Mr. Speaker, I am closing this budget debate under highly unusual circumstances of 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.
The coronavirus represents the most dangerous and threatening pandemic in 100 years.
One of the reasons for this is the novel, meaning new, nature of this coronavirus. According to the World Health Organisation, Covid-19 is a newly discovered coronavirus that is highly contagious.
The world does not know much about it and, to date, no person on the planet has immunity to it. In theory, all 7 billion people are susceptible to infection with Covid-19.
The world is facing the most serious disruption to our way of life since World War II.
Mr. Speaker, there is no other way to describe it than…..THIS IS WAR, Mr. Speaker.
Mr. Speaker, there is no other way to describe it than…..THIS IS WAR, Mr. Speaker.
Mr. Speaker, if Jamaica is to operate within an international context similar to the conditions of war, I can think of no better political leader to captain the ship than Prime Minister the Most Honorable Andrew Michael Holness.
Without strong measures in response to Covid-19 a population will experience an exponential growth in the number of new cases, which can engulf a city, overwhelm the health system, and drown a nation.
To be clear Mr. Speaker, there is a tradeoff between strong and decisive action to “flatten the curve” which protects Jamaicans and the levels of economic activity and the duration of the impact.
The stronger the preemptive social distancing action we take, the healthier we are, but the sharper the negative economic impact.
Now this is a tradeoff we ought to take 10 times out of 10 and one that, from all indications, the Jamaican people fully support.
However, Mr. Speaker, it is important for us to have our eyes wide open and to have long memories.
The economic impact of the actions necessary to protect our health, combined with the economic impact similar to measures taken by other countries, will be profound, not just for today, but possibly for years to come.
In terms of the economic impact, around the world, what was worst case recently is best case today and we can expect further downward revisions.
And we cannot say with any degree of certainty when normality will resume as it depends on factors beyond our control.
We cannot see return to normality until after the United States and Europe have “flattened their curves” and until after the world knows much more about this coronavirus.
What we do know are following:
1/ The hotel industry will operate at near zero occupancy for at least three months. Many hotels have announced that they will close for a period of time and more will likely follow.
2/ With the airport shut for two weeks, visitor arrivals will plummet to zero in the short term and for the quarter ending June 2020 we may only have a trickle of guests.
2 continued .. This means that restaurants, tour operators, attractions, travel agencies will also experience significant and substantial fall in business revenue. Some of these may also need to close temporarily.
3/ Many other sectors that participate in the tourism value chain and supply hotels with product will experience steep declines in business. Barbers and hairdressers in tourist towns will have less business.
4/ Bars and entertainment venues are closed, and producers of alcohol have less business.
4 continued .. Closure of wholesale operators downtown means less sales for food and other manufacturers. In summary, the curtailment of economic activity will adversely affect many businesses, in ways that are not obvious.
5/ Employment levels that have been so robust will be negatively impacted. We can expect a sharp rise in layoffs in the short term.
6/ We are likely to see a decline in quarterly GDP for the quarter ending March 2020 and we can certainly expect a sharp contraction in GDP in the first quarter ending June 2020 over the first quarter of the prior year, ending June 2019.
7/ The timing and pace of recovery will greatly depend on how quickly the United States in particular, but Europe as well, are able to curtail the spread of this virus.
8/ Economic decline and recession in the United States is likely and this could compound the Covid-related economic impact.
In other words Mr. Speaker what we do know is that Jamaica is in for a massive negative economic shock, which has already begun. That is what we know, Mr. Speaker
The good news, Mr Speaker, is that Jamaica has options to take strong counter-cyclical policy action. This is a blessing.
As Minister of Finance, I assure the people of Jamaica that the Government it will do all we can to ameliorate the effect of this pandemic and give us the best chance of a speedy recovery.
Mr. Speaker, these principles, which have to be taken together, that guide our fiscal stimulus are as follows:
(1)We will subsidize people but it is not reasonable to expect the Government to subsidise profits. People, businesses and the government will experience losses from this pandemic.
1 continued.. Our first response will be to protect the neediest people from the worst effects of this Covid crisis. We will also have to make preparation for the government to absorb the hits to its own revenue but we won’t be able to protect businesses from all losses.
(2) At the same time, the public interest is served by doing all we can to maintain productive capacity. Productive capacity that is lost takes years to rebuild.
2 continued .. We know that from our own experience in Jamaica. When a hotel or a factory is mothballed, it takes years and much capital to get it going again.
2 continued.. Over the past few years we have had an explosive growth in the number of small businesses in operation and the number of start-ups.
2 continued.. Preserving that productive capacity is a critical objective even as we aim to work together with financial sector institutions and others to maintain the productive capacity in our hotels, attractions, tours, and restaurant space.
(3)Whatever fiscal measures we take must be transparent. This is three fold:
3a.The method of intervention should be easy to understand and its cost should be easy to estimate, if not calculate, and should be available to all parties – the Government, the recipients and the public.
3a continued.. The intervention will be resourced with taxpayer funds and it should be designed in such a way that the public knows its cost.
3b.Our fiscal measures should be implemented in a rules-based approach with equal opportunity among eligible beneficiaries.
(4) The Government will do all that it can but the Government cannot do it all. We will have to prioritize and channel our intervention first to the neediest segments of our society, whether individual or business.
4 continued.. We expect those with personal and corporate reserves, who operate businesses that are affected by the effects of the pandemic to put those reserves to work.
4 continued.. Those with undrawn lines of credit from financial institutions and those with cash balances, we expect that the government should not be your first call.
(5)Any fiscal stimulus will necessarily be of finite duration.
(6)We will favour simplicity where simplicity does not violate any other principle.
(7)To the extent that conditions deteriorate and further actions, beyond the measures described today, are required to support businesses we will favour market-based solutions.
7 continued.. With respect to any particular case, to the extent that market-based solutions are not feasible any intervention by the Government with taxpayer dollars must be for value.
7 continued.. What do I mean? And I want to be very clear on this principle. Beyond the measures announced today and beyond measures in support of employees and MSMEs, the government will not put taxpayer dollars at risk without the prospect of a commensurate return.
7 continued.. If it is necessary for the Government to invest we will invest with the view of making a return.
