By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Governance reformers yesterday called for increased web shop taxes in tomorrow's Budget, coupled with 5 per cent annual spending reductions through 2023, to avoid a fiscal crisis.
Robert Myers, the Organisation for Responsible Governance's (ORG) principal, warned that imposing new and/or increased taxes on the economy's productive sectors and consumers would lead to "a disaster" and throw all hopes of increased Bahamian GDP growth "out the window".
Yet he argued that web shop gaming was the one industry able to bear increased taxation due to its "exceptionally high margins", accusing that sector of having "gotten away with murder" when the Christie administration proceeded to ignore the results of a referendum/opinion poll and legalise it anyway.
Mr Myers said the proceeds from increased web shop taxation should be used exclusively to finance education reforms, arguing that the 'D-' grade average and poor public education system graduation rates were a key impediment to greater economic growth and productivity.
While urging the Minnis administration to focus on cutting its recurrent (fixed cost) spending, such as the $745 million civil service wage bill, the ORG principal said this did not require "rash" or "dire action" such as an immediate 30 per cent cut to the public sector workforce.
He directed the Government to strike a 'balance' between economic growth and fiscal consolidation, as achieving the former would enable the private sector to absorb workers let go by the public sector. But GDP expansion, Mr Myers reiterated, requires intensive focus on improvements to the Bahamas' costs and ease of doing business.
The ORG chief's comments came amid predictions of a 'doom and gloom' austerity Budget by the Government's political opponents, who are forecasting that that the Minnis administration will be forced into a Value-Added Tax (VAT) rate rise and numerous other tax increases to deliver on its election commitments and promises.
Philip Davis, the Progressive Liberal Party (PLP) leader, also forecast the introduction of new taxes to enable the Government to finance capital works projects deferred from 2017-2018, plus a reduction in spending and sell-off of assets to cover any deficits.
"For a Government without a real growth agenda, this is a bleak outcome and a recession-inducing Budget," he argued of the upcoming 2018-2019 fiscal statement.
"However, it is unavoidable, and although the Budget Communication would include the usual soaring oratory flourishes, behind those words would be a grim picture - and it would grow grimmer as we traverse the fiscal path outlined by this Government."
K P Turnquest, Deputy Prime Minister and minister of finance, declined to take the bait dangled by Mr Davis and the PLP. "The Budget will be presented on Wednesday and all answers will be given then," Mr Turnquest told Tribune Business yesterday, not saying anything further.
However, highly-placed sources suggested that Mr Davis may be on to something with some of his Budget forecasts. One, speaking on condition of anonymity, even suggested information may have been leaked from inside the Government to the Opposition.
"What's very concerning is the content of some of his comments," they said of the Opposition's attempt to 'steal the Budget's thunder'. "It raises the question of security. It's awfully, awfully suspicious."
Mr Turnquest, himself, in an address to the Institute of Internal Auditors last week, pledged that there will be "no runaway spending" in a 2018-2019 Budget that will make the "hard choices" to get a $300 million-plus annual deficit and near-$8 billion national debt under control.
Promising that the Budget will embrace the principles set out in the draft Fiscal Responsibility Bill currently undergoing public consultation, Mr Turnquest said: "In the national budget you will see us make hard choices to lower our debt levels.
"You will see us make responsible choices to arrive at a more sustainable fiscal balance. And you will see us embrace the idea of transparency and accountability in a way no other government has done before."
Such language will likely be interpreted by some as a bid to prepare the Bahamian public for a combination of new and/or increased taxes, and spending cuts, as the Government bids to both hit the Fiscal Responsibility Bill's targets and put the public finances back on a sustainable footing.
While the Minnis administration will likely seek to deliver on its Over-the-Hill 'tax free zones'; removal of VAT from 'breadbasket' food items, utilities and healthcare; and 'breadbasket' reforms, these are not the major pressures the Government is facing.
Rather, it is the extent of the 'fiscal adjustment' required to meet the targets set in the Fiscal Responsibility Bill, which was pegged by the International Monetary Fund (IMF) as equivalent to 2.25 per cent of GDP - some $240 million.
The Fund, in its latest Article IV report, said this was required to hit a fiscal deficit equal to 0.5 per cent of gross domestic product (GDP) by 2021 - the goal set by the Bill.
The Fiscal Responsibility Bill’s key targets require the Government to slash the fiscal deficit to 0.5 per cent from 2020-2021 onwards, slashing it from a sum equivalent to 5.8 per cent of GDP in the 2016-2017 Budget year. This means reducing it from near $700 million to around $54 million.
The Bill’s ‘first schedule’ sets out a ‘glide path’ or ‘road map’ for achieving this, acknowledging - as the IMF stated - that “significant fiscal adjustments” are needed over the next two Budget years to hit this objective.
