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The central objective of the Government's overall economic strategy is to achieve a sustainable level of economic growth and employment creation as a basis for improving the living standards of the population. I have already outlined the overall programme which will guide the Government's activities,, not only in fiscal year 1997/98, but also for the medium term. Critical elements of this programme are low and stable inflation and interest rates, as well as a stable exchange rate and a strengthened financial sector. In certain instances there will be need for assistance to specific economic sectors to facilitate their recovery from unforeseen setbacks or to "prime the pump" in periods when private sector investment levels are reduced for whatever reasons. Also vital in the process of facilitating increased economic activity is a tax system which is sound and accepted by all taxpayers as efficient and equitable. Whenever the question of growth is raised, invariably the answer is that there is a need for a sharp reduction in the interest rates. As I have already said explicitly, there is a need to reduce general interest rates but this reduction must be credible and any unilateral action which is not based on underlying economic conditions is bound to backfire. At the same time the Government has recognized the need to reduce the cost of money to the productive sector and this was the rationale for us proposing last year, significant reductions in the cost of funds made available through the two development banks, the Agricultural Credit Bank(ACB) and the National Development Bank (NDB). In addition, the Government established a programme whereby ACB and NDB and the NIBJ, would work on a case-by-case basis with the commercial banks to facilitate a write down of interest and penalty charges and restructure the debt obligations of distressed companies which could survive, if assisted. Representatives from the different sectors have complained to me that this programme has moved extremely slowly and so I have asked my Minister of State, the Member for West Portland to take charge of the programme and to identify the bottlenecks which have prevented more effective implementation. A similar complaint has been raised about the direct lending facility throughout NDB and again Minister of State Ennis has been charged with the responsibility of identifying and resolving the problems which have hindered more efficient implementation of this initiative which most agree is desirable. I have deliberately taken the approach of fixing the old, as opposed to announcing new initiatives even whilst previously announced ones have not been implemented. I have already made reference to the fact that as part of the Government's programme to stimulate growth whenever necessary, the Government will intervene in an economic sector which is in distress. There are those who swear total allegiance to the free market system, (except perhaps when their sector is in problems) and decry such actions. However, recent events from all parts of the world demonstrate clearly that no Government allows a critical economic sector which has a good chance of being returned to viability to perish, in the name of allegiance and commitment to the market economy. Therefore, we are unapologetic and proud of the actions we have taken with regard to the garment sector, the coffee industry and in sugar. However, those involved in each of those sectors, whether they be owners, managers or workers, must realize that it is not possible for the State to subsidize them in perpetuity. The State's intervention can only be temporary in nature and must be used as the basis for increased efficiency, greater productivity, thus contributing in the medium-term to recovery, increased output and economic growth. Therefore, I warn those in the sectors which have benefited from Government assistance that there are conditions attached to the support and it cannot be "business as usual". I wish to assure the taxpayers of this country that this assistance is being provided with strict conditionalities. I now turn to four specific new initiatives which will be put in place this fiscal year which should have immediate, concrete and positive effects on the productive sector. The first two are addressed specifically at the export sector. This Administration has always recognized and has articulated the need to stimulate exports and one institution which is dedicated to promoting this sector is the EX-IM Bank. We have been constantly lobbied by the export sector about the need to reduce the interest rates charged to exporters in order to make them more competitive in the global market place. We have heard their pleas and we have listened. I hereby announce that beginning May 1, the interest rates charged to exporters will be reduced to 12 per cent per annum coming down from 20 per cent per annum. Funds will be on-lent by the EX-IM Bank to the intermediaries at 9 per cent and the intermediary will have a margin of 3 per cent. We anticipate that with this lower interest rate, there will be greater utilization of EX-IM Bank funds, whereby there should be disbursement of approximately $1.6 billion during this year. The EX-IM Bank is also moving into the area of facilitating exporters by factoring export proceeds. As such, they have placed the initiative on a fast track and will be implementing it early in the second quarter of this fiscal year. The reduction in the interest rates for exporters to 12 per cent per annum, as well as the implementation of the factoring of export proceeds will imply increased subsidy from the Ministry of Finance to EX-IM of approximately $220 million. This is an additional expenditure which we are making in a very tight budget year, but to the extent that these initiatives facilitate increased export growth, this will be money well spent. All countries seeking to stimulate investment have grappled with the problem of what steps can be taken to encourage increased long-term savings. We here in Jamaica have grappled with this problem. One approach is to offer a special incentive to those savers who are willing to leave their resources untouched for a specific time period. The clear implication is that the institution which is managing these funds will be able to commit the resources to investments for a longer period without fear that the depositor/investor will unexpectedly come back to demand his money. I am pleased to announce that as a specific incentive to encourage long-term savers, the Government of Jamaica will authorize the establishment of Long-term Savings Account (LSA) which will have the specific feature of incurring no income tax liability on the interest earned. All interest and principal may be withdrawn after seven years with no liability for income tax. If the account is maintained for longer periods, it will continue to enjoy tax free status indefinitely. The following conditions apply:
While building societies will automatically qualify to issue LSAs, I have instructed that immediate attention be given to streamlining the legislation governing these institutions. In particular, the development of specific criteria linking special tax status to their investments in mortgage financing. This Administration has from time to time, over the last nine years re-examined the burden of taxation on the lowest income earners. As such the income tax threshold, i.e. the level of income above which someone becomes liable for income tax, has been increased at regular intervals. This matter has taken on additional significance as producers in labour intensive sectors e.g. the garment and the sugar industries have indicated that workers have shown a disinclination to work overtime whenever their income becomes taxable. In certain instances there have been attempts to introduce 'productivity schemes" in order to get around the payment of taxes. I have indicated in meetings with the trade unions, that the Administration is committed to working with them in developing genuine productivity schemes. In the meanwhile, we need to keep revisiting the issue of the threshold. I am pleased to announce that with effect from January 1999, the income tax threshold will be moved from the present level of $80,496 per year - to a new level of $100,464 per year. This significant increase more than compensates for the impact of inflation. Apart from benefiting every single taxpayer, it will release approximately 20,000 persons who are presently paying taxes from any tax obligations. We do not claim for one moment that this responds to the concerns in the sectors I have mentioned, but again it reflects the fact that we are listening and we will take action. || Previous | Table of Contents | Next ||
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