Prime Minister to forgo spending on these vital areas for the sake of Cricket World Cup, reflect her priorities?

Take the construction of a Stadium in Trelawny, at which not even one World Cup Cricket match was played. What will happen in Trelawny now? Is there a business plan to make this Stadium viable? It has been stated that it will cost some $2 million per month to maintain the stadium.

Can Jamaica really afford this kind of extravagance? Why did we not have the official opening of WCC at the National Stadium and concentrate on improving Sabina Park?

Mr. Speaker, it is clear to the JLP and the man on the street that our schools, hospitals, police stations, fire stations, roads and water supply systems must come first.

A Government must be disciplined and set priorities and not operate with an open cheque book of projects that have questionable return potential. Barbados spent US$78.0 million and got much better matches than Jamaica. Trinidad only spent US$15.0 million. Why did we have to spend US$130 million or J$9.0 billion. Why is it that we who are so poor must outspend these other countries who are much better off than we are?

(Our hoteliers are hurting – give an example)

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THE UNEQUAL WORK DISTRIBUTION AFFAIR

Mr. Speaker, with such few dollars in the Government’s budget available to provide services to the people – we cannot afford to distribute their services unfairly on the basis of political favoritism or corruption.

When I accused the Minister of State for Transport and Works of unfairly allocating a disproportionate amount of work to his own constituency, the response of the Minister was the usual crafty one, calculated to deceive us once again.

A comparison of work distributed under a $2.5 Billion flood damage programme was trotted out, which on the face of it, does not appear to be unreasonable.

But is this the full story? It cannot be, because in the period under review – some $4.0 billion (excluding North Coast Highway, Deferred payments and certain Capital “B” projects) was spent by the NWA and the Road Maintenance Fund on main road repairs island wide. How was the other $1.5 billion spent, why limit the comparison to the $2.5 Billion, why not tell us how the entire budget of the Ministry was spent? Especially with Petrocaribe Funds also being expended behind our backs. (over $3.7 billion spent on roads so far).

I repeat, it is patently unfair and openly corrupt when a Minister of State can so abuse his authority by using the resources of the state to repair over 28 roads in his constituency in one single year, when other constituencies, including my own, can only get a few roads fixed in the entire five years of the term of office. (across the border I have to purchase marl and cement to patch main roads).

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JLP’S CONSTITUENCY DEVELOPMENT FUND
This is a classic reason why the Jamaica Labour Party has it enshrined in its Manifesto that two percent of the Budget will be set aside to be divided equally among the 60 constituencies in a Constituency Development Programme that will ensure a minimum level of equity and fairness in the distribution of resources to the people of Jamaica.

The scourge of shameless victimization as openly practiced by the present Government, sanctioned at the highest levels, must be brought to an end and this initiative will go a long way toward achieving this goal.

THE ILLEGITIMATE USE OF THE FORCE ACCOUNT
The illegitimate use of the Force Account system by the Minister of State and the NWA must also be investigated as it is clearly being used as the latest creature of circumvention of the Government’s established contracts award process.

I call on the Contractor-General to carry out a special investigation into the use of this facility by the Ministry of Transport, Works, Housing and Water, and to do so with dispatch as with the approach of elections, the capacity of those who feel specially anointed to violate the rules apparently know no bounds.

Equally, what has happened to the recently announced Road Maintenance Programme in five parishes? While over $100 Million has already reportedly been spent not one pot hole has yet been filled in North East Manchester, and two roads which were listed on the programme and which need only minor repairs have now been summarily removed on the pretext that they need major repairs.

I invite the Prime Minister to look into this matter as it was launched by her with much fanfare. I also invite the PIOJ and the IDB to carry out an immediate review of the programme.

THE DEFECTIVE FIRE TRUCKS AFFAIR

Mr. Speaker with only 23% of our taxes going to provide services we can not afford extravagance and we certainly can not afford incompetence or wastefulness with the people’s money.

