Positive Budget-Fiscal stimulus, Social Protection and COVID-19
The Private Sector Organisation of Jamaica (PSOJ) is satisfied with the inclusive thrust of 2020/2021 budget presented by the Hon. Dr. Nigel Clarke and are comfortable that it should positively enhance the business climate and increase confidence in very uncertain times exacerbated by the local presence of COVID-19.
We acknowledge the Government of Jamaica’s (GoJ) targeted strategies to the business community to stimulate economic activity by reducing GCT, the distortionary asset tax and offering a tax credit offered to Micro and Small businesses.
The GCT reduction should lead to increased purchasing power of the average Jamaican while the expenditures targeting social protection for the aged, working poor and vulnerable is welcomed.
The continued build out of the National Security infrastructure along with the investments in public transportation and garbage disposal should enhance the quality of services of the average citizen.
We also welcome the measures being implemented to strengthen and formalize the MSME sector. This segment the PSOJ believes are critical to Jamaica’s sustainable growth.
Fiscally Responsible & Fiscally Sustainable-Continued Debt Reduction
As Jamaica’s debt to GDP reduction remains on track, it is projected to close the year at just above 90%. As part of the Economic Reform Programme, Minister Clarke reinforced the importance of the continued divestment of Government of Jamaica (GoJ) assets as a key area of focus in reducing overall public debt. The Minister noted that along with the planned divestment of its shares in Jamaica Public Service (JPS) and the Jamaica Mortgage Bank (JMB), the GoJ plans to use cash and reserves that are already within public sector agencies to pay down over J$70B of debt in the upcoming fiscal year. This would aid in taking the debt-to-GDP down to a projected 84% in March 2021 and 60% in 2025/26, in line with Jamaica’s fiscal rules.
Reduction in Primary Surplus to 5.4%
The current and projected divestments have given the GoJ the fiscal space to reduce the Primary surplus target from 6.5% to 5.4%. The added fiscal space has created the room for the following fiscal options which should provide stimulus to the economy and protection to the most vulnerable when Jamaica needs it most with the great global uncertainty due to COVID-19.
• GCT Reduction- A reduction in the standard GCT from 16.5% to 15%. This reduction is will increase the purchasing power of Jamaicans. The measure is likely to have a positive social impact on Jamaica’s most vulnerable. This tax measure equates to a Tax give back of $14b.
• Social Protection for the Aged and Working Poor- J$1B is to be spent to fund a social pension, targeted to cover the poor and vulnerable section of the elderly population who are not in receipt of PATH, NIS or a Private Pension. This is expected to impact an estimated 30,000 elderly Jamaicans.
Asset Tax Reduction
• Reduction of Asset Tax by 50%- This measure aims to reduce the asset tax on financial institutions by 50% to 0.125%. This is a welcomed reduction in a distortionary tax which aims to encourage financial institutions to lower the cost of their services. This tax measure equates to a Tax give back of $3b.
MSME Tax Credit
• Micro Small and Medium Enterprise-There will be a new income tax credit for companies with annual sales/revenues of J$500M or less. Companies within this revenue range are typically referred to as MSMEs. The Tax Credit will be for $375,000.00. This is expected to create different sources of incentives for all stakeholders. Firstly, MSMEs will now be more likely to register their business and thus it enhances formality in the sector. It will also provide a much needed incubator for businesses making less than approximately J$1.5M in profits before taxes as this income can now be used to reinvest and grow further. Finally, as more MSMEs become formalized and are allowed more space and support to grow, future taxes for those that do grow are likely to be higher.
• COVID-19- Response and Contingency $2b for immediate response has been approved by Cabinet in the current fiscal year and a $7b contingency has been put in place which will have to be drawn down on the presentation of Supplemental budgets.
The measures highlighted are very balanced as it provides fiscal stimulus and protection across the board. The measures are also fiscally sustainable as they do not require any further borrowing for funding, consequently, Jamaica’s debt-to-GDP ratio is expected to fall a further 600bps to 84% by the end of fiscal year 2020/21.
The risks that we see are the uncertainty of the slowdown in the global and domestic economy. The GoJ has reduced growth projections for the next fiscal year and over the medium term in response to the uncertainty. Tax Revenues will be at risk and this has been taken into account with the fairly conservative tax revenue growth targets.
However, though the COVID-19 risks still loom the Budget is in our estimation a constructive response bearing in mind the impending downturn globally and locally.
The PSOJ looks forward to the contribution of the Opposition Spokesperson on Finance Mr. Mark Golding as he assesses the Finance Ministers budget presentation and welcome any constructive recommendations that may be more impactful on the quality of life of all Jamaicans.