To enable the public sector and wider Bahamian economy “to achieve the fiscal objective in an orderly manner”, and avoid unnecessary shocks, the Bill calls for 2018-2019 and 2019-2020 deficits that “shall not exceed” 1.8 per cent and 1 per cent of GDP, respectively.
With the 2017-2018 deficit thought to be close to the Government's $323 million target, achieving the 2018-2019 target set by the Bill - based on current real GDP numbers - would require that the 'red ink' be cut to around $200 million.
This, in turn, requires a significant $123 million year-over-year deficit reduction that can only be achieved by revenue increases, spending cuts or a combination of both.
ORG's Mr Myers, though, warned that new and/or increased taxes would likely "destroy confidence" among businesses and consumers unable to bear an increased burden - one industry excepted.
Suggesting that the Government would wave goodbye to any hopes of increased economic growth should it chart this course, Mr Myers told Tribune Business: "If you increase taxes now just as we're trying to get the economy moving you're going to slow it again, and that will be a disaster.
"People don't have it to give you. You're going to push them into the poverty line, and ruin consumer and investor confidence. It's the wrong thing to do. The big thing is: Have they managed to cut recurrent spending and lower the deficit? From a Budget standpoint, if they're talking about increased taxes something has come off the rails somewhere."
Mr Myers argued that the Government's revenue-side efforts should be focused on enforcement, compliance and administrative efficiency, and the exploration of new income streams such as airplane 'overflight' fees that did not burden the domestic economy.
"If the Government wants to raise more revenue, get off your backside and earn it," he said. "Don't tax us more because you can't do your job. Go after those that are not paying, businesses that are not legal. Don't come back to me for more money.
"You can be damn sure they'll lose the election if they raise taxes. At that point, nobody will believe a word they say. Business and consumer confidence will go out the window. They can't keep taxing."
Apart from the web shop industry. "If you want to tax the gaming industry more to get money for education that's what you should be taxing," Mr Myers told Tribune Business. "They're operating in a super high-margin business, with nobody else anywhere near those kind of margins.
"They have exceptionally high margins, and got away with murder. The people said no, the then-government forced it to a yes, and they should be taxed more or we put in a National Lottery. Education has got to move. We need better education, and are not going to move GDP unless we educate people."
Gaming house operators are currently required to pay 11 per cent of their taxable revenue or 25 per cent of earnings before interest, taxes, depreciation and amortisation (EBITDA), depending on which one is greater. The sector has already argued against further taxation, asserting that it is paying its fair share.
Mr Myers, meanwhile, said the Government would achieve "a significant turnaround" if it targeted an annual 5 per cent recurrent spending cut over the next five years and managed to combine this with GDP growth.
"We don't have to fire 30 per cent of the staff," he told Tribune Business. "Once we start to grow the economy a little bit we can move those people [in the public sector] to the private sector and nobody gets hurt. It doesn't have to be dire action. We don't have to do anything rash."
Comments
DDK 6 years, 6 months ago
Why is the Government so moot on the point of the continued existence of these damned "web shops"? Obviously they are the only ones, other than the unflappable elite, able to pay their taxes because they are sucking the life blood out of the country. Entire pay cheques are being lost every week to the numbers houses. Some communities are experiencing a coin shortage as the numbers houses accept five, ten and twenty-five cent bets. Gambling addiction is fast becoming a huge nation-wide issue. Even on Sunday mornings, the "web shop" lots are full of parked vehicles. There will be no economic recovery in this Bahamas if these dens of iniquity are the only businesses permitted to thrive as others fall by the wayside.
DDK 6 years, 6 months ago
Does the Government think we will be the only country in the world to refrain from taking to the streets if they dump more austerity on The People while continuing to spend like drunken sailors? Every nation has a breaking point.
Well_mudda_take_sic 6 years, 6 months ago
Here are the well known ingredients of a downward economic death spiral that Minnis and Turnquest refuse to accept:
Higher taxes results in more private sector business failures;
More private sector business failures results in greater private sector unemployment;
Greater private sector unemployment results in more social welfare costs plus significant growth in non-productive public sector employment caused by dumb politicians trying to
buy votes on the backs of private sector taxpayers faced with ever increasing taxes;
Ever increasing taxes on the private sector results in even more business failures and even greater private sector unemployment;
And down and down the death spiral we go as our nation's economic well being gets flushed down the proverbial toilet by our dumb politicians who allow themselves to be led
by the nose by international agencies (IMF, OECD, IDB and the like) that represent their own foreign interests without any regard whatsoever for the interests of Bahamians.
We are at the perilous mercy of Minnis (a not-so-good medical doctor) and Turnquest (a not-so-good bean counter), neither of whom is capable of passing an economics 101 class, and neither of whom is willing to downsize the head count and costs of our grossly over-bloated government / public sector. The future holds no hope for us as long as these two clowns (Minnis and Turnquest) are pulling the 'budget strings'.