The acquisition of defective fire trucks from Rosenbauer N.A., which has already led to one major accident and a recommended recall of all 25 trucks in the fleet, by the same persons who should have done the assessment in the first place, is the latest episode in a tale of incompetence and mismanagement that dates back several years ago. The Minister of Finance and the Prime Minister (who was the responsible Minister at the time of the acquisition of these defective fire trucks) must be held accountable for this fiasco at the Fire Brigade.

Prior to the decision to acquire the fire trucks from Rosenbauer, N.A., the French Government had offered to the Ministry of Finance through the French Ex-Im Bank – COFACE – financing on favourable terms for the acquisition of Renault fire trucks, which to this day, remain the most reliable trucks at the Jamaica Fire Brigade.

The Cabinet in fact took the decision to sole source fire units and garbage trucks, a fact which was communicated to the local agents of Renault, by the Minister of Finance.

Despite the attractive offer and after many months of unnecessary delay, the Government reversed this decision and decided against sole sourcing from Renault, and invited tenders. Only two companies tendered. Renault and Rosenbauer, and Renault was disqualified partly on the grounds that some of the information was presented in French language, (among other things) leaving Rosenbauer N.A. as the sole bidder, despite its unproven track record.

It was clear from the beginning that somebody somewhere had an axe to grind. Somebody had it in for Renault and wanted Rosenbauer at all costs. Who colt the game and why?

There were already grounds to question the Rosenbauer purchase, because internal documents at the Fire Brigade had revealed problems with the Rosenbauer fire trucks that were supplied from Austria. In a comparison with the Renault trucks, the Renault trucks came out way ahead.

In a report submitted to the Fire Department in 1998 comparing the Rosenbauer and Renault fire trucks the relevant Technical Officer highlighted multiple defects with the Rosenbauer trucks and only one defect with the Renault trucks. Among the problems identified with the Rosenbauer trucks were problems with gear boxes, fuel systems, braking systems and bursting water tanks. The Report recommended:

“based upon the performances of these two types of fire units (Renault & Rosenbauer) over the years and the availability of spares for the Renault, I must recommend that the Brigade purchase Renault fire units, with a modification to the braking system, that is, instead of a hydraulic braking system, a fully air-operated system be installed on the trucks.”

Was this information provided to the NCC? And was the PM who was the responsible Minister at the time of the decision to purchase these new faulty trucks, not aware of this report when she advised the Opposition Spokesperson on Local Government to the contrary?

And most recently on Wednesday of this week, the Public Relations Manager of the Jamaica Fire Brigade Mr. Emileo Ebanks said “if we had a decision we would not have gone with Rosenbauer, if it were left up to us, we would have gone with Renault.”

The Prime Minister and Finance Minister cannot remain quiet and wash their hands of this sordid affair. It was their fiduciary duty to ensure that the best interests of the firemen and people of Jamaica were being protected in the acquisition of the safest and most reliable equipment.

I hold them both accountable in this matter because it was their responsibility for and on behalf of the people of Jamaica, to ensure that the necessary due diligence was carried out to ensure that the most reliable equipment was acquired with taxpayers money.

This is administrative negligence and dereliction of duty by any other name.

There should be no further acquisition of fire trucks from this source and Renault should immediately be re-engaged even on a sole source basis if necessary, with the approval of the NCC.

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A REAL ECONOMIC DEVELOPMENT PLAN
FOR JAMAICA

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It has been demonstrated beyond any doubt that the Government and the Finance Minister have failed to create an appropriate business environment for Jamaicans to feel encouraged to invest.

The Jamaica Labour Party believes that it is the role of Government to develop and implement economic policy that allows for the creation of a productive, prosperous and peaceful society.

We have developed a comprehensive Plan to deliver economic growth and development to the people of Jamaica, including achieving 6-10 percent growth over the medium to long-term. The Plan has the following key components:

A credible Debt Management Strategy.

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An Energy Policy that reduces the cost of electricity to industrial, commercial and household uses.

A more efficient government bureaucracy geared to serving the people well.

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Tax Reform for easier administration, more investment and more efficient services for the people.

Investment promotion to stimulate large-scale start-ups in large, medium and small businesses.

