The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former finance minister yesterday argued that the next government will have no choice but to impose austerity measures as the prime minister branded tax increase claims “a flat out lie”.

James Smith, ex-minister of state for finance under the first Christie administration, and a former Central Bank governor, told Tribune Business that unless The Bahamas discovered an economic game-changer whoever is elected as the next government will be unable to avoid fiscal tightening measures.

He spoke out after Dr Hubert Minnis denied opposition claims that the Free National Movement (FNM) will implement new and/or increased taxes if the party is re-elected to office. “It is a flat-out lie for the Leader of the Opposition to say or suggest that I am planning on raising taxes immediately following any prospective election,” the prime minister blasted in a statement.

“We have a plan. We are sticking to the plan. That is why from January to June 2021 we beat our revenue projections for that six-month period. That is why for the month of July, up to last Friday [July 16], our revenues are tracking ahead of budgetary projections for month to date as our economy roars back to life.”

Mr Smith, though, said the next administration - regardless of whether it is FNM or PLP - will be forced to implement unpopular fiscal policies to get The Bahamas out of its national debt and deficit hole in the absence of a massive improvement in annual economic growth.

With The Bahamas facing a projected $951.8m “fiscal gap” or deficit for the 2021-2022 budget year, and the debt-to-GDP ratio approaching 100 percent, the former Cabinet minister said: “It’s a very precarious position to be in.

“You can fill that gap principally in three ways - reducing spending, increasing taxes or the sale of assets, or a combination of all three.” Mr Smith said a significant portion of the Budget, some $670.935m this fiscal year, was “baked into salaries” with allowances and NIB contributions accounting for a further $107m-plus.

Reducing this wage bill by sending civil servants home is “not very palatable” for any government, he added, especially given the redundancy pay-off costs and resulting social services burden, plus the fall-out for the wider society and economy.

New and/or increased taxes were just as unappealing, Mr Smith said, adding: “There’s no appetite for asset sales. Governments before have had to deal with the backlash from privatisation projects. Privatisation itself is not the problem; it’s the way the process was handled.”

Together with the $512m allocated for debt servicing (interest) payments, the Government’s $670m wage bill accounts for $1.182bn or 41.8 percent of total recurrent spending in the 2021-2022 fiscal year. Mr Smith added that “doing nothing”, and continuing to borrow to fill the annual deficits, was not an option for the Government given that it would eventually run out of willing lenders.

Arguing that the next administration needs to broaden the tax base to lessen the burden on middle class families, Mr Smith said: “You can’t walk away and pretend this is not happening. They say you’re kicking the can down the road, but I don’t think we have much road left. When you begin to borrow to pay off loans, you know you are close to the cliff.

“The only other option, given our performance over the last ten years, is if we got an economic shot in the arm that produces growth and new revenue streams, but I don’t see anything on the horizon to attract it.... I’m forever hopeful that something appears to mitigate what will be a very challenging future, but I don’t see anything on the horizon.”