The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian private sector yesterday pledged to produce a tax reform impact analysis that “cannot be dismissed”, suggesting public “clamour” over the proposed Value-Added Tax (VAT) required the Government to carefully assess all such studies.

Gowon Bowe, the Coalition for Responsible Taxation’s co-chair, said the private sector was confident that the dynamic economic modelling being undertaken by consultant economists, Oxford Economics, would “heavily influence” the Government’s approach to tax and wider fiscal reforms.

Mr Bowe said Oxford Economics’ study would “pick the headline” tax reform options, such as VAT at its initially proposed 15 per cent; VAT at lower rates; and the Coalition’s favoured payroll tax.

Explaining that the analysis might also focus on government spending, and measures that could reduce that “better in line to ease pressures on revenue initiatives”, Mr Bowe said the Coalition was optimistic that the Oxford study - due for completion in the first week of May - could still impact government thinking despite there being just three-and-a-half months to its July 1 implementation deadline for VAT.

“We’re not pessimistic. We’re realistic as well,” Mr Bowe said at a press conference to introduce Oxford Economics’ lead economist, Henry Worthington.

“We believe there’s enough clamour by the average citizen that it behooves them to take very careful consideration of all studies being done.

“We’ve not given any pie ion the sky timelines. We’re going to make sure it’s an analytical study all persons can stand behind at the end.”

Mr Bowe added: “This is not a back of the envelope study, it’s not a report that can be dismissed.......... We believe that what’s being done now will heavily influence the Government, as it will have real and empirical analysis.

“We realise there are time constraints, so we’re not trying to be all things to all men in this study.”

Both Mr Bowe and Mr Worthington emphasised that economic models “only give part of the story”, and had “limitations” when it came to predicting what might actually happen.

All such models and studies make assumptions based on the ‘best available evidence’, but Mr Bowe said the Coalition’s study was the first “forward looking” model that would attempt to predict the impact of VAT and tax reform alternatives on future Bahamian economic growth, employment and competitiveness.

Referring to the Inter-American Development Bank (IDB) study on VAT’s impact, which was conducted for the Government, Mr Bowe reiterated that it was an historic analysis that looked at what would have happened had the tax been implemented between 2001-2012.

Emphasising that there were areas the IDB study had not examined, Mr Bowe said: “Their model was looking at what has already transpired. We’re forward looking.”

The Coalition co-chair said there were major differences between the Bahamian economy in 2001, and the economy in 2014, not least the fact that both the national debt and associated debt servicing costs were “significantly higher”.

While backing the IDB report as “a credible study”, Mr Bowe added that certain assumptions that underpinned its economic modelling - particularly that suggesting 100 per cent of the extra revenues raised would be applied to debt reduction - were open to challenge.

“The fiscal position is vastly different,” he said. “It looked backwards in terms of what transpired, and had assumptions that we’re not sure will hold - 100 per cent of extra revenues will go to debt,” Mr Bowe said.

“There are so many financial commitments the Government has now - they’ve talked about agriculture, the police, the Defence Force, and National Health Insurance is still being bandied about.”

While the IDB study had focused on the impact VAST would have on lower income Bahamians, producing the recommendation that a $30 million social security budget expansion was necessary to mitigate the worst effects, Mr Bowe said this raised further questions.

“How do you ensure that goes to the right places, has the right impact?” he questioned. “A model is not going to give you an absolute answer.”

Mr Bowe said he believed the Government’s US-hired economists were also doing ‘forward looking’ studies on the impact of VAT and wider fiscal reforms.

He added that the Coalition was also looking forward to eventually meeting the New Zealand consultants that Prime Minister Perry Christie said last year would be coming to the Bahamas to assist with the tax and fiscal reform programmes.

Apart from VAT, New Zealand implemented a combination of revenue and spending measures to cure its fiscal woes, while also focusing on the third part of the equation - economic growth.

Praising New Zealand’s “quite creative, out of the box thinking”, Mr Bowe added: “We’re very interested to meet with them. They had a complete package.”