The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The 2014-2015 Budget will likely eliminate “a lot of the uncertainties” surrounding the schedule and details of tax/fiscal reform, a top Ministry of Finance consultant yesterday warning there could be “no retreat” from change.

James Smith, a former minister of finance and Central Bank governor, told Tribune Business that “the time for talk is over”, and the Government could not delay setting out its fiscal reform timetable and goals any more.

Describing tomorrow’s Budget unveiling by Prime Minister Perry Christie as “one of the most important Budgets ever seen” in Bahamian history, Mr Smith said this nation would now have to address both its fiscal affairs and other economic policy areas “in a way that it has never had to before”.

Speaking to Tribune Business after meeting with key Ministry of Finance officials, Mr Smith said the Budget would attempt to address the ongoing angst in the private sector that has been caused by the uncertainty - and unknown details - surrounding the Government’s planned tax and wider fiscal reforms.

“I do know that a lot of the question marks and uncertainty are likely to be removed by that,” he told this newspaper of the Budget communication.

“I think we will get a detailed outline of a multi-year outlook based on revenue and expenditure initiatives.”

Most in the private sector believe that the Government will press on with the implementation of Value-Added Tax (VAT), albeit it at a lower rate than the initially proposed 15 per cent, as the Prime Minister has confirmed.

The general consensus is that the Government will look to introduce VAT at either a 7.5 per cent or 10 per cent rate, with a lower rate for the hotel/tourism industry. And the implementation date is now thought likely to be some time between January 1 and July 1, 2015.

Tribune Business understands that some private sector industry groups, though, are raising questions about whether the Government will look to increase the VAT rate once it gets the tax on the statute books.

This newspaper understands these industries want the Coalition for Responsible Taxation to press for a guarantee that the Government will not seek to increase the VAT rate. And they also want the lead private sector lobby group to seek guarantees relating to a public spending rein-in, and deficit and national debt reductions.

Mr Smith, meanwhile, would not be drawn on any specifics relating to the Budget, but said the time for talking on tax/fiscal reform was over.

He added that the current delay in implementing tax reform would not lead to a sovereign rating downgrade by Moody’s and Standard & Poor’s in and of itself, and suggested that this may ultimately work to the Bahamas’s advantage.

“It becomes a timing issue and no retreat,” Mr Smith told Tribune Business. “You basically introduced it [tax reform] last year and are moving forward, even if it’s delayed for a couple of months, with a new revenue regime.

“You have to go forward and give the local and international community a feel we’re moving forward in that direction, and I think that can be done.”

The former finance minister added of the Budget: “It’s setting the stage for the next three-four years, and that would be wanting to go on the path of sustainable economic growth. To get there we must bring our fiscal affairs in order. The talk is over.”

Noting that the Government (and its spending) represented about 20-25 per cent of annual Bahamian gross domestic product (GDP), Mr Smith said the Budget “must be crafted” to invigorate the private sector, against a backdrop of increased foreign/local investment and an improving world economy.

The Wall Street credit ratings had themselves said they did not mind a delay in fiscal reform, as long as the Bahamas laid out a timetable and targets for how it would achieve its goals, and Mr Smith said the country might benefit from not hitting the original July 1 implementation date.

“I don’t think the time loss is great, and what we might have lost in terms of deferring it, we gain a couple of points in terms of acceptance of the economic programme,” he explained to Tribune Business. ‘It’s more palatable and people understand the need for it.”

Analysing the wider significance of the Budget, Mr Smith said: “I think it’s likely to point the country in the right direction; a clear indication of where we are and where we need to go.

“I think it could be one of the most important Budgets ever seen. It will call for a new direction. Before we were looking to balance the recurrent Budget from adapting existing elements, but this is coming from a new platform.

“It’s talking about implementing new initiatives, and doing it in the context of accession very soon to the World Trade Organisation (WTO), and the perspective of the main economy on the brink of some employment opportunities with one of the biggest resort areas in the Caribbean.

“It’s come at a time when there are many things happening in the economy, as well as pressure being exerted on the foreign reserves and the country’s balance of trade. The Bahamas is going to have to address many areas in a way that it never has before.”