The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Private sector executives yesterday warned that “the devil’s in the detail” when it came to fiscal reform, despite expressing satisfaction that the Government’s revised Value-Added Tax (VAT) proposal was more in line with their recommendations.

Dionisio D’Aguilar, Superwash’s president, told Tribune Business that while the 7.5 per cent rate was “a little bit higher” than the business community wanted, the Government had at least moved to adopt their preferred ‘New Zealand’ model.

Yet he expressed disappointment that the 2014-2015 Budget did not contain any firm commitments or guarantees to reduce/curtail public spending, warning that comprehensive fiscal reform could not be achieved by revenue-side measures alone.

Mr D’Aguilar likened the Government and its spending to a ‘drug addict’ who was always looking for money, adding that until spending controls were implemented politicians would always “look to bleed more and more money from the private sector”.

“The rate was a little bit higher than we anticipated,” Mr D’Aguilar told Tribune Business. “The private sector was pushing for anywhere from 5-6 per cent, and would have settled for 7 per cent, and 7.5 per cent was 0.5 percentage points higher than that

“They’ve moved closer to the private sector position; not all of the way, but most of the way.”

Still, the well-known businessman applauded the Government for “putting the brakes on” its VAT plan, and modifying it based on advice from consultants and the private sector.

He added that the Coalition for Responsible Taxation and others in the business community had achieved “a considerable amount of success” in persuading the Government that a “half-rate” VAT with no exemptions and “made much simpler” was the better option.

“But the devil’s in the detail, and the details still have to be released,” Mr D’Aguilar told Tribune Business. “These Budgets always sound good, but buried in these tables or appendixes is some provision or unknown quantum that is not initially revealed.”

He also expressed disappointment that the Budget disclosed nothing new in terms of spending reduction/curtailment measures, noting that it was easy for the Government to raise revenues but much harder to slash spending.

“The politicians are so scared to address expenditure. They’re like addicts; they can’t avoid the habit,” Mr D’Aguilar told Tribune Business.

“That [spending controls] is critical to solving the debt crisis. You can’t have one without the other. It would be good if they had tied it to debt-to-GDP, set a ceiling that they could not go over.

“Until they do that, they will look to bleed more and more money out of the private sector to address their ‘drug habit’. If they’re serious about debt management, they need to address that. We’ve been preaching that for months now: You can’t have one without the other.”

Gowon Bowe, the Coalition’s co-chair, told Tribune Business that its studies had shown that a 7.5 per cent VAT “has to come with some expenditure controls” to achieve the desired level of debt and deficit reduction.

Praising the Prime Minister for embracing a collaborative, conciliatory approach in his dealings with the Coalition, Mr Bowe said Mr Christie had indicated to them “he’d look at how low he could go with the rate while maintaining the revenue generation needed”.

“This isn’t the end of the road. It’s merely the first leg of the relays,” Mr Bowe told Tribune Business of yesterday’s Budget announcement.

He said the Prime Minister had sought the private sector’s “participation and partnership” in helping to get public spending under control, and added: “While sectors of society saw us as opposed to his objectives, the approach adopted by the Coalition, and the fact we’ve worked with them, shows there’s opportunities to influence government policy rather than to beat them over the head with a stick.

“It was very clear that if VAT was seen to be the tax of choice at this juncture, it could not have many exemptions as this would complicate the process.”

Mr Bowe said a simpler, non-exemption VAT would reduce private sector compliance and implementation costs, easing the whole process.

“There are still going to be people in the private sector looking to see greater compliance with existing taxes, but by and large people appreciate the position we’re in fiscally and the need to turn the debt trajectory around,” he added.

Mr Bowe said the “clear message” sent by the 2014-2015 Budget should also satisfy the international credit rating agencies, as it gave them the “big picture” of the Bahamas’ fiscal goals and how the country would get there.