'Bang Belly' Economy

[Sir X]

'Bang Belly' Economy - Shaw Claims Present State Of Affairs Hostile To Growth
Published: Wednesday | April 24, 2013 5 Comments

Audley Shaw
Gary Spaulding, Senior Gleaner Writer

Opposition Spokesman on Finance Audley Shaw yesterday charged that Dr Peter Phillips, the finance minister, was managing what he characterised as a "bang belly" economy that would not generate growth.

The term was first employed by former Prime Minister Michael Manley in his capacity of opposition leader in the early 1980s to describe the economy under another former Prime Minister and Finance Minister Edward Seaga.

It was Shaw's turn to make use of the phrase as he told the House of Representatives that the Government was relying on ill-conceived revenue windows, hostile to investment and growth.

"So you end up with a 'bang belly' hope of a balanced budget without building sustainability and long-term competitiveness," he told the House as he made his contribution to the Budget Debate.

Shaw warned the Simpson Miller administration that it was teetering on a perilous path to achieve its target of a primary surplus of 7.5 per cent and a balanced budget.

He argued that instead of seeking to create the environment for large-scale investment that generates growth and revenue, Phillips had opted to severely contract expenditure and impose high taxation which when combined create compression in the economy.

"The Government has chosen this latter route with the addition of the raid on public-sector entities as an added feature," charged Shaw. "They are counting on this raiding of the surpluses in public-sector bodies to achieve this."

Shaw contended that the Government was planning to take approximately $32 billion (gross transfers) from the public bodies "in comparison with $26 billion in 2012-2013, up from $20 billion when the JLP left government in 2011".

He said the expenditure side of the public bodies are expected to decrease from approximately $300 billion in 2012-2013 to $280 billion in this fiscal year. "This will be the first time in over a decade that expenditure in public bodies will be reduced," complained Shaw.

He said: "This is a bang belly theory of economics, where you don't use economic policy to drive economic growth by building muscle that, in turn, generates incremental returns from a well-oiled economic engine."

He suggested that in the short term, with the best luck in the world, the Government could end up balancing the books but without growth and job-creating wealth expansion.

"You are not balancing people's lives (which is the stated objective of the prime minister)," charged Shaw. "There is no nutrition in a bang belly economy to make a better life for the people."

Shaw charged that under the economic programme, Jamaicans are being deprived of housing benefits.

"We have no coherent incentive-driven tax policy that can drive growth," Shaw lamented. "But we want to suck out revenue without a corresponding mechanism to encourage investment and earnings to create new revenue streams," he added.

Shaw warned that such a move may achieve short-term gains, but woudl guarantee long-term pain. "Because we will not balance people's lives that are ravaged by joblessness, substandard housing solutions, high cost of living and marginal incomes," he warned.

Added Shaw, "The surest sign of a 'bang belly' economy is one in which there is no growth, yet we declare high primary surpluses and low deficits."

[Sir X]

Audley's Prescription For Growth
Published: Wednesday | April 24, 2013 6 Comments

Audley Shaw
Audley Shaw, opposition spokesman on finance, during his contribution to the 2013-2014 Budget Debate, declared that the nation must use creative means "to push the envelope of economic development so that while we have PAIN, we can quickly turn the corner to experience collective GAIN ... ." With this in mind, Shaw outlined his prescription for growth. Here are some of them.

Some measures that I will now suggest are not, by any means, a complete alternative, but as a signal of some of the creative things that can combine to yield significant benefit to the economy ...

Formulation and development of a new national export development strategy

We must begin to coordinate export promotion activities in the national interest. A common method that other countries have used to encourage investment in the export sector is the system of tax holidays. We need to review our existing Export Industry Encouragement Act within the context of the new proposed Omnibus Incentives legislation. We give tax holidays now to foreign companies coming to Jamaica.

The benefits are enormous if we can have foreign exchange flowing into Jamaica from a sustained increase in our exports. AND, studies have shown that medium and small-to-medium sized enterprises (MSMEs) are more flexible in dynamically changing export markets.

Therefore, we have to promote our MSMEs as well.

