The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

GOVERNANCE reformers yesterday warned Bahamians not to fall “into the tax reform trap” by failing to first tackle inefficiency, wasteful spending and corruption in a bloated government.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business that focusing on tax reform first threatens to give successive administrations “an easy out” by enabling them to burden Bahamian businesses and households with new and/or increased levies while ignoring what he described as runaway government spending.

Agreeing that a “comprehensive” review of The Bahamas’ regressive tax system may be warranted, Mr Myers nevertheless said this nation had already witnessed a government revenue grab that neglected the need for urgent public sector reform when VAT was first implemented on January 1, 2015. He argued that the extra $500m-plus in annual revenues was used to further increase the size of the civil service and public sector, rather than to help eliminate an annual fiscal deficit already amounting to hundreds of millions of dollars, and by zeroing in on tax reform The Bahamas is only inviting a repeat performance.

Describing raising new and/or increased taxes as akin to “treating the symptoms while the country burns fiscally and economically”, Mr Myers said public sector and government spending reforms must come before tax reform is addressed.

Responding to an interview with Tribune Business by Gowon Bowe, who succeeded Mr Myers as head of the private sector’s Coalition for Responsible Taxation, the latter told this newspaper: “ORG wish to strongly advise the public that while it agrees with Mr Bowe’s suggestion that a comprehensive tax review and reform may be necessary at some point in the future, ORG strongly disagrees that any such review or reform should come ahead of significant public sector reform. 

“Successive governments have ignored the core and fundamental need for public sector reform to the point of the nation’s implosion, and continue to do so at the expense of the public and their ongoing despair and demise. 

“ORG will not condone any tax discussion that does not first and foremost address and resolve the significant burden the Government’s inefficiency, corruption and lack of accountability places on the public and private sectors and, more importantly, the lack of growth and opportunity their inability places on the nation and all of its people.”

Mr Myers argued that legislation “to drive efficiency and accountability” in the Government, especially when it came to managing taxpayer monies, was “critical to right the fiscal imbalance within government”. The absence of such laws, he added, “is the root cause of decades of irresponsible government growth, action and spending, all at the expense of the Bahamian people”.

“Tax reform is not the answer. Public sector reform is the answer,” Mr Myers urged. “ORG stands to remind all citizens that there is no amount of money raised by the Government, through any form of taxation and or licensing fees, that an irresponsible and unaccountable Government cannot spend. 

“This is most prominently exemplified by the fact that the Government raised taxes significantly with the introduction of VAT, and then promptly spent it all without continued comprehensive discussion and action on the many critical reforms the Coalition for Responsible Taxation and ORG have continued to press both past and present administrations for.

“This is inexcusable, irresponsible and should not be tolerated any longer..... Tax reform discussion will become the excuse to raise taxes and is not the answer. Increased taxes without first implementing significant public sector reform will only further hamper opportunity and growth for the Bahamas and its people. Do not fall into the trap of tax reform discussion without first addressing and acting on public sector reform.”

Reiterating that “the size, cost and inefficiency of government relative” to The Bahamas’ economic output was “the core problem”, Mr Myers told Tribune Business that “we’ve gone down that path before” of increasing taxes without any corresponding expenditure and public sector reforms.

“It hasn’t ended well,” he added. “Let’s start in the right place, get that right, and start moving the country in the right direction and then look at things that are more equitable. If we don’t, they’ll [the Government] use that as an excuse to raise taxes and not do what is necessary.

“We’ve already done that. We created a VAT which raised $500m that they managed to spend away. Granted, there’s been instances and issues that caused that, but we need to focus on the core problem, which is the size of government and that expenditure is too high relative to the size of government.”

The Government’s annual recurrent (fixed cost) spending rose by $354m over the four-year period prior to Hurricane Dorian to reach $2.418bn and, post-COVID-19, it is forecast to keep increasing to about $2.734bn in 2023-2024. Revenues will have to rise to keep pace with that.

Mr Myers said politicians had created a bloated civil service by hiring more persons than needed, and added: “Do that for 40-50 years and what happens? The public sector gets too big. You put ten people around a ditch and only two are digging.

“We’ve just created a system of inefficiency. It’s a decades-long issue. It’s not one term; it’s just been perpetuated. Poor management at the top, poor leadership. Nobody is focusing on the core issues, the core problems. We’re just trying to put band aids on the situation without addressing the core issues.

“Raising taxes is like addressing the symptoms while Rome burns. The country is on fire from a fiscal and economic standpoint. We need leadership to do something about it rather than just talk about it.”