The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The prime minister's former FNM leadership nemesis yesterday accused him of delivering "a slap in the face" to the poor Bahamians he purports "to stand for" via the 12 percent VAT hike.

Loretta Butler-Turner, pictured, who led the ill-fated "coup" that removed Dr Hubert Minnis as opposition leader prior to the 2017 general election, told Tribune Business she had "no doubt" that the budget will fall "immensely" short of its projected revenue increases.

Arguing that there was "not much light at the end of the tunnel" for the Bahamian economy, Mrs Butler-Turner echoed the warnings of many observers that the magnitude of the VAT increase will drive many consumers to the "grey market" or "underground economy" where the tax is not levied.

Turning to the budget's political aspects, Mrs Butler-Turner said the manner in which the budget's tax increases were handled highlighted just why she had led the rebellion against Dr Minnis's leadership.

She blasted the government for failing to properly communicate the reasons for the 60 percent VAT rate hike and other revenue-raising measures to the Bahamian people, so that they can better understand why they are being called upon to make sacrifices in the form of less disposable income and living standards.

And the former Cabinet Minister and MP argued that it had failed to live up to pre-election promises, especially on transparency and accountability, by its failure to consult the private sector and Bahamian society on the tax reforms' impact - something even the former Christie administration had done prior to VAT's original implementation in 2015.

But Mrs Butler-Turner reserved her greatest scorn for Dr Minnis's pre-election pledges to support poor Bahamians, saying the 12 per cent VAT rate will do exactly the opposite given that it is a regressive consumption-based tax that will see lower income Bahamians pay a greater share of their income in taxes.

"How do you come to power on the promise of 'The People's Time', talking about your hardship as a child in Over-the-Hill, an impoverished area, and telling the people from there that you're for them?" she queried yesterday.

"The first Budget, you said it wasn't yours because it is so close to an election, and we will see the footprint of what you want to achieve in the second. We're seeing a slap in the face to the very poor people you claimed to be standing up for. What has happened between 2016 and 2018, when you felt these poor people needed help?"

The Government will likely retort that it is doing much to deliver on its pre-election pledges to help lower income Bahamians, given that $5 million has been allocated in the 2018-2019 fiscal year for Over-the-Hill's revitalisation and creation of Economic Empowerment Zones.

It will also argue that it has done much to minimise the 12 per cent VAT's likely impact on such persons through the 'zero rating' treatment for breadbasket foods and medicines, and the tax exemptions for electricity and water bills that are below $200 and $100 per month, respectively. These measures, some fully and others partially, also deliver on campaign promises.

Still, Mrs Butler-Turner said yesterday: "My position has always been that the leadership of Minnis would make for this type of government. I've been very clear in the past with the flip flopping of the leader, now the Prime Minister, and there's very little surprise to me in anything he does.

"From my perspective I've seen first hand how he operates; he's ill-prepared and he lacks conviction in his positions. There's no follow through as leader. He's not a man of conviction. He's sitting over a Cabinet of people that obviously see they can do as they see fit."

The Government's decision to raise VAT has been contrasted with the positions and statements taken by Dr Minnis and his deputy, K P Turnquest, when they voted against VAT's implementation in 2015 while in Opposition on the grounds that it would cause too much hardship for low income Bahamians.

Mrs Butler-Turner said many Bahamians had been "waiting with bated breath" for Dr Minnis's closing Budget debate address on Monday, hoping there would be "some reprieve" from a 12 per cent VAT and that the Government may settle for 10 per cent to reduce the burden on Bahamians.

She added that the Prime Minister disappointed on all counts, even failing to properly justify the increased VAT and why it was necessary, and relate this to the Bahamian people.

"What I find reprehensible is that when they say they're going to be a government of transparency and accountability, you have to communicate more effectively with the people," Mrs Butler-Turner told Tribune Business.

"Tell us exactly what you found, what money was missing. Tell us why it's important to escalate VAT to this point of 12 per cent when you won't let us know what happened to the monies you borrowed and the VAT collected since you came to office.

