The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading businessman yesterday said the 2013-2014 Budget’s $100 million worth of tax increases would not be required if the Bahamas had the “appetite” to tackle the “deeply ingrained” culture of government dependency.

Describing the country as being in “a Catch-22 situation”, Franklyn Wilson told Tribune Business that the Bahamas had reached a point where few businesses wanted to expand without receiving some kind of ‘incentive’, and its citizens continued to demand ever more social programmes.

The Arawak Homes and Sunshine Holdings chairman said the 2012 election manifestos reflected this reality, as none of the major political parties had listed ‘reducing the size of government’ as an issue for fear of losing votes.

This, Mr Wilson said, had forced the Government to both focus solely on the revenue side of its Budget in a bid to close a $500 million-plus deficit, and return to its traditional tax targets (banks, the oil and auto companies) to increase income.

He reiterated previous statements to Tribune Business, namely that a 6 per cent cut to the Government’s planned $1.7 billion in 2013-2014 recurrent expenditure could generate an equivalent impact to the proposed tax increases, but there was “no appetite” - among policymakers or the electorate - to do so.

“The fact of the matter is the tax base of the country has been allowed to shrink over the last 15 years, for a period of time,” Mr Wilson told Tribune Business.

“I’m not assigning blame to any particular government or party, but the tax base has contracted, been reduced. This has reached the stage where any businessman, in return for him to do anything, begins with him going to the Government for an incentive.

“That’s been going on for a sufficiently long time that the tax paying base - the person saying: ‘I’ll do x, y, z on its merits’ without providing an incentive to the group of people doing that, is shrinking.

“Because of that, whenever the Government wants to increase revenues, the oil companies, the car companies, the banks..... there are only a few places they can go. They don’t have any option.”

The International Monetary Fund (IMF) recently suggested the Government was giving up $285 million per fiscal year in ‘tax breaks’ and other investment incentives, a sum equivalent to more than half the 2012-2013 projected fiscal deficit.

The Government has pledged to review its investment incentive framework in a bid to eliminate those breaks that are not generating any returns for the country.

Meanwhile, Mr Wilson described as “the real struggle” the Government’s attempts to commit to fiscal discipline despite declining revenues and shrinking tax bases on the one hand, and no spending cuts on the other.

“No one has found a way to shrink the Government,” he told Tribune Business. “If you look at the last election, no one was putting the case to shrink the Government. That was not an election issue.”

Noting that some commentators had even called for government spending to be increased, despite the precarious deficit situation and a national debt approaching $5.5 billion, Mr Wilson cited the May 2013 flooding as a case in point.

“If you look at the comments from the flooding, the recurring theme of the day was that the Government was not doing enough to help people and not doing it fast enough,” Mr Wilson said.

“Where’s the money coming from? In our country, the concept of the Government spending more and more money is so deeply ingrained that no political stakeholder wants to talk about reducing expenditure.

“It’s always about another programme we will introduce, another Ministry or Department we will introduce, another social initiative, more schools. It’s all about spending more money.”

Disclosing to Tribune Business that he understood the Government’s 44 revenue measures were intended to generate a net $100 million in increased taxes, Mr Wilson said the same impact could be achieved by slashing recurrent spending by 6 per cent.

“But I hear no one talking about if we could squeeze out around 6 per cent, there’d be no need for new taxes,” he added.

“There’s no appetite for that in or out of Parliament. Those are the realities.”