The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Attacks on the 60 percent VAT rate hike are misdirected, a prominent attorney is arguing, with Bahamians focusing on the symptom - and not the cause - of their onerous taxation increase.

Terence Gape, senior partner at Dupuch & Turnquest, told Tribune Business that Bahamians should instead be directing their anger at 45 years of deficit spending by the Pindling, Ingraham and Christie administrations that has landed the country with a near-$8bn national debt.

Emphasising that he has concerns about VAT’s regressive nature, Mr Gape said every Bahamian and resident bore some responsibility for the country’s fiscal woes because of the collective failure to hold past PLP and FNM governments accountable for excessive borrowing and spending.

“I am impressed by the energy and umbrage of the Bahamian people in attacking this increase in VAT, where attacks are directed at the politicians that have imposed it. But the VAT is not the villain here,” he explained.

“The villain here is the over-spending by successive governments, and the over-borrowing by successive governments, especially over these past 20 years. The politicians that we should be railing against are those politicians, and the fault here is ultimately our own - the Bahamian people - for allowing these Budget deficiencies and this crazy borrowing and spending that got us here.”

Mr Gape described attacks on the Minnis administration for raising the VAT rate to 12 per cent as “akin to hating the bank manager because the bank wants its money”, explaining that taxpayers were now being asked to ‘pay the piper’ for past fiscal profligacy.

“They’re raising hell over a tax,” he added. “The point is that we’ve spent the money. We’ve wasted the money. The education minister [Jeffrey Lloyd] had it right: We have maxed out the credit card.

“This [the VAT rate increase] has engendered all this activity and vitriol when really they should be angry about the debt. I hope they’re going to use the same energy to ensure the Government takes the steps necessary to cut back on costs otherwise VAT will be going up again.

“I don’t have any problem with arguments against VAT, but that shouldn’t be the whole conversation. We have to take responsibility for our own faults. The debt is not the Government’s debt; the debt is our debt.”

The Minnis administration is arguing that unless the Bahamas takes its fiscal medicine now, in the form of VAT and other tax increases, to pay-off $360 million in unfunded arrears and impose statutory checks on irresponsible government spending, future generations will be saddled with an unsustainable debt burden that threatens to sink the entire economy.

The Central Bank’s latest quarterly report for the three months to end-March 2018 reveals that the national debt was less than $100 million below the $8 billion mark. It stood at just over $7.9 billion, having risen by $857 million or 12.2 per cent over the prior 12 months - a period that included the general election and new government’s $722 million in borrowing.

Mr Gape, though, faulted the Government for failing to properly educate the Bahamian public on why it was demanding extra sacrifice from them through increased taxes. He said too few were unable to understand, or relate to, how this could ultimately affect their own finances and well-being.

“The Bahamian people understand when you say ‘the credit card is maxed out’, or saying: ‘The minutes have run out on my phone. I have no more minutes’. People understand that,” he argued.

“You have to talk about this in terms the regular man and woman can understand. The one thing that’s been missing is the education of the public about the debt.” Mr Gape added that a similar education exercise should also be conducted ahead of lay-offs from the public service, which he said was also essential to eliminating the Bahamas’ fiscal imbalances.

“I don’t hear anything being said about that,” he said. “I’m told the government service is 30 per cent over-manned. Who’s going to fix that problem? We’d better start.”

Returning to the VAT increase, Mr Gape said: “I have also noted that the majority of pundits explain why the VAT increase wouldn’t work, and why it is a bad idea, but do not mention the 500 pound gorilla in the room: the national debt, the recurring Budget deficits and what we’re going to do about that. The VAT increase, therefore, is only a small part of the problem.

“I am not here to justify VAT, which I consider an onerous, unfair and prejudicial tax upon the populace, especially the poor, but, that’s another subject..... I do hope that half the energy presently being expended by the Bahamian populace is expended in the future in making sure the Government makes the cost saving adjustments - this is where the real problem is - that are necessary to make sure this VAT increase is the last.”

Mr Gape expressed particular concern about the impact the VAT rate hike will have on his home city of Freeport, and wider Grand Bahama, given the island’s ongoing economic struggles and higher unemployment rate than in other parts of the Bahamas.’

However, Carey Leonard, a fellow Freeport attorney, said the 4.5 percentage point increase was likely to have minimal impact given that the city’s economy was already at rock bottom.

“I don’t think there’s much more you can do to Freeport anyway,” he told Tribune Business. “Freeport’s as down as it’s going to get. I don’t think the extra 4.5 percentage points of VAT is going to make that much of an impact. I don’t think it’s going to have any worse impact on Freeport than that 7.5 per cent.

“A number of people I’ve spoken to seem to have accepted the fact there’s nothing more the Government can do.... Quite frankly, most people have accepted the Budget for what it is. It’s not easy to go out and borrow money when you’re at ‘junk bond’ status.

“It’s the lesser of two evils. We’ve got to the point where we can’t borrow any more. Many recognise that, even though we don’t like it. Talking to a number of business people, they said we don’t really like it but that’s the best way to go. I don’t think there’s any other alternative.”