By RASHAD ROLLE

Tribune Senior Reporter

rrolle@tribunemedia.net

PROGRESSIVE Liberal Party Leader Philip “Brave” Davis said yesterday State Minister for Finance Kwasi Thompson “does not appear to understand the economics” surrounding consumption taxes as he defended the PLP’s plan to reduce value added tax to ten percent for one year if the party wins the next general election.

Mr Thompson accused the PLP of being irresponsible with its promise, saying the move would cost the government more than $100m at a time when the company’s fiscal state is already precarious.

Mr Davis, in response, said yesterday: “It is extraordinary that the government does not recognise the urgency of providing immediate relief to Bahamians. People are hurting. Our middle class is disappearing. That the FNM defends the status quo is evidence of how disconnected they are from the realities on the ground.

“The public finances are in a dire state. In order to offer immediate relief to hurting families and struggling businesses, but at the same time restore fiscal sanity, we also need to increase revenues to the public treasury and adopt new strategies to kick-start the economy.”

Mr Davis said it is revealing that Mr Thompson has focused on VAT but ignored the other proposals in the party’s economic plan, which were unveiled on Sunday.

He said: “Consumption taxes rely on consumer spending in order to generate tax revenue. When the government imposed the shock increase in VAT by 60 percent in 2018, consumers cut back on their spending. Since then, the government has failed to meet a single one of its revenue projections. This is what happens when you don’t understand basic economics. If you set consumption taxes too high, the economy slows down. These are the facts. This is the economic reality.

“Our proposal to cut VAT to ten percent represents a modest decrease which will bring some relief to thousands of Bahamian families and help inject cash into an economy that desperately needs it.

“Once again, this reduction in VAT was not offered as a stand-alone proposal. Bahamians will see that we also propose a significant number of revenue-enhancing measures. VAT is not the only tax-raising mechanism available to the government – but it is one that disproportionately affects ordinary Bahamians.

“The junior minister argues that this modest decrease in VAT will lead to a reduction in revenue for the government. He is wrong. In fact, there will be an overall increase in revenue. Again, back to basic economic principles: the lower the price, the higher the demand. Lowering prices drive an increase in economic activity. Further, against the advice of the IMF as well as government consultants, they have bastardised the VAT model left in place by the former administration.”

Noting that the stated $100m reduction amounts to a loss of $8m per month, Mr Davis questioned whether the Minnis administration “really (lacks) the ability to find an additional $8 million per month to alleviate the tax burden on ordinary Bahamians, at a time when so many are out of work through no fault of their own?”

“Bear in mind,” he said, “that this is a government that chose to spend almost $200 million on a run-down hotel in Grand Bahama.

“This is also the same government that at the height of the pandemic chose to spend $20 million on sidewalks.

“And the same government that refuses to report, as required by law, how they have spent hundreds of millions under the Emergency Orders.

“We have some sympathy with the minister for his failure to be able to recognise a good plan.

“This government specialises in political attacks, not credible plans. They move from crisis to crisis, with no vision and no confidence in the Bahamian people. Their inability to plan deliberately has increased the damage caused by Hurricane Dorian and the pandemic.

“We believe continuing on the present path would be catastrophic.”