The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Businesses and Bahamians can take “comfort” from the Prime Minister’s repeated assertion that new and/or increased taxes will be “a last resort”, a governance reformer said yesterday.

Hubert Edwards, the Organisation for Responsible Governance’s (ORG) economic development head, told Tribune Business that the stance taken by Philip Davis QC gives the private sector and households “something valuable to hold on to” as they struggle to rebound from COVID-19’s devastation and soaring inflation that will be worsened by Russia’s Ukraine invasion.

He spoke out after the Prime Minister used yesterday’s mid-year Budget statement to repeatedly promise that new and/or increased taxes will only be implemented if all other options to address The Bahamas’ fiscal crisis fail, while ruling out any such measures in the short-term given the fragility of the Bahamian economy’s recovery.

Acknowledging that price increases will be sustained through at least the fiscal year’s end-June 2022 close, Mr Davis told the House of Assembly: “The Government and its agencies are the largest providers of goods and services in this economy. This means that the Government feels the impact of inflation immediately.

“Despite this, we are committed to not increasing taxes or fees in the short-term as we believe that this surge in inflation is not structural in nature.” He added that the VAT rate cut, from 12 percent to 10 percent, together with the elimination of almost all zero ratings and exemptions, had cut the tax burden on “95 percent of goods and services” and helped to mitigate inflation’s impact.

Mr Davis repeated similar ‘no tax increase’ pledges twice more in his address. Despite setting the ambitious goal of a 25 percent revenue-to-GDP ratio by 2025-2026, a five percentage point increase from the current fiscal year’s projection, he added: “I have stated unequivocally that tax increases would be a last resort for this administration.”

And, after detailing several revenue administration enhancements currently being mulled by the Government, the Prime Minister added: “For the avoidance of doubt, my Government stands firmly by the statements we made when in Opposition. We still maintain that only increasing taxes as a means of resolving fiscal challenges is a lazy approach to governance.

“Increasing taxes essentially decreases the income of citizens, increases hardship and should only be used when absolutely necessary. While the team in the Ministry of Finance, along with their consultants, have explored potential tax options, any increases would only be implemented after we have exhausted all other options.”

In response to Mr Davis’ “last resort approach”, Mr Edwards said: “I would agree with that sentiment absolutely. It has to be a last resort. If it is not needed, then it shouldn’t be done. From a business perspective, this should be something valuable to hold on to because the administration is signalling this is not an exercise of automatic tax increases.

“The right approach is not to go into this with a pre-determined position that there will be a tax increase..... Comfort should be taken by the public and business houses that increases are a last resort, and that is a prudent approach to take, quite frankly.”

However, Rick Lowe, an executive with the Nassau Institute think-tank, responded by telling Tribune Business: “We’re near a last resort if this war in Ukraine keeps going. It’s [tax increases] going to be necessary if things keep going the way they are going. All the chickens are coming home to roost, I’m afraid. It’s been coming for decades, but I think it’s here.”

Mr Davis, meanwhile, said achieving a 25 percent revenue-to-GDP target by 2024-2025 was critical to restoring The Bahamas’ fiscal health and providing the Government with the resources it needs to deliver efficient public services.

“This is a bold and aggressive plan that is designed to manage an unprecedented fiscal challenge. It is also a reasonable, responsible and realistic plan. Bringing us to that 25 per cent level would merely bring into line, though still at the lower limit, with the norm that prevails in other economies in the region,” he argued.

“Many Latin American and Caribbean countries post an average ratio of 27 per cent, with regional rates of 30-31 per cent in Jamaica, Barbados and Belize. Modern governance necessitates that government has access to the fiscal resources needed to meet the needs of its citizenry. Relentlessly and perpetually ignoring that need, and simply financing Government activities by borrowing at home and abroad, is a prescription for eventual disaster.”