The Tribune

• Calls for VAT’s elimination on food staples

• And business ‘struggles’ need pay delay

• Out Islands’ facing ‘double’ inflation hit

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Grand Bahama’s Chamber of Commerce president yesterday urged the Government to eliminate VAT on “breadbasket” food items to counter soaring inflation and delay a minimum wage increase.

Greg Laroda told Tribune Business that reimposing the 10 percent levy on food staples had “made it all the more challenging” for low income Bahamian families to feed themselves and make ends meet amid the sustained increase in prices that this nation is suffering across-the-board.

And he argued that increasing the minimum wage at this time “is not the way to go” given that it will increase marginal labour costs for employers, especially micro and small businesses who are already “struggling to hold on to employees” and meet payroll.

Speaking after the Prime Minister yesterday pledged that the Government was ready “to make critical policy interventions” to offset eroding living standards, Mr Laroda argued that one place to start was to reconsider the wisdom of eliminating the VAT ‘zero rating’ on breadbasket foods, medicines and other essentials.

“The Government should revisit this 10 percent on breadbasket items,” the GB Chamber chief told this newspaper. “As prices go up in the food stores, that’s all the more reason why the Government needs to take a look at that because of how high prices are going.

“There will be that 10 percent VAT on top of that which was not there before, which makes it all the more challenging for people on the low end of the income spectrum.”

And, with recommendations on a minimum wage increase likely to be submitted to the Government within the next month, Mr Laroda argued that any raise should be delayed because of the potential negative impact on employment levels and private sector costs at a time when the latter are being battered by inflation and trying to rebound from COVID-19’s devastation.

“To me, increasing the minimum wage is not the way to go,” he told Tribune Business. “You have businesses that are having challenges meeting payroll as it is. That will continue to negatively impact on the recovery as far as micro and small businesses are concerned. Some of them are struggling to hold on to employees.

“I’m hoping the Government reconsiders that 10 percent on breadbasket items. Now is not the ideal time to do that. We need to focus more on the recovery of the economy first, and then we will be able to bear it - at least until the prices stabilise and we get past COVID.

“We know that when prices go up how they lag in coming back down, but hopefully when things go back to normal and we get past this challenge of the pandemic, these prices will start dropping again.”

Conversely, many would argue that a minimum wage increase now is exactly what the lowest-earning Bahamian workers and their families need to help at least offset some of the impact of surging inflation which is being driven by external factors outside The Bahamas’ control.

Peter Goudie, who heads the Bahamas Chamber of Commerce and Employers Confederation’s labour division, and is its representative on the National Tripartite Council, said a minimum wage increase was almost certain but it was currently impossible to determine the extent of the hike until all relevant research is completed.

As a result, it is presently uncertain whether the data will support the 19 percent increase - from $210 per week to $250 per week - that was previously promised by Prime Minister Philip Davis QC. And a minimum wage hike can come with unintended consequences.

For it increases employers’ marginal employment costs and, if raised too high, could disincentivise companies from hiring young, low-skilled labour at a time when the economy needs every job it can get in trying to recover from COVID-19. However, many observers view the increased social protections offered by a minimum wage as outweighing any potential negatives.

Mr Laroda’s arguments for removing the 10 percent VAT on breadbasket items echo those made in the House of Assembly on Monday by ex-prime minister, Dr Hubert Minnis, whose administration eliminated the tax on these foods by making them ‘zero rated’.

But, while the Davis administration has acknowledged the “emotional” nature of the situation, it has thus far stuck to its position that a lower-rate, broad-based VAT is the better tax option for The Bahamas.

It has pointed out that the rate cut, from 12 percent to 10 percent, has reduced the VAT burden on thousands of food and non-food items whereas “breadbasket” goods are just a small minority by comparison. As a result, it believes any savings from the wider tax cut will exceed the impact from reimposing the 10 percent levy on the latter items.

The Government has also remained resolute in arguing that middle income and high income households consume breadbasket items, too, and were thus effectively benefiting from a tax break when they can afford to pay. It has been steadfast in its position that a better way to ease VAT’s impact on lower income families is via increased social security support.

Meanwhile, Pedro Rolle, Exuma’s Chamber of Commerce president, told Tribune Business that surging inflation will have “double” the impact on his island and other Family Island communities when compared to Nassau because of the extra costs involved in shipping goods throughout the archipelago.

“What I can say is that whatever is felt in Nassau, you have to multiply it because we don’t have the opportunities,” he asserted. “We feel inflation in double the fashion. There is the cost of bringing goods to Nassau, and to bring them out here is another cost, so there’s a compounding impact on our economy. We feel the impact two times’ more.

“And whatever we are feeling, this is just what I call the groundwork, because it’s going to get worse. People need to be prepared for the fact that prices are going up, and it’s going to be an increasing inflation. It’s probably going to be another couple of weeks before it hits folks, and they realise it.”

Mr Rolle warned that the inflationary surge has the potential to derail The Bahamas’ post-COVID recovery unless “steps are taken to mitigate against it”. He argued that the Government needed to prioritise faster economic growth so that employment and wages kept pace with inflation.

“It’s going to be devastating if we don’t have increased household incomes in the near future,” the Exuma Chamber chief warned. “Central government and local government must find ways to incentivise employment and, if they don’t do it, then we’re going to be in trouble.

“Maybe the Government has to do a better job in incentivising the movement of goods to the Family Islands. The cost of mailboat services to the Family Islands has gone up and prices have been markedly higher in recent times.

“There are many little ways that help can be given, and the Government can make a huge difference. Maybe subsidies will make a mail boats cheaper or cause costs to go down because rates have gone up. These things are important for the Family Islands.”