The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas must prevent its fiscal reform “dirty laundry” from being aired to the outside world, a Tax Coalition co-chair pointing out that the Government was really targeting an $800 million adjustment.

Gowon Bowe, the PricewaterhouseCoopers (PwC) accountant and partner, told Tribune Business the Bahamas risked suffering another credit rating downgrade if it gave the Wall Street agencies the impression necessary fiscal reforms were “not set in stone”.

Emphasising that the Bahamas needed to balance this with continued internal discussions on the direction fiscal reform should take, the Coalition for Responsible Taxation’s co-chair said the likes of Moody’s and Standard & Poor’s did not have to live with the pain this would likely cause.

And he told Tribune Business in a recent interview that few persons appeared to have “grasped the magnitude” of the fiscal adjustment the Government is seeking.

Mr Bowe pointed out that with the Bahamas set to give up around $300 million in existing import tariff revenues as the price for obtaining full World Trade Organisation (WTO) membership, when this was added to the goal of generating $500 million in extra revenues by 2016-2017, the total increase sought by the Government was actually $800 million.

The PwC partner argued that such an increase could not be achieved by extra revenues alone, as this would “completely destroy the economy”.

As a result, fiscal reform had to involve a combination of three elements - increased revenues, spending cuts and economic growth.

Warning that outside perceptions will count for a lot when it comes to Bahamian fiscal reform, Mr Bowe said: “It’s very clear that S&P, the IMF and others are looking for certainty in the Bahamas, so the Government has to balance that - the concerns of the public, the concerns of the business community - with the external forces and their perception of what needs to be done.

“It means that there needs to be very clear statements and positions on how we move forward. We have to be careful about giving the indications things are not set in stone.”

Mr Bowe said it was vital that domestic conversations on the ‘what’ and ‘how’ of fiscal reform continue, but without ‘spooking’ the credit agencies and foreign investors into thinking necessary change might never happen.

“The most daunting element is that we have outside forces,” the PwC partner told Tribune Business. “They don’t live here and don’t feel our pain, but they can cause a lot of mischief and problems for us if they feel we’re not doing the right thing.”

And he added that while discussions on whether Value-Added Tax (VAT) was the best option, and the alternatives, needed to progress, the Bahamas could not afford to delay fiscal reform.

“We cannot have paralysis by analysis. If there’s one thing that’s clear, we cannot have that,” Mr Bowe told Tribune Business.

“And what we do and say is not only read internally. We have to be mindful we don’t air our dirty laundry outside. We must keep our business in-house, and make sure the message to the outside world is one of a unified stance.”

Pointing out that the Bahamas was projected to incur another $443 million deficit for the 2013-2014 fiscal year, Mr Bowe added that not only did the Government have to ‘fill’ this red ink, but it also had to replace $300-$320 million worth of Customs duties due to WTO.

“I’m not sure everyone has grasped the magnitude of what needs to happen,” he told Tribune Business.

“That has not been well articulated in the sense we have made certain commitments to reduce duties, and have to fill that hole as well. There’s a significant hole to fill, and the average person needs to know that.”

Mr Bowe said it would be impossible for the Government to effect an $800 million turnaround through revenue growth alone, which was why it also needed to focus on public spending.

“That is going to be critical in the whole equation,” he added. “You can’t raise $800 million. Revenue alone will not do it, as the amount of revenue that will have to be raised has to be transformational.

“That, we know, would completely destroy economic activity if we raise that amount. It has to be a balance with cutting expenditure and increasing GDP. If you have more money flowing in the economy, you will have more revenue.”

Mr Bowe reiterated that it was vital for the Bahamas to get its economy moving, as it had yet to “get back to where we were pre-recession” in 2007.

“We have to grow beyond where we were five years ago, not just get back to that,” the PwC partner added.