The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians did not enjoy a “real increase in living standards” in the decade leading up to the 2008 recession, a top accountant arguing that most were instead living above their means on ‘easy credit’.

Raymond Winder, managing partner at Deloitte & Touche (Bahamas), told Tribune Business that the presumed increase in average household - and national - prosperity during the mid-late 1990s and early part of this century was effectively an illusion, given that most of this was financed by borrowing/debt.

Pointing to the latest downgrading of the Bahamas’ sovereign credit rating by Moody’s, Mr Winder said the message being sent was that both the Government and individual Bahamians had to “live within their means”.

While arguing that Moody’s action would neither jeopardise the Bahamas’ ability to borrow on the international capital markets, nor its prospects of attracting foreign direct investment (FDI), the well-known accountant agreed it was another “warning sign” that the country’s finances were headed in the wrong direction.

Mr Winder said it showed the Government was “challenged” in both collecting revenues and controlling spending, and again expressed concern over its ever-expanding unfunderd civil servant pensions liability.

And, acknowledging the Government’s “struggle” to go after individuals and companies “not paying their fair share”, Mr Winder also urged it to review all incentive legislation to make sure the Bahamas was getting a good return for taxes foregone.

“The reality is both the Bahamian consumer and the Government of the Bahamas have been living above their means,” Mr Winder told Tribune Business, “and to the extent we now have to rein that in is what people have deemed to be an increase in the standard of living from 10 years ago.

“But that was not a real increase in the standard of living. It was the ability to utilise the individual’s and country’s capacity to borrow money.

“We now find ourselves in a situation as a country and individuals where the standard of living is dropping, and where we have to live within our means as we’re not able to draw upon our propensity to borrow to the extent we did in the past.”

Referring to Moody’s decision to cut the sovereign credit rating from ‘A3’ to ‘Baa1’, Mr Winder told Tribune Business: “Clearly, while the downgrade is a negative point for the Bahamas, in no way does it [place] the country in a position where it is unable to borrow the external funding it needs, and neither will it reduce the capacity of the Bahamas to attract foreign direct investment (FDI).

“However, it is a warning sign that it is going in the wrong direction. The Government is finding itself challenged to make meaningful strides to collect all taxes, and put meaningful brakes on expenditure - the size of

the public sector - either by way of increasing salaries or hiring new persons.”

The Deloitte & Touche (Bahamas) managing partner also reiterated concerns previously expressed to Tribune Business, namely that the failure to recognise the unfunded pensions obligations owed to civil servants seriously estimated the true size of the fiscal deficit and national debt.

Pointing to the true cost of expanding the public sector, Mr Winder added: “The additional challenge for us as a country - for the public sector - is the underlying liabilities for pensions.

“We not only increase the deficit, but increase the potential for future obligations of government by paying full-time employees pensions.”

Mr Winder added that the ever-present demands on the Government for new and maintained infrastructure would continue to “be a drain going forward”. This was despite capital expenditure reducing from its 2012-2013 high over the next two-three Budget years.

“We have been struggling to really go after those individuals and organisations that owe the Government,” the Deloitte & Touche managing partner told Tribune Business.

“I believe there are a considerable amount of obligations on the part of individuals and organisations not paying their fair share. The Government is going to have to make a real effort to plug the leakages, with people not paying their fair share of real property tax or Customs duties.”

Mr Winder said the Government also needed to review its unwieldy mass of incentives legislation, in a bid to ensure the Bahamas was getting the required returns from the tax breaks on offer.

“These incentives represent a huge reduction in the Government’s ability to collect taxes,” he added. “The Government is going to have to look and see if we’re getting some level of return from the incentives given.

“Can we sustain the level of incentives given in the past? We need to take a hard look at this.”

Ehurd Cunningham, the Ministry of Finance’s acting financial secretary, previously told the National Tax Symposium that the Bahamas gave up around $200 million worth of revenue per year via its tax incentive legislation.