The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Tax Coalition co-chair yesterday slammed as “absurd” a former finance minister’s suggestion that ‘fiscal rules’ or spending caps could not be implemented in the Bahamas because they would impede hurricane relief and other unanticipated emergencies.

Robert Myers said this concern, voiced by James Smith in yesterday’s Tribune Business, could not be used as a reason “not to move forward” with limits on government spending that were essential to hit fiscal reform targets.

And he emphasised that the spending cuts advocated by the Coalition for Responsible Taxation and others in the private sector were more ‘surgical’ than allowed for by Mr Smith, and would not undermine aggregate demand or “choke the economy to death”.

Mr Myers, though, struck a more conciliatory tone than his Coalition co-chair, Gowon Bowe (see other report on Page 1B), when it came to confirmation - first carried by this newspaper - that the Value-Added Tax (VAT) rate will likely rise “in the not too distant future”.

He told Tribune Business that the Coalition had agreed with Prime Minister Perry Christie that the VAT rate would have to rise to compensate for the border taxes lost as a result of World Trade Organisation (WTO) membership accession.

But Mr Myers then added that “the beauty” of implementing VAT now, some 12-18 months prior to WTO accession, would be to give the Government and private sector a better understanding of the new tax’s performance - and thus help them to structure the entire system for maximum effect.

“I disagree with James Smith’s opinion that we can’t have proper financial controls because of an issue like provisions for natural disasters,” Mr Myers told Tribune Business.

“To use natural disasters as a reason not to implement fiscal controls is absurd.”

He added, though, that the Coalition and Mr Smith were on the same page when it came to ensuring government spending cuts and restraints did not undermine the wider Bahamian economy.

“We’re saying the same thing. All these things have to be very balanced measures,” Mr Myers said. “We suggested minimal decreases in both recurrent and capital expenditure, so it doesn’t do that but there’s a decrease in spending overall. We don’t think that’s unsustainable or unreasonable.”

He reiterated, though, the Coalition’s belief that natural disaster response, and other unanticipated expenditures, were not valid reasons for declining to implement proper fiscal controls.

Mr Myers said the Government could always seek Parliamentary approval if it needed to raise extra financing, and added: “Don’t design fiscal reform on the exception. Let’s design for the norm, and deal with the exceptions.”

Despite the likely outcry from some in the private sector over indications that the 7.5 per cent VAT rate will increase in “the not too distant future”, the Coalition co-chair said it was always understood this might be needed to compensate for WTO-related Customs and Excise Tax cuts.

“The beauty of doing this now and in small measures is that we’ll have a far better understanding of VAT and compliance,” Mr Myers told Tribune Business.

“Because of that, we will have a year, or year-and-a-half, to understand the impact and what’s getting collected. Then they can start removing the inefficient taxes and replace them with efficient taxes.”

Armed with this information on VAT’s performance, Mr Myers said it was possible the Government may not have to raise the rate to 15 per cent as contemplated by the original model.

“If duty comes down 15 per cent, does VAT go to 15 per cent? No, I don’t think it does,” he added. “The beauty of doing this now, and doing the accession to WTO in a year or year-and-a-half’s time, is that we’ll have some real life numbers we will be able to examine.

“We can say that if 7.5 per cent raised this, for every percentage point it goes up, we can drop duty by two to three percentage points. It’s a good, systematic approach as opposed to jumping in at the deep end.”

Mr Myers said “some” in the private sector were critical of the revised VAT plan and the Government’s Budget “largely because they don’t have all the details”.

He again praised the co-operation between the Government and private sector, adding that both sides had further work to do on numerous issues.