DonAnthony 6 years, 6 months ago
These web shops should be taxed to within an inch of their lives to pay for all the social ills they cause. If the port has a mandated profit margin of just 10% then why should the same not be expected of webshops who are a drain on taxpayers and a destroyer of family and community life. The government has full access to the data and accounts of the webshops so it is easy to regulate.
Well_mudda_take_sic 6 years, 6 months ago
This comment was removed by the site staff for violation of the usage agreement.
DonAnthony 6 years, 6 months ago
I would prefer a national lottery, but realistically this does not have a snowball chance in hell of happening. Best bet ( pun intended) is to leave the status quo and limit profits to 10% or even 5%.
Well_mudda_take_sic 6 years, 6 months ago
This comment was removed by the site staff for violation of the usage agreement.
DDK 6 years, 6 months ago
Tell 'em, Mudda, tell 'em!
ThisIsOurs 6 years, 6 months ago
Has anyone seen one of those "it's only a game" signs within 10 feet of a webshop? Or anywhere in the inner city for that matter. Or are they Only up in the richer areas of town? Maybe the people in Balmoral can relay the message to the customers of the four webshops crammed on top of each other on fox hill road
TalRussell 6 years, 6 months ago
Ma Comrades, the more we the people public, define these gambling joints as web shops, the crazier it gets.
Gotoutintime 6 years, 6 months ago
Does anyone really think that The Web shops are going to pay taxes on their actual winnings?? I could crook-up a set of books that would make the tax collectors cry with pity for me!!
TalRussell 6 years, 6 months ago
It's that time time day when all Ma Comrades get enjoy good laugh!
In keeping with my Government’s commitment to abide by the will of the electorate as expressed on Monday’s referendum,” said Prime Minister Christie, “it has now become necessary to effect the closure of all webshop gaming operations in The Bahamas.
“Accordingly, all offending webshop owners and operators are placed on notice that all their gaming operations, including all online gaming and the numbers games, must cease with immediate effect. Failure to do so will leave all such webshop owners, operators and webshop gaming patrons exposed to arrest and criminal prosecution without further notice or warning,” he said.
Police Commissioner Ellison Greenslade followed the PM’s lead with a statement that his forces were “mounting an operation” to close the gambling dens. In the meantime, webshop owners went to the Supreme Court for a declaration that their operations were not regulated by the Lotteries and Gaming Act and, therefore, should be allowed to continue in business.
However, before the January 28, 2013, vote, FML owner Craig Flowers announced his intention to close all of his shops should the majority of Bahamians vote “no” to gambling on referendum day. Island Luck owner Sebastian Bastian expressed similar sentiments.
DDK 6 years, 6 months ago
Hilarious, Comrade! Too many brownies!
TalRussell 6 years, 6 months ago
Ma Comrade DDK, I've never been tempted join the fray personally attacking Comrades Craig and Sebas, when all thy're doing is what has now been legalized by the PLP and reinforced by Red Shirts, but there is lots crazy ideology around the web shops and how cheap the former and current governments have made it for the two man's rake in mega bucks in hundreds millions dollars... only change is colours t shirts and the faces governing politicians - same Fuc#Up party politics ideology.
Gotoutintime 6 years, 6 months ago
Craig & Sebas are laughing all the way to the Bank---They must be untouchable!!
sheeprunner12 6 years, 6 months ago
Is there an official document lodged in Parliament to account for the auditing of the webshop cartels bosses' financial records since 2014????? ............ Or are we to take Gershon Major's word??????
It is so funny but troubling that there has been NO public auditing of the webshops or Carnival since the PLP brought them online .......... and is the FNM serious about doing it??????
birdiestrachan 6 years, 6 months ago
They the peoples time voters continue to complain about the PLP legalizing the Web shops. They know and Mr: Myers knows that they the FNM Government can close every web shop down and revoke the license if what the PLP government did was so wrong make it right doc instead of raising their taxes. CLOSE THEM DOWN< It will not happen
most web shops are owned by black men.
screwedbahamian 6 years, 6 months ago
The Webshop cartels love the government to talk and implement higher taxes on the Bahamian people. The higher the taxes the more desperate the 80 percent gaming Bahamian population become and consequently increased their business and profits. Incidentally, have you noticed how fat the politician have gotten since the elections, man, busting out of they suits. Think they meals menus include Corned beef and grits or Tuna fish and grits???
