Wed | Dec 2, 2020

Editorial | Ramrodding of fiscal amendment unfortunate

Published:Sunday | May 31, 2020 | 12:12 AM

In the face of the recession caused by COVID-19, sensible people would hardly demur to the need for the Government to relax its fiscal targets, including the 2026 timeline for lowering the national debt to 60 per cent of gross domestic product (GDP). Indeed, during the early days of the pandemic, when Finance Minister Dr Nigel Clarke appeared to be reluctant to entertain the idea, this newspaper urged that he hurry to the International Monetary Fund for an emergency loan and pointed to a downward adjustment of the debt-to-GDP ratio as a tool to be employed in the emerging financial crisis.

Minister Clarke has since embraced both of our suggestions. We are, however, concerned about how the Government has gone about the latter by ramrodding through Parliament amendments to the Financial Administration and Audit Act, with the danger of undermining the hard-won national consensus over Jamaica’s economic reform and fiscal stability project.

Moreover, while there may be good reasons to have confidence in Dr Clarke’s inclination and competence to manage the fiscal accounts with prudence, the bar may have been lowered for a future finance minister with lesser integrity to play fast and loose with the economy. In that regard, we would have liked to have heard fuller debate on the issues, including the Government’s defence of its position, in a less contentious atmosphere.

The context of this controversy is important. After four decades of undisciplined macroeconomic management, Jamaica, over the last eight years, across administrations, has made great strides in stabilising its economy, including pulling itself back from a fiscal cliff. At the end of the last fiscal year, for instance, the Budget balanced the debt, which at one stage was bearing down on 150 per cent of GDP, down to 97 per cent. Growth, though not robust, was consistent across 21 consecutive quarters.

Much of these gains has been upended by the novel coronavirus pandemic. Jamaica expects its economy to decline by as much as six per cent in 2020. Indeed, the Planning Institute of Jamaica (PIOJ) says that output was down 1.7 per cent in this year’s first quarter, compared to the same period in 2019, and estimates that the year-on-year decline in the second quarter will be between 12 and 14 per cent.

CAUSE A SHORTFALL

Minister Clarke says the downturn will cause a shortfall of J$81 billion in taxes, plus another J$40 billion in stimulus spending to pay for the COVID-19-related public-health programme. That is a hole of J$121 billion. It is against this backdrop that the Government has triggered a delay, by two years, up to 2028, in the time for reaching the 60 per cent debt-to-GDP ratio, which requires an eventuality that, overall, will have a fiscal impact of at least 1.5 per cent of GDP.

The point of contention is how the Government went about the change and the time it allowed between the tabling of the amendment and debate of the bill – the same day.

Until last week, the grounds upon which the adjustments to the so-called fiscal responsibility rules – legislated to prevent fiscal irresponsibly on the part of finance ministers – were in the event of:

• Severe economic contraction, which is evident in the current circumstances;

• A financial-sector crisis;

• A period of public emergency;

• A period of public disaster.

With respect to the first two, the central bank and the PIOJ, respectively, have to satisfy the nominal arbiter, the auditor general, and, ultimately, Parliament that these eventualities have arisen. With regard to the latter two, the fact that the law stipulates that these be interpreted “within the meaning of Section 20 of the Constitution of Jamaica” would, on the face of it, require that the governor general declare that either situation has arisen in a fashion that a state of public emergency comes into force. Presumably, after two weeks, the Government would then have to ask Parliament to extend these periods of public emergency or public disaster, requiring special majorities.

What the amendments have done is allow for the relaxation of the rules to be triggered by an order under Section 26 of the “Disaster Risk Management Act, declaring the whole or any part of Jamaica a disaster area or a threatened area”. Or, if it wished, the Government could achieve the same end by invoking Section 16 of the Public Health Act.

The former situation requires the prime minister to issue a declaration that Jamaica, or some part of the island, is in, or threatened by, a natural or man-made hazard. That, in fact, was the mechanism used for the COVID-19 response, an approach whose constitutionality, with regard to its limit the law allows to be imposed on guaranteed freedoms, has been questioned by constitutional lawyer Lloyd Barnett. In relation to the latter, it requires the health minister issuing orders to mitigate the spread of a disease.

The questions that have been raised are, in our view, very substantial ones worthy of serious, even vigorous, airing without the contretemps that characterised last week’s debate. Put another way, they were worthy of more than the haste with which the bill was rushed through the House. For we are not convinced by Dr Clarke’s argument that a delay of a few days, or even a week, would have compromised the Government’s budgetary process or, as he claimed, its ability to spend.