The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A prominent businessman yesterday warned that “the VAT effect will outweigh the Baha Mar effect” in 2014, adding that next year will “have been a failure” if unemployment remains close to 16 per cent.

Dionisio D’Aguilar said the 5,000 new Bahamian jobs created by this time next year, and the almost-$10.5 million in additional direct wages injected into the economy monthly, would likely be overshadowed by tax reform’s “big elephant in the room”.

Anticipating “a real mixed bag” in 2014, the Superwash president called on all Bahamians to “rally around” the $2.6 billion Baha Mar project and “make sure we pull this off successfully”.

But, with VAT likely to have a six-month head start on Baha Mar via its July 1, 2014, implementation, Mr D’Aguilar said the wider business community was “losing confidence” in the Government’s fiscal reform plans.

And, noting that the Christie administration had - and was continuing to lose - “the PR battle” over VAT, the former Chamber of Commerce president reiterated that it could not simply “tax its way out” of the Bahamas’ fiscal and economic problems.

Warning that it could push the economy into “an even bigger funk” if it failed to establish broad-based support for VAT prior to its implementation, Mr D’Aguilar told Tribune Business: “Whatever positive effects we get from Baha Mar are going to be somewhat outweighed by the negative effects of VAT.

“I think the VAT effect will outweigh the Baha Mar effect. Baha Mar is a substantial economic event, but most people don’t understand VAT.

“The vast resources the Government will have to deploy to implement it and ensure proper enforcement are overwhelming, and they have not convinced people this is going to help rather than hurt.”

The Government is aiming to generate around $520-$530 million in gross VAT revenues, of which some $320-$330 million is an ‘income replacement’ for Customs duties. The new tax is designed to produce a net $200 million revenue increase.

While this might help to control the deficit and national debt, Mr D’Aguilar said: “They [the Christie administration] haven’t addressed the out of control spending in government,so the business community is in a funk about it - it’s complicating our business, is confusing. How are we going to pay it?”

The well-known businessman reiterated his belief, and that of others, that a payroll tax of up to 10 per cent - split 50/50 between employer and employer - would be “much simpler” and easier to administer.

“The Government cannot tax their way out of this problem,” Mr D’Aguilar told Tribune Business. “Most countries stimulate their economy to get it going, and then roll out taxes.

“Our economy is in a funk, unemployment is at 16 per cent, and the Government think they can tax it even more. The effect will be to drive it into an even greater funk.

“I understand the Government needs to raise more money, but not in such a way that drives out any investment in the economy by the business community.”

On the positive side, 2014 will see the “ramping up” and late year opening of Baha Mar’s $2.6 billion Cable Beach project, complete with new casino, four extra hotels and convention centre.

“A certain amount of optimism will be flowing through the economy as Baha Mar begins to come on stream, culminating in December with this grand opening and the employment of 5,000 Bahamians,” Mr D’Aguilar said.

As a rough ‘back of the envelope’ calculation, and using an average annual salary of $25,000 for the new hires, he suggested Baha Mar’s opening would create an additional $125 million annual wage bill via its contribution to direct employment.

“I’m hoping and praying it has a substantial and positive effect on the economy and employment numbers,” Mr D’Aguilar said of Baha Mar.

“I think the whole country has to get behind it to make sure we pull this off successfully. It’s an enormous challenge, and I think everyone has to gather around it, rally around it, because it’s an enormous economic event.”

The Government’s hopes, and indeed those of the wider Bahamian economy and society, are largely pinned on Baha Mar when it comes to stimulating an economic turnaround.

Yet there was no escaping the long shadow cast by fiscal reform. “The big elephant in the room is the introduction of VAT,” Mr D’Aguilar said.

“The business community is concerned VAT is going to have a detrimental effect on the economy. That’s put a dampening effect on many businesses. The benefits the Government thinks it’s going to receive will be far outweighed by the disruption, and it’s not going to work.

“It’s got the business community in a funk, and I think many people in the business community feel there are many ways to raise the revenue the Government is seeking that will not have the detrimental effect VAT is going to have.”

While the Christie administration was attempting to convince the country that VAT was the correct route to take, Mr D’Aguilar told Tribune Business: “They’re not winning that battle.

“They’re losing the PR battle, and a lot of people in the business community are losing confidence. The Government has won the battle that they need to do something, but not that this is VAT.

“I think they’re going to lose the PR campaign on VAT, or are losing it, which is a pity. They’ve made the people understand they need more revenue.”

And he added: “That’s how I see 2014. It’s a mixed bag, and if we get to the end of next year and unemployment is still at 16 per cent, the year will have been a failure.”