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1.      A Credible Debt Management Strategy
We believe that the size of the debt is the primary constraint on economic growth and development. While we did not create this problem, we cannot afford to ignore it. Jamaica’s massive debt burden is at the heart of a vicious cycle that depletes capital investment, social spending and employment while raising taxes, interest rates and instability.

We have developed a holistic strategy to reduce the impact of the debt burden which includes fiscal measures as well as legal and alternative policies. Such a strategy will reduce long-term interest rates, redirect private sector savings into the productive sector of the economy thereby reopening factories, replanting fields, growing exports and boosting employment.

I.       Impose constitutional limits on borrowing
The Jamaica Labour Party believes that legal measures must be put in place to ensure debt reduction. Such measures include: constitutional caps on annual borrowing and debt as a percentage of GDP. While caps must have some flexibility and are not capable of totally solving the problem, they will serve as an important benchmark and impose an additional layer of oversight into the borrowing process.

II.      Secure lending from multilateral agencies on Jamaica’s terms
Although Jamaica has no significant borrowing arrangements with any major multilateral agencies, we continue to operate within the bounds of their policy directives. That is, we do what they say and do not take advantage of what they offer. This is the worst of both worlds. Assuming pre-conditions consistent with our overall economic policy, we propose reexamining the possibility of borrowing from a consortium of multilaterals at rates significantly below what Jamaica can access in the capital markets. These funds could be used to refinance expensive instruments and further lower borrowing costs. Funds from multilaterals will be accessed to finance special programmes such as the Educational Transformation Programme.

III.    Carry out a comprehensive audit of the Government’s assets
The Government of Jamaica has a complex web of assets. Many of these assets continue to be a drain on the fiscal budget and are supported by massive public subsidies. Others are valuable and represent potential sources of budgetary support. The Jamaica Labour Party believes that a comprehensive audit of the Government’s assets be undertaken by an independent body. The Jamaica Labour Party believes that considerable budgetary support can be generated by strategically eliminating loss-making entities and divesting of profitable entities either via privatizations or public equity offerings on the Jamaica Stock Exchange. The Port Authority of Jamaica is a good example for this.

IV.     Use the proceeds of Petrocaribe to pay down debt
The Petrocaribe Agreement generates proceeds of $18 billion each year. If used to retire expensive domestic debt, something which is permitted under the agreement, we estimate that in just three years this policy alone could reduce debt to GDP by 8%.

The Opposition wishes to re-state its grave concern at the fact that the Minister of Finance continues to carry out expenditure under the Petrocaribe programme outside of the scrutiny of Parliament.

In this Budget, several billion dollars have been set aside to account for funds expended under this programme.

We repeat our call for transparency and accountability in the expenditure of these funds. With the track record of this Minister, what guarantee do we have that he will not use the Petrocaribe funds for election spending?

The Financial Secretary must take immediate steps to preserve the integrity of the Fund by presenting monthly expenditure reports to Parliament.

The expenditure of these funds in an arbitrary manner will also compromise Jamaica’s ability to service the debt to Venezuela in the future.

V.      Secure a partnership with the private sector on debt and interest rate reduction
With debt service exceeding total fiscal revenues, Jamaica is extremely vulnerable to external shocks. Furthermore, the lack of investments in vital social services the debt causes dampens the long-term prospects for the Jamaican economy. Both of these developments severely threaten the long-term profitability of the private sector. As a result, the Jamaica Labour Party believes that the private sector, including financial institutions, have a vested interest in working with the Government to resolve the debt burden. A major component of the Jamaica Labour Party’s debt management strategy is greater cooperation with the private sector to lower the debt and interest rates for the mutual benefit of the Government, the private sector and Jamaican people.

VI.     Securitize foreign currency fiscal revenue
Within the revenue the government collects each year are funds denominated or linked to foreign currency. Like the Petrocaribe agreement, these flows are an unused debt-fighting tool. If separated and securitized, bonds backed by these flows would receive interest rates significantly below Jamaica’s global and Eurobonds. The proceeds of these bonds could then be used to repay more expensive debt and lower annual interest costs. A similar structure has been successfully implemented in Mexico, Venezuela and Russia and should be implemented in Jamaica.

