The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An outspoken businessman yesterday urged the Government to “demonstrate real fiscal discipline” in today’s Budget by showing the impact Value-Added Tax (VAT) revenues are having in reducing the fiscal deficit.

Dionisio D’Aguilar told Tribune Business it was vital that the Christie administration provide evidence showing that VAT’s first four months had slowed the Government deficit’s growth rate.

Doing so, he explained, would ease fears that the Government would simply “blow away” its revenue windfall via increased spending, especially given that it had yet to implement ‘checks and balances’ such as a Fiscal Responsibilities Act.

Estimating that VAT would have generated between $100-$120 million from the first four months of returns, Mr D’Aguilar said he was looking for a corresponding drop in government borrowing moving forward.

The Superwash president added that he also wanted to see whether there had been an increase in the Government’s other revenue streams during the 2014-2015 fiscal year’s second half, given that VAT was supposed to have stimulated greater compliance across the board.

And he warned that the private sector had not forgotten previous pledges to reduce import tariffs and Business Licence fees once VAT was bedded in and performing to target, adding that the global oil price drop had prevented the Bahamian economy from “tanking”.

Outlining what he wanted to see when the Prime Minister unveils today’s Budget, Mr D’Aguilar told Tribune Business: “There must be some real fiscal discipline in the Budget. That’s the only thing I’m looking for.

“The one thing I’m really looking at is VAT and how it’s going to affect the deficit and the debt. I would like to see what they’ve raised from VAT, and I’d like to see that the growth of the deficit has slowed, and that the projections are showing a slowdown in the growth of the debt.”

The Bahamas’ $6.2 billion national debt is rapidly approaching unsustainable levels, having been driven above a 73 per cent debt-to-GDP ratio by fiscal deficits that have averaged between $400-$500 million over the past five-six years.

The Christie administration had hoped to contain the fiscal deficit for the 2014-2015 Budget to around $289 million, largely due to VAT’s January introduction, yet it had already passed the full-year target by that month - just seven months into the period.

“The most important thing is that everyone is worried the Government is going to take in this additional VAT monies and just blow it away on additional spending,” Mr D’Aguilar told Tribune Business.

“There is a real fear the Government will fail to exercise fiscal discipline, as they have not put in the other parts that go with VAT. They talked about raising revenue, but have not put in the steps to prevent unchecked spending.

“If the debt continues to grow at a phenomenal rate, then we’re leaving them in charge with uncontrolled spending, which is what we all fear,” he added.

“It’s not a wise thing to do. There needs to be real limits on what they can spend as it relates to GDP. They’ve made no effort to do that, on the premise of ‘Don’t worry, we have our way of doing things. It will all be good’.

“We all know that’s a bunch of baloney. Let him [the Prime Minister] prove us wrong.”

Mr D’Aguilar called on Mr Christie to lay out all the facts and figures in today’s presentation, so Bahamians could see VAT’s impact, the revenues being generated, and if this was controlling the deficit’s growth.

“Let’s see if that’s having a real effect on balancing the books,” he told Tribune Business. “If the deficit continues to grow or be maintained at the rate of the past, the feeling will not be good.

“Unfortunately, the Government is always horrendously deficit spending, so all of that [VAT] money should go to deficit and debt reduction, and we’ll see how much that is.”

Acknowledging that it was “too early” for the Government to further adjust import tariff rates to compensate for VAT’s introduction, Mr D’Aguilar added that he would give the Government “a pass” on this issue for the moment.

Yet he warned that the private sector had “not forgotten” about this or previously-promised Business Licence fee reductions, and said it would “circle back to it”.

“I’m expecting to see revenues increased even more than VAT,” Mr D’Aguilar told Tribune Business, “primarily because VAT has driven compliance.

“To get your VAT registration and number, you had to be up to date on your Business Licence. To get your Business Licence you had to be up to date on NIB and your corporate registration fees.

“One of VAT’s selling points was that it was going to drive up compliance. I’m expecting to see an increase in other taxes for four months due to compliance.”

The businessman added: “That will be offset by an economy that is not experiencing any growth.

“You’ve got an economy that is not moving substantially, but there are certain sectors that seem to be bogged down in prolonged government approval processes. The oil prices break has really stopped the economy from tanking.”

Mr D’Aguilar said he was also looking for any job creation strategies the Government would unveil to tackle the stubbornly high 15.7 per cent unemployment rate.