Bahamas told: Keep fiscal reform 'dirty laundry' in-house

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must prevent its fiscal reform “dirty laundry” from being aired to the outside world, a Tax Coalition co-chair pointing out that the Government was really targeting an $800 million adjustment.

Gowon Bowe, the PricewaterhouseCoopers (PwC) accountant and partner, told Tribune Business the Bahamas risked suffering another credit rating downgrade if it gave the Wall Street agencies the impression necessary fiscal reforms were “not set in stone”.

Emphasising that the Bahamas needed to balance this with continued internal discussions on the direction fiscal reform should take, the Coalition for Responsible Taxation’s co-chair said the likes of Moody’s and Standard & Poor’s did not have to live with the pain this would likely cause.

And he told Tribune Business in a recent interview that few persons appeared to have “grasped the magnitude” of the fiscal adjustment the Government is seeking.

Mr Bowe pointed out that with the Bahamas set to give up around $300 million in existing import tariff revenues as the price for obtaining full World Trade Organisation (WTO) membership, when this was added to the goal of generating $500 million in extra revenues by 2016-2017, the total increase sought by the Government was actually $800 million.

The PwC partner argued that such an increase could not be achieved by extra revenues alone, as this would “completely destroy the economy”.

As a result, fiscal reform had to involve a combination of three elements - increased revenues, spending cuts and economic growth.

Warning that outside perceptions will count for a lot when it comes to Bahamian fiscal reform, Mr Bowe said: “It’s very clear that S&P, the IMF and others are looking for certainty in the Bahamas, so the Government has to balance that - the concerns of the public, the concerns of the business community - with the external forces and their perception of what needs to be done.

“It means that there needs to be very clear statements and positions on how we move forward. We have to be careful about giving the indications things are not set in stone.”

Mr Bowe said it was vital that domestic conversations on the ‘what’ and ‘how’ of fiscal reform continue, but without ‘spooking’ the credit agencies and foreign investors into thinking necessary change might never happen.

“The most daunting element is that we have outside forces,” the PwC partner told Tribune Business. “They don’t live here and don’t feel our pain, but they can cause a lot of mischief and problems for us if they feel we’re not doing the right thing.”

And he added that while discussions on whether Value-Added Tax (VAT) was the best option, and the alternatives, needed to progress, the Bahamas could not afford to delay fiscal reform.

“We cannot have paralysis by analysis. If there’s one thing that’s clear, we cannot have that,” Mr Bowe told Tribune Business.

“And what we do and say is not only read internally. We have to be mindful we don’t air our dirty laundry outside. We must keep our business in-house, and make sure the message to the outside world is one of a unified stance.”

Pointing out that the Bahamas was projected to incur another $443 million deficit for the 2013-2014 fiscal year, Mr Bowe added that not only did the Government have to ‘fill’ this red ink, but it also had to replace $300-$320 million worth of Customs duties due to WTO.

“I’m not sure everyone has grasped the magnitude of what needs to happen,” he told Tribune Business.

“That has not been well articulated in the sense we have made certain commitments to reduce duties, and have to fill that hole as well. There’s a significant hole to fill, and the average person needs to know that.”

Mr Bowe said it would be impossible for the Government to effect an $800 million turnaround through revenue growth alone, which was why it also needed to focus on public spending.

“That is going to be critical in the whole equation,” he added. “You can’t raise $800 million. Revenue alone will not do it, as the amount of revenue that will have to be raised has to be transformational.

“That, we know, would completely destroy economic activity if we raise that amount. It has to be a balance with cutting expenditure and increasing GDP. If you have more money flowing in the economy, you will have more revenue.”

Mr Bowe reiterated that it was vital for the Bahamas to get its economy moving, as it had yet to “get back to where we were pre-recession” in 2007.

“We have to grow beyond where we were five years ago, not just get back to that,” the PwC partner added.

Comments

Honestman says...

Totally agree with Gowon's comments. Unfortunately government hasn't convinced the stakeholders (i.e.we the people) that VAT is the best solution for The Bahamas. VAT has not been the solution for such as Barbados and in fact has been disastrous for that economy. The introduction of a Payroll tax, an aggressive approach to the collection of Property tax and a phased reduction in the over-employment in the public sector would surely satisfy the rating agencies that we are serious about fiscal reform.

Posted 7 January 2014, 1:37 p.m. Suggest removal

TheMadHatter says...

