PIOJ Growth-Inducement Strategy - Planning Institute of Jamaica

need for “additional fiscal space” and reduce the risks to the credibility of the overall
economic programme.
2.2 Our preliminary assessment of FY 2011/2 budget tabled in late April 2011 and
early May 2011, is that the GOJ’s budget was prepared based on a FY 2011/12 primary
surplus target of 5.2% of GDP. This compares with an initial FY 2011/12 target in the
IMF Stand-by Arrangement (SBA) of 6.8% of GDP, and hence, the current year primary
balance target represents a relaxation of the initial fiscal target of the central government
by 1.6% of GDP. However, we caution against interpreting this as “additional fiscal
space” for the purposes of growth inducement as we understand that the adjustment to the
primary balance was made in order to accommodate higher expenditures mainly due to:
(a) The West Kingston disturbance in May 2011 (b) Emergency and rehabilitation
expenditures due to Tropical Storm Nicole, and (c) Legacy costs from divestment
operations. Hence, the new primary balance target is largely a “carry-over” from
adjustments made to the FY 2010/11 targets.
2.3 Further, it should be noted that major components of the Growth-Inducement
Strategy would, in principle, be captured in the FY 2011/12 budget through the
operations of public bodies (such as the NWA, FCJ, etc) rather than in the Capital A or B
budgets of the central government. In this regard, we understand that the deficit of the
“Selected Public Enterprises” (SPEs) for FY 2011/12 is now targeted at approximately ½
% of GDP, which is essentially unchanged from the initial SBA target of 0.6% of GDP.
Hence, taking the central government and public bodies together, it is apparent to us that
the FY 2011/12 budget does not incorporate much in the way of a net quantitative fiscal
stimulus.
2.4 Nevertheless, we are of the view that the FY 2011/12 budget incorporates
important growth inducement elements. In particular, we believe that the allocation of
expenditure to certain priority areas (such as road construction, among others) will
engender significant benefits to a sluggish economy in terms of their direct impacts and
also to the extent that they serve to alleviate critical production constraints (such as
improving the resilience of the targeted infrastructure and providing other production
infrastructure such as factory space).
2.5 Further, we note that substantial work has been done to carefully craft a tax
reform package that simplifies the tax system, broadens the tax base and increases
compliance. There is still additional work to be done to map out the social and welfare
impacts of various tax-reform proposals in order to properly prepare the government to
sensitize stakeholders, gain broad-based consensus and implement mitigating measures.
It is imperative that this work be expedited so that the tax reform package can be
finalized and its implementation begun in the shortest feasible time frame. However, in
the interim, firm decisions have been taken with regard to the treatment of certain
“nuisance taxes” (such as stamp duty and property transfer tax on estates and financial
instruments such as corporate paper and bonds). These are important elements of the
“asset mobilization” initiatives outlined in the Growth-Inducement Strategy and these
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