The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister last night argued that the PLP’s one-year VAT rate cut will “destabilise the economy” and government finances by costing the Public Treasury $100m in revenue.

Senator Kwasi Thompson, pictured, in a statement, accused his political opponents of “rank populist politicking” with a proposal that he alleged would force a Philip Davis-led administration to hike the VAT rate to 15 percent the following year to make up for the revenue foregone.

Slamming the pledge by Chester Cooper, the Progressive Liberal Party’s (PLP) leader, to cut the VAT rate to 10 percent for one year in a bid to stimulate the economy and generate more revenue-producing transactions, Mr Thompson blasted: “They will say anything to win an election.”

Pointing out that the Fiscal Responsibility Act was enacted “precisely to eliminate the kind of arbitrary and self-serving positions” suggested by the PLP’s economic plan, Mr Thompson said: “The Opposition’s plan would lead to a dramatic fall-off in revenue likely in excess of $100m during their proposed 12-month period, at a time when the country’s fiscal resources are under tremendous strain and the needs for government to support social and economic programmes are even more pronounced.

“The Government cannot operate by trial and error. The 12-month period will only destabilise the economy, causing the PLP to have no choice but to return VAT to 12 percent the following year or increase it to 15 percent. The country needs stability and consistency.”

Mr Thompson argued that the Opposition will “compound their folly” by increasing government spending on social assistance and relief initiatives, as they have pledged to do, “while they gut the revenue base on a short-term political adventure”.

He added: “A 2 percentage point cut in VAT does not guarantee that additional spending needed, and will not be sufficient to achieve the amount of economic activity to replace the loss in revenue. It would be impossible for the Government to maintain its spending levels with that level of loss in revenue. It is completely irresponsible.

“Which existing programmes will be cut to make up for this $100m revenue loss? Will they cut back on the free tuition to University of The Bahamas and BTVI students? Will they cut back on the extension of free private school pre-school grants for Bahamian mothers? Will they cut back on the benefits under NHI? Will they cut back on critical Family Island infrastructure? Will they cut civil servant salaries and benefits?”

Mr Thompson also noted the contradiction between Mr Cooper’s comments, which suggested the PLP has already decided to cut the VAT rate to 10 percent if elected to office, with Mr Davis’ prior remarks that promised a “comprehensive review” to determine if the tax is still viable and the best option for The Bahamas post-COVID.

The minister spoke out as multiple private sector executives urged the PLP to provide more details on how its 10 percent VAT rate would work and how it will pay for other costly elements of its economic plan.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business: “They have now set out their economic philosophy. What needs to happen is the general public needs to determine whether it’s viable and credible and, ultimately, what that goes to is the basis of which they have made their recommendation.”

Pointing to the analytical work done in the lead up to VAT’s implementation in 2015 by the Oxford Economics consultants, he said their report studied “various scenarios” ranging from VAT at 5 percent and no exemptions to 10 percent and 12 percent with some exemptions, then all the way up to 15 percent.

Mr Bowe added: I know, as in terms of being part of the study, that was one of the scenarios that would have significant impact on the GDP growth at the time in 2015, right, but the same time they increased the 12 percent, that exemption so then the question would be has there been an update to the analysis in terms of where we are now economically in GDP?” he added.

Suggesting is difficult to respond to the PLP’s recommendation positively or negatively at present, Mr Bowe added: “Has the PLP used Oxford Economics’ analysis in order to formulate their recommendation? Has there been an update to the analysis in terms of where we are now economically in GDP?

“Would it get the revenue steams that are necessary, because you would be removing the exemptions and moving the rate lower? Is the policy choice rooted in sound principles and decisions? They have a number of initiatives in their plan.”

Rupert Roberts, Super Value’s principal, also demanded more information on whether the PLP intend to go back to a broad-based VAT with no exemptions. “Reducing it to 10 percent is still not clear to me. There is currently no VAT on the poor man’s food. Would they put 10 percent on that too?” he asked.

“You can’t come in on nothing. We can’t assume. They need to come back to us and clarify what they’re saying. I don’t know what they’re saying. The people are very up in arms that the PLP are going to now put 10 percent on breadbasket items - that’s what I take. We are gearing the public up for it and that is going to increase the cost of living and increase the cost of food by about 75 percent.

Christopher Lleida, Premier Importers chief executive, said: “Any administration being transparent and being accountable for the money that’s already collected, rather than trying to play around with the ways it is being collected, is more important.

“Reducing VAT by 2 percentage points is not going to make a huge difference for business. We have to get tourism revitalised, which is critical. So with that and having the government be accountable is more of a priority.”