The problem with your suggestions is that they fail to tax a significant underclass of persons living in our country (both bahamians and illegals alike) who pay NO TAXES at all because they live off of social services, do not drive cars so they pay not gas duty and not licensing and insurance, and do not buy anything other than bread-basket (price controlled) food items - which I have read in the new proposed VAT legislation will ALSO be excluded from VAT.

It is these tens of thousands of "insignificant" (financially speaking) persons who are burdening our society and who successive governments continue to feel both deserve not to be taxed and also that the amounts obtainable from them are insignificant.

Let's just say there are 50,000 of them (and I'm sure there are more even though our total population is small). If each paid $5/week in taxes that would be $13 million in taxes !!! Why can't they give up just ONE phone card per week or just ONE visit to the numbers house or just put $5 in the church plate instead of $10 and do something to HELP the society that they live in?

They are just disgusting vermin that are sucking the blood out of our country and causing us to have to think of new taxes to compensate for their slackness.

Remove the exemptions from VAT and increase price control limits by 20% TODAY !!!

**TheMadHatter**

Posted 7 January 2014, 9:27 p.m. Suggest removal

newcitizen says...

If your so interested in taxing people who you say are already living off social services, then why not just cut the social services and save the accounting exercise.

Taxing the poorest 15% (50,000 out of 320,000) of the population in order collect just 6.5% ($13 millions of $200 million in expected VAT) in order to simply give it back to them in social services seems like the kind of government waste and overspending that produced the budget deficit in the first place.

Posted 7 January 2014, 11:16 p.m. Suggest removal

TheMadHatter says...

No, not entirely - (although yes to some degree) - because it makes those people FEEL LIKE they are a part of society. It gives them a feeling of belonging to something bigger than themselves (kinda like church does) and they are affected by things that government does.

As it is now - they are just "along for the ride".

When people feel like they are a part of something it lifts their spirits and interest level - and may activate them. But, of course, government knows that and won't do it, because they would rather just keep those people asleep until next election. They are just "X" markers for beer and chicken as far as the govt is concerned.

Posted 8 January 2014, 5:55 a.m. Suggest removal

CommonSense says...

So...publishing an article that states that we shouldn't tell Wall Street about our 'dirty laundry' isn't indirectly telling them that we have dirty laundry that we feel needs to be hidden? Who the hell comes up with these things? If you don't want them to know then why is this article even here?!

Posted 7 January 2014, 3:02 p.m. Suggest removal

proudloudandfnm says...

Bahamians need to get active now. Call your MP and let them know. Vote no on VAT or lose your job. CALL YOUR MP. The only way we can flex our muscle is to let the MP's know they work for us. Be straight up, don't be intimidated your MP works for you not for their party. CALL YOUR MP and let them know how you want them to vote! We have the power not Perry. No MP can become or stay an MP without your vote. FLEX YOUR MUSCLES BAHAMAS CALL YOUR MP AND DEMAND A NO VOTE ON VAT!!!

Posted 7 January 2014, 4:26 p.m. Suggest removal

The_Oracle says...

If there ever was a time for Bahamians to wake up and stop eating what the politicos shovel,
It is now.
Our national fiscal position is deplorable, but the
Governments solution is to take the peoples personal finances over the cliff also.
Government assisted financial suicide.
If they can take your money, the IMF will keep lending them money to siphon off for themselves, hiring consultant after consultant only to ignore them all,
unless they agree with the IMF!
Ironic we are about to celebrate Majority Rule day,
after which the enslavement continues!

Posted 7 January 2014, 9:15 p.m. Suggest removal

banker says...

The real engine of improvement is economic growth, and that won't happen. The garden is dead. The economy, just like plants, needs a healthy environment and nutrients to grow. In the case of the economy, the nutrients are access to capital and ease of doing business coupled with vision, innovation and a business environment with inherent freedoms. None of that is available in the Bahamas, and that is why we are stagnating.

The only successful startup that I am aware of is Bahamas Striping, and that was because of the infrastructure stimulus created by the Ingraham government. With the economic stagnation, they too will suffer.

The root cause of most of the ills of the Bahamas is the stifled, monolithic economy coupled with government corruption. Eliminate those two factors and not only can we survive, but we can grow. Without that, we are on the road to anarchy.

Posted 8 January 2014, 9:13 a.m. Suggest removal

B_I_D___ says...

Anarchy is here.

Posted 8 January 2014, 9:39 a.m. Suggest removal

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