Fiscal and monetary policies should be separated ­ Seaga

Leader of the Oppo-sition, Mr. Edward Seaga has said that the Bank of Jamaica should be solely responsible for monetary policy with the Minister of Finance concentrating only on fiscal policy and that this should be enacted as law.

Speaking last Tuesday at The Gleaner's Editors' Forum, Mr. Seaga said: "There should be a money bill that speaks to the Bank of Jamaica being independent, which means the Bank of Jamaica is responsible for monetary policy and the Minister of Finance is responsible for fiscal policy, which is the way it is in developed countries, developed economies, where the Minister of Finance does not have any say over monetary policy, and that would prevent any Minister of Finance in the future from doing what the present lot did in the early nineties, as set out in this document where I treated the entire thing in this last Budget Speech".

Monetary stability

Mr. Seaga has long held the view that there should be a hundred per cent cover in the foreign exchange reserve and that this would go some way to ensure monetary stability.

Using the opportunity to elucidate on this subject, Mr. Seaga declared: " What we say (the JLP) is that you must have in your foreign exchange reserve, your net reserves, at least 100 per cent cover of your money in circulation and prudential reserves in the Bank of Jamaica. That does not mean you cannot have more than 100 per cent.

"When I started this campaign, we were in the 60's, 60 per cent cover and the Government after much harping on the issue took their time and started to build it and they built it for two reasons. One, because they couldn't get rid of the dollars, nobody is really investing, therefore there was no call for the dollar, so they accumulated. But the other one was deliberate, to go the same route without saying so and now they are well over 100 per cent.

"As a matter of fact, the last figures I saw look like somewhere in the vicinity of 200 per cent. This means that there is lot of room for local expenditure without harming the monetary stability that this thing was designed to protect, and in effect harming the inflation rate or the exchange rate, but we are not going there at this moment.

"What I am saying is that we must mandate in law that you cannot allow your prudential reserves and your money in circulation to be more than 100 per cent of your net international reserve, because that is when you get inflation, that is when you get a slide in your exchange rate and that is what wrecked the economy in the early nineties."

Shortfall in
funding projects

Mr. Seaga refuted the notion that it would take a further $60 billion to finance its development programmes. He said that if his party were to form the next Government it would not make any call upon any existing source of revenue or divert it from where it is being used, and that it would not seek new taxation to fund its projects.

"Every one of these projects have their own way of being financed, so the entire package, comprehensive as it is, all embracing as it is, does not require any new revenue, any new taxation and will not make any significant call upon existing revenues," said Mr. Seaga.

Property tax

Addressing the problematic property tax system which Minister Bertram estimates would bring in revenue to cover 10 per cent of Government expenditure, the Leader of the Opposition pointed out that the benchmark in property tax is 4 per cent of value, that being the international benchmark.
He said that the present Government changed the existing band at which taxes would apply and divided up the properties in terms of different value bands in such a way that has proved confusing.

"We feel that it needs to be restructured and we are committed to having a review on it, because if it was the same bands that were there before then we would be in a better position to take a definitive position now, but we need to go back and see what makes up those bands and whether the rates that apply to each band is fully justified."

Stabilising the dollar

With the Jamaican dollar currently standing at $49.04 to US$1, Mr. Seaga outlined ways to prevent wild fluctuations by saying he would enact three money bills that would mean that money supply would be geared to a certain level, that there is coverage that it can receive, and that the money in circulation and the prudential reserves can benefit from the Net International Reserves.

"Under my Government we would have done away with this problem, we would not have any future instability of the dollar and instability of the inflation rate, and we won't have to sit on it the way the present Government does by way of high interest rates that are floated to keep down expenditure and compress the economy. This economy has to move out of the compression mode."

Economic growth

Over the last few years the country has recorded negative growth with the multilateral agencies suggesting certain prescriptions to spur the economy. Responding to the question how would his party look to create economic growth, Mr. Seaga said: "The first wave of growth is going to come from domestic investors, local investors who have plans on the shelf but they are not willing to go forward with them now. That's the first wave, while we are putting together the feasibilities and locking in the external investors that are going to eventually come to do the bigger hotels, the bigger projects which are largely hotels and convention centres and Fort Augusta and things like that, so it is a swing that starts with the small ones and then goes to the next set and so on, but it will happen very definitely, no question about that."

Incentives

Mr. Seaga said his Govern-ment would be instituting a tax incentive scheme that allows for qualified investors of a five year period to retain in any year of assessment an amount equivalent to 20 per cent of profits tax for investment in approved value added activity.

He also said his party would be granting a special tax credit for home owners equivalent to 25 per cent of the interest paid on their remaining principal during a year of assessment.

"We want to move national savings up from 30 per cent of GDP to 33 and investment up from 20 per cent of GDP to 30 per cent of GDP. Most of the other incentives are for venture capital companies and that I think will be something that will help venture capital companies to move ahead".

Al Edwards
business co-ordinator