Transfer FINSAC assets to the NHT

Divest remaining JRF/FINSAC assets to the NHT, as part payment for the raid, by:

Transferring the remaining residual assets held by FINSAC to the NHT.

Acquiring residual assets held by JRF in a no-cash deal, whereby JRF keeps a smaller portion of remaining assets and transfers the remainder to the NHT for ownership and management.

Since a large portion of the remaining JRF/FINSAC assets are commercial and residential real estate, this fits more neatly in the NHT's core business, for which they can then programme a business-friendly and culturally appropriate workout plan with each creditor.

The assets transferred to the NHT would offset possibly as much as $10 billion, thereby enhancing the balance sheet of the trust, while offering an opportunity for a more favourable resolution plan for existing creditors.

By placing assets of $10 billion into the NHT, this will now create a corresponding fiscal space for increased expenditure on housing solutions by the NHT.

Equally, by transferring land to the NHT to partly compensate for outstanding statutory deductions of $14.3 billion owed to the NHT by the GOJ, additional fiscal space can also be created to allow the NHT to spearhead the virtual doubling of housing solutions from 6,000 to 12,000 new units per year in partnership with the private sector, while increasing the affordability of houses.


Energy support fund

In a recent study done by the JPS, (Jamaica Public Service Company) they have concluded that substantial savings can be achieved by using more energy-efficient technologies in Jamaica, noting that electricity consumption could be reduced by 26 per cent among residential customers, 23 per cent among the commercial sector and 12 per cent for industrial customers over a 20-year period.

In addition to the need for ramped-up energy conservation initiatives, the JPS should move aggressively to advertise its special discount rate for manufacturers, of 25 per cent reduction for use of electricity in off-peak hours.

The Government should now create a special energy support fund using PetroCaribe funds, the Government's 25 per cent profit share from the Jamaica Public Service Company Limited, and dedicate it to providing a combination of grants and low-cost, long-term loans to the tax-compliant small and medium-sized manufacturing sector for retooling for energy efficiency.

The increased production and tax revenue that will be yielded from this initiative will go back to the fiscal accounts to replenish the subsidy while stimulating job growth and foreign-exchange earnings. It is a temporary exercise that would be terminated when overall energy costs are reduced.

Ramp up investment promotion

Mr Speaker, we need to focus on selling the country in a very strategic way and, as such, we need to have a close working relationship between the Ministry of Foreign Affairs and JAMPRO. We also need to consider the redeployment of many of our diplomatic and commercial activities to emerging markets, including Latin and Central America. We must now start seeing our foreign affairs activities as primarily marketing the country's goods and services through investment and export promotion strategies. JAMPRO should have a permanent unit in every Jamaican embassy and consulate worldwide.


Crime management

You know Mr Speaker, one of the biggest hindrances to growth is crime and violence. Businesses have to close earlier than they normally want to. They have the additional burden of private security costs and extortion. The World Bank recently estimated that crime and violence cost Jamaica more than US$400 million (approximately J$40 billion) each year. And that if Jamaica could reduce its crime rate to levels such as that of Costa Rica, it could see economic growth in excess of five per cent, that is some 10 times better than the 0.5 per cent the IMF is projecting for 2013. We cannot just wait on divine intervention. We must act on many fronts simultaneously.

Review CARICOM Trade Agreement

The adverse trade balance between Jamaica and CARICOM is a cause for great concern. While it is acknowledged that the higher cost of electricity in Jamaica is a serious impediment to competitiveness, there are issues which arise which are relevant to the moment and calls for a review of the agreement.

Among these is the question of resolving the claim that importers into Jamaica from CARICOM are oftentimes in flagrant violation of the rules of origin on which lie their ability to have duty-free access to Jamaica.

Equally, given our serious balance-of-trade deficit of US$5.0 billion, combined with our foreign-exchange shortage, an uncertain future on the PetroCaribe funds, the Government should consider suspending the CET for a specified period. This is allowable under the Treaty of Chaguaramas.

Agriculture

Agriculture is an important part of the growth agenda by way of import substitution and export of fresh and processed goods. A good example of this is the Irish potato industry.