VII.   Explore the issuance of “Diaspora Bonds”
The Jamaican Diaspora is an immense financial resource to the development of Jamaica. Already contributing through the flow of remittances, the Jamaican Diaspora could also be tapped as a debt fighting tool. Offering the Diaspora the ability to invest in bonds whose proceeds could be used to pay down more expensive debt, would provide a market-based solution to the debt problem and at the same time provide a formal means to strengthen the financial ties between the Diaspora and communities in Jamaica.

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2. An Energy Policy

One of the major obstacles to maintaining single digit inflation rates in Jamaica, is the reckless and irresponsible way in which Jamaica’s energy policy has been managed over the past 18 years by the PNP administration.

The divestment of the JPSCo to Mirant has served to further exacerbate Jamaica’s uncompetitiveness in the productive sector due to the high cost of electricity that has come about not just from higher oil prices, but from an iniquitous license with Mirant that has allowed that company to use the JPSCo as a cash cow to take them out of bankruptcy on the backs of the Jamaican people.

A credible energy policy is needed to drive a growth and production plan for Jamaica. The Opposition Spokesman on Energy will address this policy in a fulsome way when he speaks tomorrow.

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An Efficient Government Bureaucracy

Carry out a comprehensive audit of the public sector’s operations
The Jamaica Labour Party believes that before taxes are increased, all reasonable steps must be taken to eliminate waste and improve efficiency in the public service. This policy alone could provide significant budgetary savings. As an initial step, the Jamaica Labour Party believes that a comprehensive and transparent audit of the Central Government, Government agencies, Statutory Bodies and Public Sector Companies be conducted by an independent body to identify areas where waste can be eliminated, efficiency increased and service delivery improved.

4. Tax Reform

Reform the tax system
The Jamaica Labour Party recognizes that the Jamaican people face an overwhelming tax burden. For this reason, direct tax increases are not a part of our debt management strategy.

The JLP is in favour of reducing Corporate Income taxes in line with personal income taxes, and over time when the economy is growing in a sustainable way, to further reduce corporate and personal income taxes in order to further stimulate investment and savings. Innovative savings instruments will also be developed, including special tax credits to encourage first-time home ownership.

The JLP will reform the tax system to increase its overall efficiency. In order to do this, we believe reform must focus on two areas: the simplification of the tax system and the expansion of the tax net. Specifically this process will include the merger of NHT, Education Tax, HEART and NIS deductions into one Social Security Tax.

Social Security Tax
This tax will be divided between the NHT, the NIS, the HEART Trust and a new National Health Service that will incorporate the National Health Fund.

The National Health Service will ensure that no citizen of Jamaica will be deprived of good health care because he/she can’t afford it. Every Jamaican must have a right to proper health care.

In advocating this Social Security tax with fixed percentages for NHT, NIS, HEART Trust and Health, the Opposition is however concerned at the statement by the Finance Minister who indicated that in the consolidation of the tax collection, he said “The greatest potential benefit from the consolidation of the payroll deductions will be the ability to allocate increased resources to certain problem areas.”

I wish to stress and re-emphasize a point made by the Leader of the Opposition last year that both the NHT and the NIS are contributory schemes for the account of each individual worker. They are not a slush fund for the Minister to use “as needs dictate”, thereby putting their benefits in jeopardy.

The JLP fully intends to preserve the sanctity of these schemes within the context of the consolidation of collections into a single Social Security Tax.

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Tax Compliance
The Jamaica Labour Party supports the principle of equity in the tax burden where all income earners should be brought into the income tax net over time.

The Minister of Finance has said that “it will become increasingly difficult, if not impossible for persons to do business with Government unless they are formally registered”.

The Jamaica Labour Party intends to use public education mechanisms to seek voluntary compliance. We intend to employ user-friendly tax compliance facilities. We believe that the sledgehammer approach being indicated by the Minister will not be effective and will drive tax dodgers deeper underground.

