Caribbean & Central America - February 2016 (ISSN 1741-4458)

Jamaica’s Prime Minister Portia Simpson Miller has named 25 February as the day when her People’s National Party (PNP) will meet the Jamaica Labour Party (JLP) at the polls. The JLP, led by Andrew Holness, goes into this election with a 42-21 seat deficit to overturn.

Election day will be just over a year ahead of constitutional necessity, but the prime minister had toyed with the idea of going even earlier until she suffered a fit of pre-Christmas jitters. It seems likely that she was wise to wait. The motive for a pre-Christmas election had been a 12 percentage point surge in support for the PNP indicated by a September opinion poll. But while the surge was impressive, it still left the PNP and the JLP in a statistical dead heat, on 27% and 26% respectively. More recent opinion polls show that the momentum remains with the PNP, and that its lead has stretched to four percentage points. Pollsters say that if this level of support is maintained, the PNP could hold perhaps 40 of the 42 seats that it won in 2011.

The opposition JLP faces two main problems in its attempt to persuade the electorate to switch allegiance. The first is that it would have conducted very much the same International Monetary Fund (IMF)-guided economic policies as the PNP over the last parliament. The second problem is that the benefits of following the IMF’s diktat are now beginning to be felt by the country at large, and there appears to be no good reason why the challenger should be rewarded for this rather than the incumbent.

In its first full fiscal year in power (April-March 2012/13), the PNP government presided over a 0.7% contraction in GDP. There was marginal growth of 0.9% in 2013/14, but this slowed to an even more marginal 0.2% in 2014/15. Now, however, things are looking up, with the Inter-American Development Bank (IDB) forecasting growth of 1.4% for the current fiscal year and with the IMF saying that 2015/16 could see an expansion of 2.5%.

Low oil prices have helped with inflation, which was down to 2% year-on-year at the end of October 2015, compared with an average of 8.9% between 2010 and 2014. The unemployment situation has also improved, albeit slowly. At its peak in April 2013, unemployment was 16.3%; it was down to 13.1% in July 2015. And having reduced Jamaica’s level of public-sector debt from 143.7% in 2011/12 to 124.8% in 2014/15, the government has now been told by the IMF that it can ease the primary surplus target from 7.5% of GDP to 7.25% in FY2015/16 and to 7% in FY2016/17.

One potential problem for such an indebted nation is the prospect of rising interest rates. However, the IDB points out that there is a “high payoff” for continued prudent macroeconomic policies in that the still-high risk premium on Jamaican debt “should continue to fall in line with the stabilization of the economy, which would partially compensate for higher global interest rates”.

The JLP seems to be pinning its hopes on a few populist measures, including the eventual abolition of income tax, which is currently 25%. Speaking on 22 January, the day after Antigua’s Prime Minister Gaston Browne had announced his plan to abolish income tax, Shadow Finance Minister Audley Shaw said: “That’s something I am prepared to look at. I’m in favour of reviewing it as to reducing the rate. It would have to be phased out over a period of time in line with the reduction of the debt. It’s something that has to be fine-tuned.”

Opposition leader Andrew Holness elaborated a few days later on the JLP’s tax plans, saying: “We are committed in principle and practice to real reform of the tax system. This means leaving you with more of your income to save or invest. This means lower taxes and a business friendly tax system. We will again reduce transfer taxes, stamp duties, estate taxes, and as our economy grows, to help our economy grow and help you take care of your families, we will get rid of personal income tax for everyone who earns a gross salary of JA$1.5m (US$12,380) or less. So nurses, policemen and women, teachers, public sector workers, and young people starting out, the JLP will give you a break, because we know you need one.”

The tax plan was a central component of a 10-point programme that Holness announced on 2 February. Other elements in the plan included the establishment of a Ministry of Economic Growth and Job Creation; a boost for the Junior Stock Market “to grow equity financing for the expansion of small to medium sized businesses”; the listing of several state-owned enterprises on the Jamaica Stock Exchange; capital investment in Jamaica’s water infrastructure; the creation of “a special intergenerational 50 to 60 year mortgage” to make home ownership more affordable; the creation of “a special council of investment ambassadors” to help increase foreign direct investment; investment in training for young unemployed; the digitisation of all government records and business processes; and a regeneration of town centres, including Kingston’s waterfront and market district.

The JLP has also said that it would move within its first 100 days in power to establish a fixed term for parliament, and it has promised, also within 100 days, to begin impeachment proceedings in order “to ensure that only people with integrity” sit in parliament.

The prime minister’s response to the JLP’s proposed tax cuts has been to pour scorn on the idea. She said: “When people do not have credibility you cannot trust them…The Jamaican people have rejected the principle of spending what we do not have. Stop trying to fool the Jamaican people. The Jamaican people are brighter than what you are trying to suppose.”

More defensively, the government has been trying to dispel fears that there will be further major redundancies in the public sector. Speaking in parliament in early February, Minister of Finance and Planning Peter Phillips said: “Let me take this opportunity to put to rest, I think, notions that have developed in some sections of the public that there is some plan for wide-scale redundancies in the public sector. There is no such plan.”

Phillips sought to assure the public that although the civil service will be reduced further, this will be through retirement and voluntary agreement not forced redundancies. He said: “We are allowing attrition to lower the size of the civil service where necessary, and we have also signed with the trade unions agreements which provide for the development of voluntary redundancy retirement arrangements.”

The consensus is that the PNP will return to power on 25 February provided it does not commit any major blunders during the remainder of the campaign. But, either way, the markets do not seem to be concerned about the outcome. On 25 January, Standard & Poor’s told the Jamaica Observer that it does not expect “any significant shift in Jamaica’s current economic programme, even if the pending elections result in a change of government”.

• “The opposition JLP faces two main problems in its attempt to persuade the electorate to switch allegiance. The first is that it would have conducted very much the same International Monetary Fund (IMF)-guided economic policies as the PNP over the last parliament. The second problem is that the benefits of following the IMF’s diktat are now beginning to be felt by the country at large, and there appears to be no good reason why the challenger should be rewarded for this rather than the incumbent”.

• “The consensus is that the PNP will return to power on 25 February provided it does not commit any major blunders during the remainder of the campaign. But, either way, the markets do not seem to be concerned about the outcome. On 25 January, Standard & Poor’s told the Jamaica Observer that it does not expect ‘any significant shift in Jamaica’s current economic programme, even if the pending elections result in a change of government’”.