John 6 years, 6 months ago
Listen to the Jackasses croak! If the government sees Sebas and Flowers as cash cows who they could ride and tax more then the mussy racist if they don’t see the same pot of gold in the casinos wat be winning up all them foreign money. Increase the taxes on Sebas dem if you have to but don’t be color blind because ain’t just them two (Sebas an Flowers) laffin all the way to the bank and banks (New yachts and ting still)
Well_mudda_take_sic 6 years, 6 months ago
Suggest you chill a bit John. You sound like you are about to have another one of your hissy tizzy fits. You may not have ever fully understood why residents of the Bahamas are not allowed to gamble in our country's hotel casinos, whether they be poor black Bahamians living in our over-the-hill areas or wealthy white foreigners living in our gated communities. It has nothing to do with racism and everything to do with our foreign currency reserves. The racism card had relevance to our grand parents but has no place in our society today. Most young black, white and any other colour Bahamians today (the under 50 crowd) will think you are a weirdo if you keep trying to play that tired old worn out racism card. And that is the way it should be. Your mind seems to be stuck in the past John, and it is high time you tried liberating it. To look at white Bahamians and white foreigners the way our grand parents did is to remain in an unhealthy state of mind that will only hold you back from achieving success and happiness in life as a Bahamian.
ohdrap4 6 years, 6 months ago
we don't think he is a weirdo. we KNOW he is a weirdo.
John 6 years, 6 months ago
Muddersick I would not normally respond to you again because obviously you have some personal vendetta against Sebas and Island Luck that has you boiling like lava in a volcanoes that has erupted. Firstly the suggestion to increase taxes on the casinos if they are increased on the web shops is only a fair and moral thing to do. However it is your prejudice (racial or other) that thinks taxes should only be increased on the Bahamian operated web shops. Secondly while when the ban on Bahamians gambling in local casinos may have had good intentions and was effective when it was implemented decades ago, when Bahamians were less mobile and technology was less advanced, the ban today may be counterproductive as more Bahamians travel to Florida frequently to gamble or purchase lottery tickets or gamble online. In either or all instances money leaves The Bahamas and ends up in some foreign country. And thirdly: Before the web shops were licensed a lot of their monies were secretly leaving the country because they couldn’t bank it locally. And today because the web shops are licensed and operating legitimately, just like the casinos, they are hiring hundreds of Bahamians, they are renting properties and purchasing others and paying utilities and business license fees and VAT and other taxes. And, of course most of their money is staying in the country. Is gambling a good thing? I don’t gamble and I know no one who has become a successful gambler. But for most people, it is an expensive and somewhat addictive pastime. Are there any relevant data to show that gambling has increased in The Bahamas since it became legal? Some say it has because the web shops are now penetrating the family islands where gambling was never available. But remember too legal (web shop) gambling is new in the country. And so it is in the growth stage. And so you see them popping up all over the place. But within a few years, you will see many of them closing down. Any persons will grow out their desire to gamble.
John 6 years, 6 months ago
In fact there is already evidence on canibalism in the industry where one web shop chain is not only gobbling up other web shops but also eating away the smaller franchises. This is not only due to aggressiveness of that webshop but improper or uninformed regulation.
John 6 years, 6 months ago
*regulations that are not enforced. The law allows for a maximum number of web shops but now at least three of them are being managed under the same house and one has been ordered to close. At least one more may be having financial challenges. So you see Mudder doc it is you who is constantly ranting about Sebas maybe it is something personal
sealice 6 years, 6 months ago
Not sure how much tax is right for these business, just that it should be alot more and all for the public education system.... however what should really be monitored is the veracity of the financial reports they make public = That is where you are really going to find out how bad they have been screwing the Bahamian public over the years.... remember these people all started our shady as all hell slunking around nassau with little mini printers strapped on their hips.... they were criminals then but now upstanding citizens? Considering their history anything they say is suspect.
Well_mudda_take_sic 6 years, 6 months ago
Repost: Excerpt from IMF Working Paper published last year:
"Various characteristics of the Caribbean economies make them more vulnerable to perceptions of potential AML/CFT risks. For example, many Caribbean countries tend to transact a higher than average volume of remittances per capita (Figure 1). Money or value transfer services can be a channel through which banks face exposure to AML/CFT violations owing to the large number of cash transactions (often in relatively small amounts per transactions), which makes due diligence more challenging. Another common feature of several Caribbean economies is the presence of cash-intensive casino operations and/or on-line gambling. In some cases, regulation and supervision of both money or value transfer services and gaming operations are less established than for the banking system and, as a result, may elicit concerns from correspondent banks. Several Caribbean jurisdictions also offer offshore services, which are sometimes perceived to be higher-risk businesses."
The IMF is obviously very tactful and polite in dealing with such matters in order to keep the right 'doors' to our country open to them - hence their use of the word "perceptions". But it is nevertheless all too easy to read between the lines here. Our web shops are now clearly on the radar screen of global financial regulators and the international banking community.
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