The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government yesterday ruled out new and/or increased taxes to cure its fiscal woes even if the Bahamian economy has failed to recover from COVID-19 by winter 2021.

K Peter Turnquest, deputy prime minister, speaking at a post-budget press conference, said that while further “interventions” would be necessary if the economy failed to rebound from the pandemic within the next 18 months these did not include greater taxation.

Reiterating the government’s belief that increased taxes cannot be imposed on an already-struggling economy, given that it would simply become further depressed, Mr Turnquest again voiced optimism that The Bahamas will enjoy a “relatively quick” recovery that will have started to take root in time for the 2021 New Year and peak winter tourism season.

“We are confident we will see an economic recovery relatively quickly,” he said. “Certainly, by January 2021 we should start to see a recovery in tourism numbers, which is our main economic driver. If we get to fall/winter 2021, and don’t see the kind of results we anticipate we will have another set of decisions to make, but I don’t think taxation is the answer.

“You can appreciate that if the economy slows down, adding new taxation does not help us, so we will have to look at other interventions. We do not anticipate that will be needed.”

Many observers believe that the government will have no choice but to introduce new and/or increased taxes in the medium term, once the Bahamian economy has recovered from COVID-19, due to the massively increased debt burden it is taking on.

The $1.327bn fiscal deficit projected for 2020-2021 is forecast to be followed by a further $813.4m in 2021-2022. When combined with the $773.7m worth of “red ink” now predicted for the current 2019-2020 fiscal year, the government will have increased its direct debt - which will break the $10bn mark in 2021-2022 - by $2.9bn in just three years.

This is forecast to produce a 15.5 percent, or more than $58m, increase in The Bahamas’ debt servicing (interest) costs over three years. The interest bill just to service the national debt is forecast to rise from $377.052m to $435.498m by the 2022-2023 fiscal year, further cementing its place as the largest and most costly line item in the government’s annual budget.

Mr Turnquest, though, reiterated the government’s belief that The Bahamas can grow its way out of the looming debt burden by expanding the economy at a much greater pace. “Not at all,” he replied when asked whether it was inevitable that new and/or increased taxes will have to be imposed on the Bahamian people and businesses.

“It’s our hope in coming out of this pandemic that we’ll have a strong recovery both domestically and internationally that raises all boats. We don’t believe there’s a need for new taxes. We continue to work on revenue enhancement, look at new sources of revenue from commercial services the Government provides to maximise the opportunity. We’re looking to inspire local and foreign direct investment to grow the economy...”

Mr Turnquest added that the Government was examining several sources of “windfall revenues” no included in the Budget. Apart from the potential introduction of overflight fees on January 1, 2021, which would charge aircraft for the right to fly through this nation’s air space, it is also focusing on going live with an online portal that will facilitate greater efficiency and convenience in the payment of yacht, cruising, charter and fishing permits.

The deputy prime minister also revealed that the Ministry of the Environment and Housing planned to start exploratory talks with existing and potential new holders of aragonite mining licences in a bid to revive that sector and generate revenue from it.

“The number of active licences for mining in this country, it’s very surprising,” Mr Turnquest said. “There are no active aragonite mining licences at the moment.” Mr Johnson, meanwhile, added that the Government was also focusing on cracking down on tax cheats as a means to maximise its income during a year when revenues are projected to be $900m below what was originally forecast.

Pointing to the work that will be conducted by the Revenue Enhancement Unit (REU) and Customs electronic single window, the acting financial secretary added: “We’re placing a lot of emphasis on ensuring persons do not evade taxes and the like. A lot of buoyancy is anticipated in better compliance and enforcement efforts to ensure we collect the revenues out there.”

Mr Johnson added that the Government has yet to decide when it will tap the international capital markets to finance its $1.3bn deficit, with the majority of its borrowings set to be undertaken in foreign currency to help support the external reserves and the one:one peg with the US dollar.

He added that the Ministry of Finance would turn to multilateral lending institutions such as the World Bank, Inter-American Development Bank (IDB) and Caribbean Development Bank (CDB) first as these typically offered the lowest interest rates and best terms.

“The timing of going to the international market depends on what is happening locally,” Mr Johnson said. “We will go out to the market when things pick back up in the country and investors are more confident. We have a defined plan that we are working on.”

Mr Turnquest said the Government and Central Bank were both confident in their ability to support The Bahamas’ fixed exchange rate regime despite the ongoing loss of all tourism-related foreign currency inflows. He added that the current $1.986bn worth of reserves were equivalent to 28 weeks of the country’s import needs - a level much higher than the 13 weeks recommended by the International Monetary Fund (IMF).

“A lot depends on what happens with the economy, but we are confident we will be able to support the peg,” Mr Turnquest said. “The Central Bank is confident we have enough reserves, policy options available to us to ensure we maintain more than adequate cover.... We have a lot of cushion, if you will, to withstand a slow turnaround.”

Adding that the Government’s foreign currency borrowing will provide further reinforcement against a slower-than-expected recovery, the deputy prime minister added: “We have a lot of tools left in the belt from the Government’s perspective, and there are a lot of tools the Central Bank can deploy so we don’t get into that territory.”