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INTRODUCTION Mr. Speaker, I again extend gratitude to the staff at the Ministry of Finance and Public the Service and to the board, management, and staff of the public bodies within my portfolio. Thanks to Prime Minister, the Leader of Opposition, and the Opposition Spokesperson on Finance for their contributions to the 2019/20 Budget Debate.
Mr. Speaker, I am closing this budget debate under highly unusual circumstances in Jamaica and the world facing a health threat of alarming proportions. The focus of my presentation has to be on the Government’s fiscal and economic response. Mr. Speaker, normally this would be an opportunity to respond to the inaccuracies, shallow arguments, and hollow claims made by the Opposition, to consider any constructive suggestions, and to update and finalise the Government’s proposals and to close the debate. While I would like to continue in that tradition, as both the Opposition Spokesperson and the Opposition Leader have supplied me with ample opportunity for an overwhelming response, Mr. Speaker, I will, for the most part, resist the urge. However, I must respond to one thing from the Opposition Leader and another from the Opposition Spokesman to set the record straight. I will let the plenty other inaccuracies and shallow claims go this time. Even they deserve a COVID-19 break.
June 12, 2021
ADDRESSING INACCURACIES FROM THE OPPOSITION
Accelerating Debt Repayment & Primary Balance Reduction Mr. Speaker as I said earlier, there is much the Opposition Leader said that I could respond to. The traditional debate has been superseded by the urgency and threat of the COVID-19 pandemic and its effects. However, there is a thread put forward by the Opposition Leader to which I must respond. Mr. Speaker, the one-sidedness of the Opposition Leader seeking to take credit for the GCT rate cut, having never credibly postulated how it could be afforded in a tight fiscal environment, while pounding the table on fiscal responsibility, is rather amusing. Recall that Dr. Phillips proposed a 2% reduction in the rate of GCT, which would have cost $20 billion, but it is difficult to recall any proposal from him to credibly explain how it could be sustainably financed. That, Mr. Speaker, was not responsible. It is therefore ironic that they could believe that he is in any position to provide a critique when, in fact, it was thoughtful, strategic, and coordinated action over two years, by this Government, that provided the resources for an unprecedented debt repayment of $73 billion or 3.3% of GDP as the route to sustainably achieve a fiscal stimulus that includes a 1.5% reduction in the GCT rate, and more. Take note that his speech makes no reference to the “$73 billion repayment of debt” specifically as the counterbalancing measure for the “primary balance reduction”. This is the first sign of a biased account constructed to launch the kind of attack and misinformation campaign that many now see as their unfortunate trademark.
If you read or listened to his speech you would think that the only thing done was a reduction of the primary surplus from 6.5% to 5.4%. It is a superficial, biased, and frankly disappointing approach from a former Minister of Finance to omit substantial and relevant information.
June 12, 2021
The only good thing is that many persons heard me say that it is a historic debt repayment of $73 billion or 3.3% of GDP which created the space for a reduction in the primary surplus. Intuitively it is not difficult to understand the relationship between accelerating the pay down of debt and therefore requiring less each year for debt payments thereafter as a result. You can consider the analogy of someone having a mortgage outstanding of years that requires a certain monthly payment. If after half the time has gone you make an accelerated repayment against the outstanding principal then you could be allowed to pay a reduced monthly payment thereafter. It is the same principle here. If someone were to go to a cocktail party and criticise the person saying, imagine how you reduce the amount of the monthly mortgage and did not at the same time mention the fact that you had also responsively and creatively paid down on the principal outstanding you would say they are either mischievous, deliberately misleading, or manifestly unfair, Mr. Speaker. Or all three! But the Jamaican people read and listen and they understand much more than we realise, Mr. Speaker. Jamaicans are no longer fooled by one-sided accounts that leave out material information.
We need to lift and enrich the public’s understanding of the full truth, rather than use partial information in an attempt to score cheap points. Another misleading claim was that the previous Government started our whole fiscal adjustment process. The inconvenient fact is that the fiscal adjustment process started in 2010. That is when Fiscal Rules were first passed, when burdensome state assets were sold, and when the first debt exchange occurred. That the process in 2010 encountered challenges is also a fact. Facts matter, Mr. Speaker.