Irish Potato Production

The minister of agriculture has spent a lot of time talking about Irish potato production, giving the impression that the former government damaged production levels by bringing in bad seed potatoes.

The minister of agriculture knows that government does not import seed potatoes. Neither this nor the government before. You should also know that it's under former Agriculture Minister Dr Christopher Tufton that increased standards were put in place to ensure that the private companies that import seed potatoes comply with higher standards.

When the PNP administration took office in 1989, Irish potato production was at 17,000 tons and in 2007 when you left, potato production had dwindled to 4,000 tons, and over the four-year tenure of the JLP administration, Irish potato production went back to over 15,000 tons, and now in your 15 months, the decline has started again, with a projected 20 per cent reduction in production this year.

These are facts. Let us do what is necessary to keep this vital industry growing.

Agro Parks

On the issue of agro parks, we fully support this concept. We believe in a value-added approach to agriculture, where farmers' output can become agro processors' input with branded products such as sauces and spices. This is key to sustainable export agriculture.

We support the farmers and agro-processors of Jamaica. In fact, let's be clear, these agro parks that the minister and finance minister speaks of as a growth strategy were conceptualised and developed by the JLP government.

... Agro-Invest, the agency of the Ministry of Agriculture to implement this programme, now seems to be having problems. In the last three weeks ,five persons have been dismissed from Agro-Invest, and our understanding is that the implementation of these agro parks is now in virtual disarray. Let us get it right and not miss this opportunity to grow export-agriculture.

[Sir X]

Nothing about the ports development , so shaw hasnt a clue , all what he said is fine but the development of our logistical ports is essential,its the only economic engine that isnt vunerable to economic changing winds

Joke ting.

[Rockman]

We have come full circle to neck back,Audley is sounding like Manley.
It is the JLP that holds true the capitalist mantra that Govt should just let things be,do not interfere with the private sector.
The real importance of history is to not repeat mistakes.
This is not the first time the JLP has said things echoing the same sentiments of the maligned Manley.Hopefully more to come.

[Sir X]

They both borrow from each other when its politically convenient,again not having development of our logistical ports (air and water) is a sign to me that they are clueless , all the above are prone to gentle economic /political winds of the export industry.

[Assasin]

Some of those are actually good suggestings. What is there to suggest about the port? it is already on the table and everybody know it should be done. Most of these are things the government is not considering.

[Sir X]

What is there to suggest about the above , they have been on the table for the past 40 yrs ?

Stop being ridiculous !Yuh talking 8 billion dollars in taxable income , dwarf all the above and thats just start up !

[Rockman]

True but it puts the Manley doctrines into proper perspective and exposes the PNP as being charlatans, the JLP a more socialist dan de PNP.
The powers that be really made a HUGE mistake when they thought we would just continue toeing the line to no avail, what we have here X is a glimpse of a shift in in perception and it is crucial....
I am not at all interested in political parties, clearly defined political philosophies garner my attention.

[Assasin]

The suggestions are already there, the plan is on the table, now is time to DELIVER. By now everybody know that it needs to be done.

Did Shaw address this project or not in his entire speech?

[Sir X]

In other words , you admit to being ridiculous.

[Assasin]

how so. Did he address it at all in his budget speech. I bet you will never answer.

[Sir X]

Thats where we differ , i see no shift in this PNP and JLP party , the shift happened from the 90s and since then its pot and kettle syndrome , they are both frauds , crooks and clueless , one is a well oiled deceptive robbing machine, one is an imploding robber.The ideological shift has been history from the 90s.

[Lazie]

Nothing about the ports development , so shaw hasnt a clue , all what he said is fine but the development of our logistical ports is essential,its the only economic engine that isnt vunerable to economic changing winds

Joke ting.

You call it port development, he called it Logistics hub.

[Sir X]

Can you point it out in the above article , I missed it and if so , I apologise to MR Shaw , he has a clue.

[Lazie]

Can you point it out in the above article , I missed it and of so , I apologise to MR Shaw , he has a clue.

Are you aware that is not the entire speech?