By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government used up 95 per cent of its projected 2015-2016 full-year deficit within the first five months, the Chamber’s chairman arguing this shows the Bahamas cannot escape its fiscal predicament via new taxes alone.

Gowon Bowe told Tribune Business that while Value-Added Tax (VAT) revenues were meeting, and exceeding, the Government’s projections, this has yet to translate into sustained deficit and national debt reductions.

The Central Bank of the Bahamas’ recent report on economic developments for December 2015 revealed that VAT had generated $271 million for the five months to end-November, driving an almost-50 per cent year-over-year decline in the fiscal deficit.

Yet the Government still incurred $134.1 million worth of ‘red ink’ for that same five-month period, a sum that is equivalent to 95.1 per cent of the projected $141 million GFS deficit for the 2015-2016 full year.

Mr Bowe acknowledged that the Government was “tracking on those [VAT] numbers, and may even be ahead of them”, given that it has forecast the new tax will generate between $300-$350 million in new revenue for the Public Treasury.

But he added: “The flip side of that is: Is that translating into deficit reduction? They’ve already exhausted a large part of the fiscal deficit projected for this year.

“It’s always been the position of the Coalition for Responsible Taxation and the Chamber that revenue should not be the sole focus.

“The only mechanism that will work in terms of true deficit reduction, a move to Budget surpluses and debt reduction is fiscal reform, which encompasses revenue and expenditure reform.”

Mr Bowe said he believed the Christie administration “has a great appreciation” of the need for wider fiscal reforms that combine new/increased taxes, and better revenue administration, with reduced public spending.

While the Government has focused on expenditure restraint, ensuring its spending only grows in line with inflation, the recent Central Bank report makes clear that the public sector’s size continues to expand.

While revenue growth at near-40 per cent outpaced spending during the first five months of the 2015-2016 fiscal year, the latter nevertheless grew by 8.1 per cent or almost $65 million.

Mr Bowe warned the Government not to focus on new and increased taxes, which were easier to implement, to the exclusion of all other fiscal reform measures.

“It becomes more difficult to control spending than, with a stroke of the pen, to increase taxes,” the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman told Tribune Business.

“We must not become enamoured with raising taxes.”

Mr Bowe said the Bahamas cannot “tax your way out of problems” as, in so doing, it would undermine the very vehicle it is reliant upon for more revenue - economic growth.

He quoted former UK prime minister, Winston Churchill, who said that a country trying to tax its way out of trouble was akin to ‘standing in the bucket and trying to lift yourself up by the handles’.

“You’re weighing down the vehicle you’re trying to use to lift yourself up,” Mr Bowe translated, adding that while the Bahamas had not yet reached the point where it was over-taxed, it was “not too far off”.

He told Tribune Business that many Bahamians were currently in “shock mode” following VAT’s implementation, having become accustomed to the relatively low taxation level that existed for many years.

“I don’t think we’ve arrived at that point,” Mr Bowe said, when asked if the Bahamas had reached the taxation ‘tipping point’.

“We’re more in the shock mode, as taxes as a percentage of GDP were low. Such a large jump is a shock, but if you’re saying we’re trying to get to a consistent 23-27 per cent, which is the global norm, from the high teens, then we are not too far off,” he added.

“We’re sort of reaching the precipice of how much we can tax the economy, so the Government must be careful that we do not have such a large jump in the future as we had in the past, as we do not have the headroom to sustain it.”

The Central Bank of the Bahamas, in its monthly report on December 2015’s economic developments, said VAT had driven a $209.2 million or near-40 per cent expansion in government revenues to $735.5 million for the five months to end-November.

“Tax revenue rose by $202.3 million (44.7 per cent) to $655.1 million, with VAT revenue totalling $271.4 million,” the Central Bank said of the five months to end-November.

“Tariff rate reductions in the context of VAT resulted in decreased collections on international trade and transactions by 13.6 per cent to $216.9 million, with both import duties and Excise taxes lower by $17.6 million (13.6 per cent) and $9 million (8.3 per cent), respectively.

“Further, selective taxes on services fell by $7.4 million to $10.2 million, as the reform eliminated hotel occupancy taxes of $15.2 million. However, the initial licensing fees from the legalisation of web shop gambling raised gaming revenues by $7.8 million.”

Real estate taxes also shifted to VAT, with Stamp Taxes reduced by $29.5 million (69.7 per cent). The Government’s non-tax inflows also rose by 13.9 per cent to $80.3 million, supported by dividend payments from the Bahamas Telecommunications Company (BTC).

The data illustrates how the Government’s net revenue growth is going to be less than VAT’s gross intake. A collective $71.6 million in other taxes have either been eliminated or foregone as a result of the new tax’s implementation.

But total government spending increased to $869.6 million over the same period.