The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government must avoid "rapid fire tax increases" that undermine economic growth, a top accountant warned yesterday, suggesting it may have to "phase-in" its two percent NHI payroll tax.

Gowon Bowe, pictured, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that the Government cannot be "too aggressive" with the roll-out of its revised $100m National Health Insurance (NHI) model otherwise it will jeopardise still-fragile economic expansion.

With consumers and the private sector still adjusting to the 12 percent VAT hike, Mr Bowe warned the Government against over-burdening the economy with additional taxes to fund an NHI scheme that aims to provide Universal Health Coverage (UHC) for all Bahamians.

He urged the Minnis administration not "take advantage" of improved GDP growth forecasts before they materialised, adding: "We want the tide to rise, not to open the door so the water flows out."

Describing the restructured scheme's unveiling, and 45-day consultation period, as "a weather balloon" designed to test the public's "appetite" for NHI, Mr Bowe urged the private sector to provide evidence-based feedback on why the scheme may need to be modified rather than react emotionally.

"We have to be very careful about rapid-fire tax increases," the BICA president told Tribune Business. "I'm sure the Government is seeing predictions of 2.2-2.5 percent GDP growth, but we have to be very careful we're not taking advantage of that before the chickens come home to roost.

"There are positive signs, especially with the increased tourism numbers, and when we see a positive uptick it's viewed as a good time to increase taxes. We have to be careful, as that economic growth is coming from 0.2.5 percent, not 2.5-5 percent."

The Government's proposed NHI financing mechanism has raised fears that it will further overload consumers and businesses with increased taxation, especially since it follows so swiftly behind the Budget's 60 percent VAT hike and rising living costs.

While the NHI consultation paper was careful to avoid the word "tax", it proposes a payroll tax whose structure replicates the National Insurance Board (NIB) scheme - with contributions split between employer and employee.

Ending the notion that "healthcare is free", the NHI policy paper calls for all working Bahamians to contribute two percent of their salary or 50 percent of the premium - whichever is lower - to purchase the scheme's Standard Health Benefit (SHB) or minimum level of coverage.

Unveiling a similar funding mechanism to NIB contributions, the paper says the balance of SHB costs will be met by the employer, meaning the latter "will be responsible for at least 50 percent of the premium cost".

The SHB package's initial "regulated premium cost" is expected to be $1,000 per year, or $83 per month, meaning that employee contributions will be effectively "capped" at $500 per month. Its introduction is currently scheduled to begin in April-July 2019, with the wider NHI scheme phased-in over a period lasting until 2021, and containing various exemptions for specific categories of companies and workers.

Mick Holding, the Grand Bahama Chamber of Commerce's president, told Tribune Business that the proposed NHI payroll tax - as with NIB - represents a further potential increase in labour costs for employers that could deter some companies from hiring.

He added that the employee component would reduce workers' purchasing power and take-home pay, which could lead to pressure for compensating salary increases, further raising labour costs.

"I don't think any of us would argue with the need to do something, and we appreciate the need to finance it," Mr Holding said of NHI. "If we want to get where we want to be, there's a cost to it and we have to pay for it.

"Coming in the wake of VAT, some people are going to find it difficult, no doubt about it. It may result in increased wage demands from employees to be compensated for their share of it all. Who knows where it will all end up?

"Employers may be less inclined to recruit people or even feel they're in a position where they can no longer maintain their staffing levels. Again, these are possible consequences of this. But, having said that, one has to recognise there's a [healthcare] problem."

Mr Bowe, meanwhile, said the Government must be prepared to delay implementation of parts of its revised NHI scheme, or shrink the services and benefits package, to ensure costs remain manageable and do not depress economic activity.

"The Government has to balance 'you get what you pay for', meaning there necessarily has to be funding for NHI, versus when we get these benefits and services," he explained.

"It is saying that effectively a 4 percent tax, split between employer and employee, is to come. In reality, if that is going to dampen economic growth and slow economic activity, they have to defer this level of services or the implementation of certain aspects of NHI."

Mr Bowe suggested the planned payroll tax may have to be introduced in phases, starting at 0.5 percent in 2019 before increasing this to 1 percent in 2020 and, finally, to the full 2 percent in 2021 "to balance economic growth with the provision of services".

"There's no one that argues against the need for a national UHC scheme, and I don't think anyone would argue against there being contributions for revenue to fund it," he told Tribune Business.

"We have to understand where we are in our growth trajectory, and not do anything to disturb it. There was concern that VAT, moving from 7.5 percent to 12 percent, would create a shattering blow to economic growth.

"It does not appear to have done any significant retardation because of the tourism numbers, and growth may be higher than what we're seeing. But, while VAT may not have been as significant as anticipated, we have to be careful about repeated tax increases under different scenarios."

Coming on top of VAT, Mr Bowe said the proposed NIB payroll tax would further shrink consumers' disposable income, and "purchasing power is what stimulates GDP growth".

"While we want to take advantage of a rising tide, we don't want to be too aggressive and open the door so the water flows out. We want the tide to rise," he told Tribune Business.

The BICA chief expressed hope that the policy paper, and 45-day consultation period, was the start of efforts by the Government to find "a middle ground" rather than simply telling the Bahamian people and private sector what it is going to do.

"I looked at the press conference and announcement of the changed position almost as a weather balloon; sending up a balloon to test the appetite," he said. "I'm hoping this is a weather balloon to test the temperature, test the appetite."

Mr Bowe called on the Government to conduct "real consultation", and account for all feedback, while urging the private sector to provide empirical, fact-based analyses rather than an emotive response that said it "can't afford it".