Wednesday, March 25, 2020
EDITOR, The Tribune
The tragic danger of current events for The Bahamas is that our government will treat the impending crisis in the world economy as an opportunity to double down on the fire sale approach they have taken toward foreign investment projects, rather than reflecting on how badly recent governments have squandered this country’s abundant opportunities for sustainable and equitable growth.
It is a predictable response to every crisis. Last autumn, in the aftermath of Hurricane Dorian’s massive blow to revenues, a person as respectable as former Central Bank Governor James Smith suggested that the fiscal crisis justified the removal of Bahamians-only ownership restrictions on certain categories of economic activity in The Bahamas.
While Mr. Smith did not explain just how loosening these rules would boost either the economy or revenues, it should be clear to all that it would do neither.
Revenues have failed to keep up with levels of foreign investment precisely because governments have needlessly foregone direct revenues via vast tax concessions.
They then try to make up the difference by mercilessly squeezing taxes out of the Bahamian consumer, which in turn dampens growth in the domestic economy, completing the downward cycle.
Further, by permitting foreign entities to compete in the domestic economy – which our once successful economic model never anticipated them to do – recent governments have undermined domestic growth and promoted revenue leakage, since foreigners (be they cruise ship night club owners or real estate developers pretending to be hoteliers) repatriate their profits.
Had we spent the last decades earning the revenues that we should have earned from direct taxes on the tens of billions of dollars of direct foreign investment we have seen, or if we had a Real Property Tax regime focused on our status as an elite, high end destination for second homes, we would have had a veritable revenue war chest, rather than be scraping the barrel after every unforeseen emergency.
Likewise, had the record 7 million tourists we attracted last year correlated in any rational way to the revenues we get from tourism, we would have no crisis on a scale to provoke any radical change of course.
So it is mind-boggling that, instead of recognizing that successive governments have, through stupid and uninformed policies, severed the correlation between robust foreign investment, revenue performance and growth in the domestic economy, anyone would propose giving even more of our economy away to foreigners as a solution to underperformance.
It reminds me of the tragic events surrounding the death of George Washington in 1799. The ex-President was probably suffering from nothing more life-threatening than seasonal flu. What was genuinely life-threatening, however, was the “cure”.
The most eminent practitioners of 18th Century quackery all agreed that what was needed was some vigorous “bleeding”, a long-debunked practice of draining supposedly ailing blood from a patient.
Needless to say, every time the old General failed to rally from the last session, the “experts” took this as evidence that he wasn’t bled enough and proceeded to drain more life blood from the poor man until the inevitable occurred.
They then presumably were overcome with guilt that they had left any blood in him at all.
So it is with those who suggest that our government should respond to these tragedies of its own making by indulging more of the same failed investment and tax policies that created the cycle of underperformance.
March 22, 2019