The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is “going backwards” because the $1 billion-plus Value-Added Tax (VAT) revenues are being used incorrectly in expanding the size of government, the Democratic National Alliance’s (DNA) leader charged yesterday.

Branville McCartney told Tribune Business that the country’s present fiscal direction was the “complete opposite” of what was required, with the Bahamian people directly “paying” for the Christie administration’s increased spending.

Criticising efforts by Michael Halkitis, minister of state for finance, to defend his ‘That where the VAT money gone’ speech at the PLP convention, Mr McCartney accused the Government of “misrepresenting” how it had used revenues generated by the 7.5 per cent levy.

Mr Halkitis suggested last week that the tax had financed numerous capital expenditure projects, such as the $232 million and $100 million fleet upgrades for the Royal Bahamas Defence Force and Bahamasair, respectively, and investments in healthcare and education.

However, Mr McCartney said that a true translation of Mr Halkitis’s speech was that VAT had financed “increasing the size of government, increasing our debt and increasing our spending” - something that was effectively admitted by the Minister himself yesterday.

Speaking on the radio program, ‘The Revolution’, Mr Halkitis said in specific reference to the Bahamasair loan from CIBC and Credit Suisse: “I think I was very clear: Loans are being serviced from the VAT money. The loan has to be repaid and it will be repaid through VAT money.”

Tribune Business said as much last week in interpreting the Minister’s convention remarks, but Mr McCartney yesterday argued that both Mr Halkitis and his colleagues had yet to address other spending increases.

He pointed specifically to the net 4,500 person increase in the size of the public service since the Christie administration took office in May 2012, a development that was previously revealed by this newspaper.

“We need to rein in spending,” Mr McCartney told Tribune Business yesterday. “They have increased the size of government by 4,500 persons when, in fact, we ought to be reducing the size of government, and instead increasing the number of small and medium-sized enterprises (SMEs) and new industries.

“This government is going in reverse. It’s going backwards by increasing government. They are now saying they have generated more employment, when we have lots of persons in the public sector sitting there all day, watching the clock at the Bahamian people’s expense.

“We should be taking those persons, empowering them, facilitating them to get into new businesses and jobs and becoming productive assets, instead of being part of a bloated government and forcing the Bahamian people to pay for it. That cannot be the answer.”

Mr McCartney argued that developed countries were all moving to streamline and reduce the size of government, “but our mindset is that of a third world country and we continue to go in reverse”.

Suggesting that the Government was “doing the complete opposite” of what was required for the Bahamas to escape its ‘low growth/high deficit and debt’ trap, the DNA leader charged: “They ought to be reducing the size of government, getting it out of business in this country and facilitating and empowering new businesses, not increasing it where, at the end of the day, the Bahamian people end up having to pay for it.”

Expanding the size of government, and the increased spending, borrowing and debt associated with this, was “exactly what VAT was doing over the last two years”.

The Christie administration has reduced the annual fiscal deficit from the $500 million-plus level hit at the start of its tenure to around $300 million for 2015-2016.

And, while the national debt’s growth rate has slowed in the two years since VAT was introduced, the Government continues to incur annual ‘red ink’ that frequently exceeds its Budget projections by several hundred millions of dollars.

Mr McCartney argued that Mr Halkitis yesterday “couldn’t really give a direct answer as to where our VAT money is going”, the Minister repeating the line that it goes into the Consolidated Fund, where it is pooled with other taxes and used to defray the Government’s expenses - including debt interest and principal payments, as well as narrowing the deficit.

The DNA leader, though, repeated the mantra invoked by many Bahamians, which is that VAT was billed as necessary to eliminate the fiscal deficit and pay down the $6.778 billion national debt - not finance increased spending.

“What we now find is that although we’ve collected $1 billion through VAT, the money has gone to finance increased debt and borrowing,” Mr McCartney told Tribune Business.

“It has not gone to what it was designed for; it’s the reverse of what it was designed for. The PLP government has again misrepresented to the Bahamian people what they were going to do with our money. It has gone in the opposite direction, and the Bahamian people are paying for more debt.

“It’s the poor people who are ultimately paying for it, and they are the ones who are suffering, paying for increased spending and increased debt. We should have reduced debt, decreasing borrowing, and the size of government should be decreasing, not increasing.”

Mr McCartney accused Mr Halkitis of seeking to hide behind the constitution, and not being accountable and transparent for how the Government had used its VAT revenues.

He said the Minister had invoked section 128 of the constitution while on the radio yesterday, and added that the Government was seeking to “bamboozle” Bahamians on how their taxes were being used.