Stimulating Commercial Transactions
The JLP is committed to the reduction of Stamp Duties and Transfer taxes on land transactions as well as the elimination of estate duties (death tax). These initiatives will encourage greater dynamism in residential and commercial property transactions that will be good for business and economic development.

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5. Investment Promotion

The JLP believes that a sound macroeconomic foundation is a necessary but not a sufficient condition for growth. A credible debt management strategy, a sensible cost-saving energy policy, a bureaucracy that is geared to efficient service delivery and meaningful tax reform measures must be complemented by aggressive investment promotion and facilitation.

Despite the acknowledged investments in Tourism and the emerging potential for the expansion of the bauxite/alumina sector, the fact is that Jamaica’s capacity for new investment is seriously underutilized.

Vast acreages of land remain idle while we import fruits and vegetables for tourists. Processed foods for export is a sleeping giant. Technology to drive agricultural productivity remains underdeveloped.

We have mismanaged the information technology sector which has great potential to employ thousands of Jamaicans.

There are many opportunities for small and medium sized businesses to satisfy demand for niche markets both on the local and export markets.

But JAMPRO, despite its recent name change to Jamaica Trade and Invest, has failed to grasp its true role in the economic transformation of Jamaica.

The JLP Government intends to clear the obstacles to allow the private sector to make the transition to broadening the base of investments from tourism, financial services and trading, to include the production of goods and services to satisfy the local and export markets.

Here are a few highlights of this strategy.

Merge JAMPRO with DBJ

The JLP will merge JAMPRO with the Development Bank of Jamaica to create a dynamic results-oriented Economic Development Agency that will truly cut red tape and facilitate rapid new start-ups and expansion of existing businesses.

This one-stop model is also consistent with global best practices as demonstrated by Ireland’s highly successful Industrial Development Authority (IDA).

Streamline tax and customs bureaucracy to stimulate investment and exports

The Jamaica Labour Party believes that in order to stimulate industry, bureaucratic hurdles to investment must be lowered. Two glaring examples are the various statutory payroll deductions businesses must make (already mentioned) and customs procedures. We propose undertaking a comprehensive customs modernization programme. This would reduce complexity, facilitate the processing of cargo at ports of entry and exit and enhance tax receipts.

III.    Tailor investment promotion incentives specifically to meet Firm’s needs
To the extent that incentives are needed to secure investments, these incentives must be tailored to meet specific needs faced by prospective investors. Incentives developed in a vacuum have real costs but may or may not be effective in actually providing value to investors. Some investors may need financial incentives, while others may prefer training or marketing assistance. Only a firm-centric approach to investment promotion can reveal these preferences and deliver the most effective incentives to prospective investors.

IV.     Facilitate the expansion of venture capital financing
High growth industries in emerging sectors are vital to the future of the Jamaican economy. Nevertheless, with little tangible assets and negative short-term cash flows these sectors are particularly poorly suited for traditional sources of financing such as loans from commercial banks. Instead, these firms are better suited to raise funds not by borrowing but by offering equity to potential investors. The Jamaica Labour Party believes that the government should take the necessary fiscal and regulatory steps to facilitate the growth of venture capital financing in Jamaica.

V.      Focus on Business Process Outsourcing
The global business process outsourcing industry is growing at over 10% a year. The West Indies are the only English speaking, low wage, literate, labour market in
the Western Hemisphere. We are perfectly situated to become the outsourcing mecca for North America. Call centers are just an example of the potential that exists. Jamaica could similarly be processing US income tax returns, drafting British legal documents, and be engaged in other higher value added businesses. Business Process Outsourcing is transforming the Indian and Irish economies. Jamaican operators have had important successes and are competing effectively against global peers. We estimate that if Jamaica captured just 1% of the global market share in this industry by 2010, it would generate 50,000 jobs directly, another 120,000 jobs indirectly and create a domestic industry with US$1.5billion in annual sales.

