The Tribune

EDITOR, The Tribune.

New taxes seem to be on the agenda. We are hearing about family islanders paying real property tax, corporation tax, income tax, increased NIB contributions and so on. At this point these are competing ideas put forward by Ministers, international financial agencies, think tanks and so on. None has yet to appear as a policy suggestion. However, it does seem to observers that Government is grappling with what new tax to impose and how to do it. Government has had a lot of demands fall upon it recently. The huge costs of the COVID period set against a decline of GDP of some 14% were a massive burden on the public purse. The near wipe out of our third largest town, Marsh Harbour, and the surrounding cays, including Hope Town and Man-O-War, in Dorian was devastating and the cost to rebuild is tremendous.

Further, Bahamians, and the Government have been feeling the squeeze from inflation. Meanwhile the IMF and World Bank constantly look over Government's shoulder. Something has to give. But Government needs to be very careful when considering new taxes.

The Bahamas has two attributes: it is a well located, beautiful place people want to visit, and it is a low taxation environment people either want to put their money in or move to. There is also a domestic crawfishing industry, but while this supports a few communities there is no way it could provide for the nation. So, there are two tax bases, one is tourists and the other is offshore finance.

While the Bahamian may pay the actual tax either at the till in VAT, in property tax, NIB contributions, Business Licence, what have you, the overwhelming majority of their income comes directly or indirectly from either tourism or offshore finance. The cost of business and the cost of living in the Bahamas are already so staggeringly high that it makes life and business difficult for Bahamians, while it puts up the cost of our product, which ultimately means the cost of tourism. We are a relatively high-cost destination, so our tourists must be upmarket. The prices they pay for everything from a room, to a taxi to a drink and dinner already draw comment.

There is a feeling that tourists do not quite get what they pay for, but that this gap is made up for by our proximity to America and the amazing beauty of our beaches and our sea. But there are cheaper rivals. While Bahamian tourism has remained largely flat for decades Mexico and the DR have surged forward. Their beaches are not as nice, neither is their water, but their price is better. That’s a tradeoff. If we raise taxes further, no matter who fills out the form or hands over the cash, it will be the tourist who pays the bill. The cost of the tax will be passed on to the tourist. So, we are looking at inflating the price of our tourism product at a time of mass inflation. That is not smart. You eventually arrive at the point of diminishing returns where the tourist goes elsewhere. The alternative is to provide a poorer quality product, to pay your staff less (illegal immigrants), or invest less in keeping up your shop or plant. Either way the gap between price and product widens further. We become less competitive. Ironically this will increase demands on the public purse.

Some say the rich can pay more. Perhaps they can. But will they? Wealth gives one choice. The choice to invest where you want. The Bahamas has been able to attract a lot of wealth. Second home owners employ a lot of Bahamians in everything from construction, law, accountancy, real estate agents, landscapers, boat mechanics, restaurant owners, maids, etc. We need them. Along with tourists the wealthy home owners who make the Bahamas their home is important. If we raise taxes on wealth, then that wealth will go elsewhere. So, the talk is of just taxing Bahamian wealth. First, that wealth is made from doing business with foreign wealth. Increase the tax on wealthy Bahamians and then the price of the legal service, construction firm, boat yard operation, what have you, has to go up, and that means the foreign home buyer pays in the end. Or they do not pay and go elsewhere, in which case there is nothing to tax and you are fooling yourself. Wealthy Bahamians can also slowly, but surely, get their money out of the country passed Exchange Control. It might take a generation but that wealth will slowly bleed out and then Government will not be able to tax it and nor can it be put to work to develop the Bahamian nation. It will be gone.

It is the middle class who will pay because they are trapped. A middle-class life is already too expensive in this country when compared to the States. Today American companies fall all over themselves to attract university educated middle class black talent. Say goodbye to a generation of professional Bahamians who now have other attractive choices. Then we get into the awkward subject of the fact that the demographic who pays the taxes receives almost nothing back, the money goes to another demographic. This works so long as there is a tradeoff. The tradeoff is that taxes must be low. If Bahamian taxes rise then maybe it's worth paying American taxes instead, at least you get services in your neighbourhood for your money. So, if the Bahamas is going to raise taxes while providing little to no services to the taxpayers it will be putting itself in competition with other jurisdictions that do provide taxpayers with services. Government then faces a major political decision; is it going to change who it provides services to? That means the extra money will not go on the people who are demanding it.

Sorry, but I just do not see it happening. So, the Bahamas becomes less attractive for educated, professional, business owning Bahamians and they move. You lose your tax base. It is a downward spiral.

Government is being poorly advised by people in quangos who have never run a business and never held a proper job. They look the part and speak well but what they say leads to decline. The better way forward is to reduce the cost of business and the cost of living. Our electrical power costs an extraordinary amount and is of poor reliability. This needs to be fixed. We need a policy to cut the cost of power by a minimum of 50%. This will fundamentally alter the cost dynamic of all businesses and households, reducing the cost of goods, making business more profitable, increase income to debt ratios meaning more Bahamian businesses can borrow thereby unlocking the over a billion in B$ that sits in banks doing nothing, boost GDP and thereby raise Government revenue. It is a game changer on a massive scale. BPL has to be our priority. After that we really need to consider if we want to subsidise ZNS and Bahamasair when alternatives to both are available and Bahamian owned? Then Government owns a large number of prime buildings or sites which stand derelict. Sell them at low prices but with a requirement that investment be made in them within a period for transfer of title to happen. That generates jobs, GDP and new product. This is the future. A better future.

Government needs to understand there is nothing left to tax, the nation will eat itself and that leads to decline. No New Taxes! What we need is economic growth.

GARTH BUCKNER

Nassau,

April 13, 2023.