"The Government has been very poor in communicating what they're trying to achieve, and been very poor on consultation and determining how best to achieve a larger revenue stream."

Mrs Butler-Turner suggested this was why there is so little "buy-in" to the Government's fiscal consolidation plan, and contrasted the Government's seeming lack of consultation over the tax hike with the Christie administration's extensive dealings with the private sector - including hiring of foreign consultants - prior to the 2015 implementation.

"What did you do?" she asked of the Minnis administration. "What conversations did you have before you presented this in Parliament. Your whole election philosophy, in my opinion, is farcical at best. You've been disingenuous, and you've really misled the Bahamian people.

"Now the shoes are on your feet, you're not having these conversations with them. In Opposition we were having conversations up and down with business people, asking what they felt, even though it would not amount to a hill of beans what we said.

"Now, in power, why not have these conversations? You were elected to be for the people, elected to be transparent and accountable. The bottom line goes to what the seven of us [former MPs] said about this man [Dr Minnis]; he does not consult, he flip flops and lacks conviction. I did not want to give this interview, but at the end of the day the Bahamian people were warned."

The Government will respond by saying that positions change according to circumstances and facts, and that the growing fiscal crisis it inherited required drastic action to arrest the decline before it spiralled out of control and forced the Bahamas to seek even more painful remedies from the likes of the International Monetary Fund (IMF).

It has consistently argued that a 12 per cent VAT was the only option left open to it given the $400 million funding 'gap', and the need to rapidly pay off $360 million in arrears to meet a combination of Fiscal Responsibility Bill targets; tax system restructuring prior to joining the World Trade Organisation (WTO); and paving the way for further painful adjustments that include civil service pension reform and rescuing the National Insurance Board (NIB).

Mr Turnquest, as Deputy Prime Minister and minister of finance, has also pointed out that protocol demands Budget measures be kept confidential until their unveiling to prevent persons exploiting this information for 'arbitrage' and to avoid the impact of increased taxation.

This, though, did not placate Mrs Butler-Turner, who argued that the VAT increase will impose "a huge lifestyle change on Bahamians" and that the country "finds itself in a really sad state".

She questioned how Bahamians will be able to afford overseas shopping trips with the Budget's tax hikes, and take advantage of the increased duty exemption. "How are you going to go away and shop if you don't have a job," the former MP asked Tribune Business.

"The first thing that happens is if people have to spend more on essentials they start to cut back on non-essentials. It has a negative effect. It's not going to expand the economy. Whenever the economy starts to shrink, the natural domino effect is jobs begin to shrink as well. If companies are unable to maintain a healthy bottom line, they start to lay people off."

Mrs Butler-Turner also questioned the Government's shift from a low-rate, broad-based VAT model to one with multiple exemptions, given the increased compliance and administrative costs this will likely impose on the 6,000-plus private sector registrants who collect the tax on its behalf.

"I don't know who advised this lot on the cost of VAT, but they're totally out-of-whack," she added. "It's not as simple as going from 7.5 per cent to 12 per cent."

Given the Government's history of missing revenue projections, Mrs Butler-Turner also expressed scepticism that the Minnis administration will hit its $1.062 billion gross VAT revenue target for 2018-2019 - an increase equivalent to the magnitude of the 60 per cent rate hike.

"I have no doubt this Budget will fall short immensely, and create an underground grey market," she told Tribune Business. "People are using social media rather than the food stores; everything you could buy in supermarket from food to cleaning products.

"Are they paying VAT? No sir. Before the increase in VAT you are seeing an expansion of the grey market. I don't know if the Government can put a handle on that. People are trying to stretch their limited resources. People are hurting, and they haven't just started hurting."

Mrs Butler-Turner said the Minnis administration could take little credit for the growth in tourism, arguing this was driven by Baha Mar's opening and external forces such as the US economy and hurricane damage elsewhere in the Caribbean."

"I'm not very hopeful," she added. "I'm praying it gets better. I pray for the best, but am not very hopeful. I'm not seeing much light at the end of the tunnel."