VI.     Diversify the Tourism Sector

Focus on high and luxury tourism

Condominium development

Health care tourism

Attractions.

Create an Agricultural Revolution

Through Privatization, diversify sugar to a sugar cane industry to include ethanol, rum, cogeneration and other by-products.

Introduce new technology such as Greenhouse and Tissue culture technology to lift the productivity of farmers, large and small.

Develop a vibrant export processed foods industry

VIII. Expand research capacity
In order to grow, Jamaica must be competitive. In order to be competitive, Jamaica must constantly increase its productivity. In order to increase its productivity, Jamaica must innovate. Research capacity is a key component of innovation. In order to ensure that funding of the research is well spent, research institutions must be rationalized and must be aligned with industrial policy and be focused on areas such as: tourism, agribusiness and business process outsourcing.

          IX.     Small micro-enterprise Credit
Internationally, a virtual revolution is taking place in this field, where the private sector as well as international Financial Institutions (IFIs) have funding for micro finance, not for charity but to transform it into a commercial profit-making sector.

The JLP believes micro-finance is a way of building on the natural entrepreneurial drive of Jamaicans and of assisting in moving people out of poverty.

Our direction will be to bring international and local foundations to partner with Government to provide funding for this sector, and raid government pension funds or other trust funds.

Financial Centre for the Caribbean

Of all the countries of the Caribbean, Jamaica has the greatest potential to be the financial services centre of the Caribbean.

Kingston is the largest English-speaking population centre south of the United States in the Western Hemisphere. We are in same time zone and we have the ports and telecommunications infrastructure.

The JLP will aggressively pursue a strategy that targets the re-development of the Downtown Kingston area as the ideal location for the headquarters of this centre.

CLOSING REMARKS

Mr. Speaker, in this presentation, I have demonstrated clearly that Jamaica’s problems can be traced back to a gradual reduction in productivity and growth over the past 18 years of the People’s National Party. To this we need a clear alternative.

This decline in growth has led to a progressive decline in our earning power leaving Jamaica close to the bottom of the pile in terms of per capita income, leaving the majority of our people unable to enjoy a good quality of life. To this we need a clear alternative.

The lack of growth in the economy has also been caused by Jamaica’s heavy dependence on debt to finance the Budget, instead of relying on our country and our people’s capacity to finance the Budget from our collective earnings. To this we need a clear alternative.

To this end, the Jamaica Labour Party has today put forward a 5-point programme to restore the foundation of a competitive market economy.

We have put forward a credible and creative debt management strategy that will result in the reduction of Jamaica’s debt, not the progressive expansion of debt. This will lead to a reduction of the interest cost on the Budget as well as lower interest rates in the economy to allow for greater private investment. This is a clear alternative.

We have discussed the need for a sensible energy policy that can drive the wheels of a competitive industrial base and a revival of manufacturing. This is a clear alternative.

We have promised to make the Government bureaucracy efficient and responsive to the needs of business and our citizens. This is a clear alternative.

We have promised to reform the tax system to introduce a social security tax that offers proper health care while preserving our NHT and NIS entitlement. We will expand the tax net, abolish the death tax and reduce stamp duties and transfer tax on land transactions. This is a clear alternative.

We dedicate ourselves to a renewed missionary zeal in the promotion of investment across the spectrum of goods and services producing sectors to bring broad-based investment and economic development across the length and breath of Jamaica that can grow the economy and create jobs for the people. This is a clear alternative.

In all of this, the objective of good governance will be restored where the Government will serve in the best interest of the people. This is a clear alternative.

Mr. Speaker, this ship of state called Jamaica, has been through 18 long years of rough seas, of ups and downs with the waves, of slipping and sliding on a slippery deck, it is time for a change to a clear alternative – with a new captain, a new crew and with hopeful and able passengers, This ship of state will be navigated to safe harbour.

Together with God’s help, guidance and inspiration, we will build a better Jamaica and make a better life for everyone.

May God bless you all, and May God bless Jamaica.

Audley Shaw, M.P.
Opposition Spokesman on Finance and the
Public Service

April 17, 2007

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