The Tribune

The Democratic National Alliance’s (DNA) leader has pledged to introduce a ‘fiscal rule’ that would limit public spending increases to a maximum 15 per cent year-over-year, thereby preventing governments “running amok” with the taxpayer’s monies.

Branville McCartney told Tribune Business that such a restriction would “certainly be put in place” by a DNA government, given the ongoing questions surrounding how the Christie administration is applying its Value-Added Tax (VAT) revenues.

These concerns were sparked again after Michael Halkitis, minister of state for finance, said last week that the Government had collected $852 million in VAT receipts during the tax’s first 18 months in existence.

While the gross figure will come as little surprise, Mr McCartney blasted that it reinforced the need for “more accountability and transparency” over how the public finances are managed.

Agreeing that the Bahamas should have implemented a Fiscal Responsibility Act before VAT was introduced on New Year’s Day 2015, the DNA leader reiterated his calls for the Christie administration to also bring forward the long-awaited Freedom of Information Act.

“I’ve spoken about putting in restrictions, putting in provisions that cause the Government not to budget more than 15 per cent of what they spent in the previous fiscal year,” Mr McCartney told Tribune Business.

“Under a Fiscal Responsibility Act, this is what we will do. We have to have guidelines and restrictions. The Government cannot run amok with the people’s money. This is something we need to have in place. That is something we will certainly put in place when we become the Government within the next six months.”

Many observers will likely question the DNA’s chances of becoming the next government, and the ‘15 per cent year-over-year’ spending restriction does not represent the greatest check. Based on the 2016-2017 fiscal year’s $1.7 billion in recurrent spending, such a ‘restriction’ would still allow an administration to increase expenditure by $258 million.

Still, Mr McCartney’s comments again highlight the Christie administration’s failure to deliver on its public promise of Fiscal Responsibility Act consultation.

The Prime Minister, in his February 2015 mid-year Budget debate, committed the Government to producing a ‘white paper’ that would launch public consultation on whether the Bahamas should introduce its own version of a Fiscal Responsibility Act.

This ‘white paper’ was supposed to have been issued in summer 2015, with Mr Christie setting out a timetable that involved recommendations going to Cabinet on whether such legislation was appropriate by year-end 2015.

None of these steps has occurred, and no ‘white paper’ has been issued, despite a Fiscal Responsibility Act having been “number one on the list” of priorities when the private sector’s Coalition for Taxation Reform agreed in late 2014 to a broad-based, low rate 7.5 per cent VAT.

Several private sector executives have subsequently told Tribune Business that the Coalition’s mistake was to agree to VAT without pinning the Government down on a Fiscal Responsibility Act, and that it should have conditioned acceptance of the new tax on such legislation being implemented.

A Fiscal Responsibility Act would force the Government to be more accountable and transparent in the management of the public finances, and require it to return to Parliament for approval to raise more money if it had to exceed the limits approved in the annual Budget.

Several observers have suggested that this Act should set fiscal targets and so-called ‘rules’, such as a maximum debt-to-GDP ratio the Government cannot exceed, but others have warned that this would lock or ‘box in’ the administration such that it would not be able to effectively respond to emergencies, such as Hurricane Matthew.

Mr McCartney, meanwhile, questioned how the Bahamas’ national debt was still increasing despite the $852 million in extra VAT revenues - especially since the rationale for introducing the new tax was to eliminate the annual fiscal deficits, and start paying down the debt.

“It’s almost $1 billion that they’ve collected in VAT, yet government debt continues to rise,” the DNA leader told Tribune Business. “The question is: Where is our money going? Our government has been completely silent on it.

“When they first introduced VAT, they said the essence of the tax is to reduce our debt. That has not happened. This is a prime example of why we need more accountability and transparency.

“We should have had a Fiscal Responsibility Act in place a long time ago. Prior to the introduction of a VAT system, we should also have had a Freedom of Information Act that was operative.”

Pointing to the key VAT advice received by the Government and private sector from New Zealand-based consultants, Mr McCartney said that nation had enacted both these laws as a central element of wider government and fiscal reforms.

Mr Halkitis has argued in the past that the Government’s use of VAT revenues has been misunderstood, with the monies going into the Consolidated Fund to meet all manner of expenses, and cover shortfalls that were producing $300-$600 million annual deficits.

Yet while the deficits have reduced, they are still being incurred, and the $150 million in Matthew relief funding has already ‘blown’ the Government’s projected $100 million deficit for the 2016-2017 fiscal year.

The Government is projecting that the GFS fiscal deficit will be eliminated by the 2018-2019 fiscal year, but this appears optimistic given that its consolidation efforts are proceeding at a more modest pace than forecast.

And, notwithstanding VAT’s implementation, the national debt has continued to grow throughout this administration’s tenure - albeit at a slower pace in recent years.

At end-June 2016, Central Bank data pegged it at $6.695 billion or 74.9 per cent of GDP - a ratio in excess of the so-called 70 per cent debt-to-GDP ‘danger threshold’ established by the International Monetary Fund (IMF).

Mr McCartney, though, argued that the Bahamian people were being left to “speculate” on how the Government is using taxpayer monies “because of the lack of transparency”.

“I would have thought that leading up to VAT’s introduction this government would want to be accountable and show it’s working to reduce our debt,” the DNA leader told Tribune Business.

“Like everything else this government has done, they have not responded to the Bahamian people’s concerns. They feel it’s not our business, when it is; they feel they don’t need to answer to the Bahamian people. I’m very dismayed in their approach in this regard. It’s going to backfire in the next six months.”