The Tribune

By NEIL HARTNELL

Tribune Business Editor

THE Government is targeting an "almost 100 per cent", or near doubling, of real property tax revenues over the next five years, Prime Minister Perry Christie said yesterday, with tackling "the very large negative imbalance" on the recurrent account his major fiscal policy goal.

Unveiling the 2012-2013 Budget in the House of Assembly yesterday, Mr Christie again placed the emphasis on increasing government revenues as a means to get the Bahamas' "fiscal house in order", saying its existing 18.6 per cent government revenues-to-GDP ratio "pales in comparison to that in many other countries".

Apart from administrative improvements to real property tax, the Government also unveiled a crackdown on tobacco/cigarette smuggling that is estimated to cost it $20 million per year in lost revenues, as it bids to reduce the recurrent deficit from a sum equivalent to 3.2 per cent of GDP.

Outlining the key fiscal challenges facing the Government, Mr Christie said: "The fundamental challenge for fiscal policy is the very large negative imbalance that has been allowed to develop in respect of the Government's recurrent account.

"The gap between recurrent expenditure and recurrent revenue, both expressed as a per cent of GDP, had quadrupled in the last five years. In 2006-2007, the negative spread between the two stood at 0.8 per cent of GDP. This year, that imbalance has grown to 3.2 per cent of GDP."

And he added: "In the last five years, the ratio of recurrent expenditure to GDP has grown from 17.4 per cent to 21.3 per cent. However, the ratio of recurrent revenue to GDP has only risen from 16.6 per cent to 18.1 per cent.

"In essence, then, rather than only borrowing to finance productive investments in our nation's future prosperity, the previous administration was also increasingly borrowing to pay for an increase in everyday expenditures in the form of salaries, rent and utilities that was not matched by an increase in revenues."

The Prime Minister, in common with previous administrations, placed the emphasis yesterday "on securing an adequate base for sustaining and enhancing the annual level of revenue". There was little to no mention of any attempts to reduce public spending.

Noting that most countries achieved government revenues-to-GDP ratios of between 20-30 per cent, compared to the Bahamas' 18.6 per cent, Mr Christie said: "It has been noted by many observers that our tax system is inadequate to finance a 21st century public administration.

"Our tax base is much too narrow, focusing as it does on goods to the exclusion of services. This is simply unacceptable in a modern economy where the consumption of services is predominant. The present tax system is also difficult and expensive to administer, and subject to abuse and evasion."

Promising a White Paper and "extensive consultations" on tax reform, Mr Christie indicated the Government would pick up a number of initiatives left in play by the former FNM administration, namely tax administration centralisation and enhanced real property tax collections.

"The current tax administrative structure is disjointed, inefficient and inequitable in many respects," the Prime Minister said, with more than 30 departments and agents involved in the collection effort. As a result, he promised a centralised Tax Administration unit "to consolidate revenue collections", and enhance efficiency.

As for real property tax, Mr Christie said: "The real property tax system suffers from a number of critical structural defects and, as a result, annual revenues generated by the system fall significantly short of the amounts that should rightfully be collected. The systemic deficiencies have been well documented.

"It is estimated that, with administrative improvements alone, annual property tax revenues could be increased by almost 100 per cent over the next five years."

The Prime Minister also disclosed that the Ministry of Finance was working with the Canadian Bank Note Company to introduce Excise Tax Stamps on all tobacco products imported into the Bahamas, in an effort to eliminate smuggling and tax evasion.

"The proper control of tobacco imports and the collection of Excise taxes due on such products is another area that is fraught with leakage," Mr Christie said. "It is estimated that the widespread smuggling of tobacco products into the country costs the Public Treasury some $20 million annually in lost revenues."

He added that the Excise Tax stamps would confirm the payment of due taxes, and "facilitate audit and compliance activities to combat smuggling and secure an important source of government revenue".

Throughout his presentation, Mr Christie was at pains to convey a message of fiscal prudence to both a Bahamian and international capital markets audience, while remaining committed to delivering on PLP manifesto promises.

"As my government is committed to fiscal prudence and the return of the fiscal accounts to a more desirable and sustainable position, we will need to adopt flexible, innovative and fiscally responsible approaches as we initiate our comprehensive programme....," the Prime Minister added.

Acknowledging that the private sector "holds the key to sustainable job creation", Mr Christie added: "We fully appreciate that it will be imperative to rebuild the fiscal buffers over time.....

"We must set the fiscal parameters prudently in 2012-2013 in such a way as to begin the process of getting our fiscal house in order, while at the same time accommodating our short-term priority initiatives to the fullest extent possible.

"My government fully acknowledges and accepts that the fiscal deficit must be constrained in the short-term, and significantly reduced thereafter..... Indeed, the restoration of fiscal discipline is absolutely necessary if government is to fully implement its agenda.... We will as a priority restore our public finances to a healthier and more sustainable position."