The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas cannot tax its way out of its economic malaise, a top QC has warned, adding that this nation “will not survive with growth rates of 1.8-2.5 per cent”.

Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, told Tribune Business that all reform efforts - fiscal or otherwise - had to be geared towards the ultimate objective of generating 5-6 per cent annual gross domestic product (GDP) growth rates.

Warning that Value-Added Tax (VAT) might instead stifle growth instead of increase it, Mr Moree said of the Government’s preferred tax reform option: “The medicine might kill the patient.”

His comments are likely to strike a chord with the substantial body of opinion that believes the Bahamas needs to focus first on achieving faster economic expansion, and thus grow its way out of its fiscal difficulties.

Such sentiments were recently expressed by Vaughn Delaney, Bank of the Bahamas International’s deputy managing director, when he told John Rolle, the Ministry of Finance’s financial secretary, during a private sector seminar: “We’re trying to tax our way out of this, not grow our way out of this.”

Mr Moree, backing those thoughts, said: “We’re not going to get out of this economic state that we’re in solely by increasing the collection of taxes.

“I think history has shown us that the only medium to long-term solution for our problems is to grow the economy.”

The respected QC told Tribune Business that the “end game” was to achieve “sustainable growth of 5-6 per cent a year”, and he added: “Everything we do is a means to an end to achieve that objective.”

Implying that fiscal adjustment, via tax reform and public spending cuts, were merely means to achieving this goal, Mr Moree said: “This economy needs to be returned to growth to solve our economic problems.

“We have to find a way to increase the growth in our GDP, and that is one of the most fundamental challenges for any government in the country today.

“We can talk about tax, whether VAT is better than a sales tax, whether a sales tax is better than a payroll tax, but we’d better talk about growing the economy as it’s the only way we have in the short-term of reducing unemployment.”

With the official unemployment rate now standing at 16.2 per cent, implying that close to one out of every six Bahamians seeking work is unable to find it, the nation rapidly needs to generate a higher growth rate and create net new jobs.

The prospects for achieving this, though, do not appear great despite the anticipated late 2014/early 2015 boost from the 5,000-7,000 full-time jobs that will be created by Baha Mar.

The International Monetary Fund (IMF), in its statement on its latest visit to the Bahamas, projected 2013’s GDP growth rate to be 1.9 per cent - barely up from the 1.8 per cent achieved in 2012.

““Economic growth is expected to pick up from 2014 onward as the US economy strengthens, tourist arrivals rebound, and Baha Mar opens, reaching 2.75 per cent in 2015-16 before moderating to around 2.5 per cent thereafter,” the Fund added.

Yet this is well short of the 5.5 per cent annual average growth rate that the IMF itself says is needed between 2013-2018 to slash the existing unemployment rate in half.

The Fund’s latest projections indicate the Bahamas will achieve barely 50 per cent of the growth rate needed, and this also fails to account for the need to absorb an estimated 3,500 school leavers into the workforce every summer.

Emphasising that there was no alternative but to achieve higher economic growth rates, Mr Moree told Tribune Business: “We can’t get out of our economic problems by borrowing more money. You are not going to reduce the unemployment rate by continuing to have these $440 million deficits.

“There is no question tin my mind that we urgently need tax reform in the Bahamas. Whether VAT is the right solution remains to be seen, and many Bahamians think it is not. The burden is on the Government to prove that case.

“Yes, we need to reduce public spending and the size of government. Yes, we need to improve the collection of existing taxes to convince the Bahamian people we’re able to collect new ones,” Mr Moree added.

“But don’t make any mistake about it. We are not going to solve our current economic problems unless we can achieve higher rates of growth in GDP and grow ourselves out of economic difficulties. We cannot survive with rates of growth of 1.8-2.5 per cent.”