June 12, 2021
We happened to know that some in the previous administration urged and advocated for you to divest Wigton Windfarm. You could have done it. You should have done it. But you did not do it. We did, Mr. Speaker, we did. We reintegrated and are reintegrating public bodies releasing resources. You could have done it. You should have done it. But you did not do it. We did, Mr. Speaker, we did. A more balanced critique would have been that “neither the $73 billion debt repayment nor the corresponding primary balance reduction” were included in the Fiscal Policy Paper (FPP) and this would have been worthy of coverage and a response. It is that more balanced observation to which I will provide a brief response here. Mr. Speaker, fiscal prudence requires that we remain on track to meet the 60 per cent debt target by March 2026 required under the amendments to the Fiscal Responsibility Law, which I worked to help pass in 2014 as an Opposition Senator. As Minister of Finance, I was not prepared to countenance the announcement of a $73 billion debt repayment, and the corresponding primary balance reduction, until a vast majority of the $73 billion in resources was on hand; this required waiting for the success of the J$14 billion Jamaica+Highway+IPO">TransJamaica Highway IPO and the related TransJamaica US$225 million (J$31 billion) international bond issue. Now, the Jamaica+IPO">TransJamaica IPO was, by a factor of almost 3x, the largest IPO in the history of Jamaica. No one had ever attempted to raise anything remotely close to $14 billion in equity on the Stock Exchange in an Initial Public Offering. The next closest was Wigton Windfarm where $5.5 billion was raised. Given the significance of this IPO to the overall debt repayment/primary surplus reduction policy, given the unprecedented size of the IPO, and given the unique nature of the asset, prudence required that I could not take its success for granted. My position would have been further buttressed by the complex nature of the TransJamaica series of transactions. The acquisition of TransJamaica by the Government was completed in December 2019 and its debt holders immediately paid off by the Government as was required by change of control provisions in the debt agreement. The acquisition of the shares and pay-off of the debt were achieved with the proceeds of a short-term loan to the Government that exceeded 1% of GDP in size. This loan needed to be repaid from the proceeds of the international bond issue and IPO, both of which occurred after the finalisation and approval of the FPP.
June 12, 2021
I look forward to the tabling of this bill, to the hopefully constructive thought, discussion and debate that it will generate, and to its eventual passage and bringing into law of the independent Fiscal Council. Strengthening and building institutions is the cornerstone of achieving and maintaining economic independence, which is a central economic policy plank of the Government of Jamaica.
Broadening Ownership - Bottom Up Distribution Mr. Speaker, sometimes the Opposition spokesman resorts to the very defensive tactic of reflexively, and without much thought claiming credit where it isn’t due and in the process denies the unmistakable contribution of others. The logic escapes me in the light of available public evidence to the contrary. One of the statements made by the member from South St. Andrew was “In the 1990s the PNP led the way with the sale to the public of the Government’s shares in RJR, Carib Cement and Carib Steel.” Mr. Speaker, I have the Carib Cement prospectus with me. It is dated 1987. To the best of my recollection, it was the Most Hon. Seaga">Edward Seaga who was Prime Minister of Jamaica at that time. You can’t just change history like that, Member Golding, no matter how hard you try! If there is any historical attribution to be given for pioneering IPOs of Government companies on the Jamaica Stock Exchange it would be to the late Most Honourable Seaga">Edward Seaga who privatised by way of initial public offering National Commercial Bank, Carib Cement and Telecommunication of Jamaica in a short timespan of less than three years. According to Mr. Richard Downer, who worked closely with Mr. Seaga on these, and has written about it, the privatisations were patterned off of the British Telecom privatisation in the UK and Jamaica continued to use a similar share allocation system throughout subsequent GOJ IPOs including those in the early 1990s with the additional change of ESOP legislation. However, one of the implied claims of the Opposition Spokesman was that the Government’s approach to “Bottom Up” distribution in IPO’s is somehow something they pioneered.
June 12, 2021