The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians must decide whether to pay the full cost of public services directly or as taxpayers to eliminate the financial “black hole” created by many state-owned enterprises (SOEs), a prominent banker is arguing.

Gowon Bowe, Fidelity Bank (Bahamas) chief executive, told Tribune Business that residents are “paying one way or another” for loss-making SOEs and need to determine if it is “more appropriate” for consumers or taxpayers to bear the financial burden.

Speaking after the Government’s 2022-2023 mid-year Budget revealed that subsidies to the likes of the Water & Sewerage Corporation are set to increase by $35m, or 7.7 percent, compared to the May Budget estimate, reaching just shy of $500m or half a billion dollars at a total $492.24m, he said many taxpayers did not necessarily use the services they provide but were having to pay for them via VAT and other taxes.

This effectively represents a wealth transfer from taxpayers to users/consumers, and Mr Bowe told this newspaper that the impact was worsened by the regressive nature of The Bahamas’ consumption-based tax system which means lower income persons pay proportionately more of their earnings in taxes.

“The reality is we have to ask ourselves: Is it throwing good money after bad, and is there an ability to cap these sorts of black holes?” he asked of loss-making SOEs. The 2022-2023 mid-year Budget reaffirmed that, combined with $588.988m in forecast interest payments to service the Government’s debt, the $492.24m in taxpayer subsidies total some $1.08bn - more than one-third, or $1 out of every $3, of the Government’s $3bn recurrent spending.

Noting that the likes of the Water & Sewerage Corporation, Bahamasair and the Public Hospitals Authority (PHA) are the major subsidy drains on the Public Treasury, Mr Bowe nevertheless said all were “essential public services” that somehow must be funded. In the case of the first two, he contrasted them with the telecommunications sector, saying no independent, competitive markets had emerged in those areas.

“If we are in a situation where the only way these essential services can be provided is through effectively pumping subsidies into SOEs, the question arises: Are they services being provided at the appropriate market rate? We are paying for it one way or another,” he told Tribune Business. “Is is more appropriate to pay for it via a demand use charge or a direct taxpayer charge where the latter may not all be persons using the service.

“They still have to subsidise it. We are taking the approach everyone has to pay and they may not all be the consumers.” One example is the Water & Sewerage Corporation, which received a further $20m subsidy in the 2022-2023 mid-year Budget, taking total taxpayer support for the year to $54m to finance both its capital projects and bills due to its reverse osmosis suppliers. Not all Bahamians use the Corporation’s services due to the proliferation of private wells.

And an Inter-American Development Bank (IDB) study of key public expenditure areas, dated February 2022 but only recently released, confirmed what has long been known - that both Bahamas Power & Light (BPL) and the Water & Sewerage Corporation are selling their products at prices below the cost of production, resulting in consistent heavy losses. The latter has not seen a tariff rise since 1999 despite the impact of inflation on its input costs.

Successive administrations, particularly in the Water & Sewerage Corporation’s case, have preferred that taxpayers subsidise the cost for Bahamian consumers. “The decision has to be made: What is the recovery at market rate, and can we ultimately engage private management that is competent and open these areas and wean them off government support in the provision of these services,” Mr Bowe asked.

Arguing that The Bahamas “needs to move past the cliche” of private-public partnership (PPP)” to where such arrangements are implemented in practice, he said annual pledges to cut subsidies to loss-making SOEs were little more than “idle promises” when it came to those providing essential services because consumers cannot afford for them to be cut-off.

And, due to the regressive nature of the Bahamian tax system, the Fidelity Bank (Bahamas) chief said: “It will be the less fortunate individual subsidising those more fortunate because they are not directly targeting the subvention. To provide it they are taking taxpayer dollars and giving them to the users of these enterprises.”

Mr Bowe added that The Bahamas has to “mature as a society”, and become familiar with the terms “you get what you pay for” and “render unto Caesar what is due to Caesar”. This means Bahamians have “to stop crying about paying taxes” if they want to properly fund the public services they desire to receive.

“If you want electricity, water and airlift and not put them in the private sector, we can’t complain about the price we have to pay,” he said. “It’s not all on the Government. We as citizens have responsibilities. We have complained about bad policymaking or the results, but have not taken action as responsible citizens to improve it.”

The majority of the SOE increase is an extra $20m allocated to the Water & Sewerage Corporation to help pay bills due to its reverse osmosis suppliers. Another $3m is being provided to the Bahamas Public Parks and Beaches Authority, taking its total subsidy for 2022-2023 to $27m, while the University of The Bahamas is to receive a further $5.2m in taxpayer subventions.

The Airport Authority, too, is to receive an additional $4m to help cover its “operating expenses”, which will bring its subsidy to $12.542m. The increases unveiled in the supplementary Budget represent a reversal of the Minnis administration’s plan to cut SOR subsidies by a collective $100m over three years, and are heading in a different direction from that unveiled by the Government’s recently-published Fiscal Strategy Report.

To enable a $38.278m increase in the Ministry of Education’s capital budget, so as to facilitate school repairs and new construction, cuts have been made elsewhere. The Ministry of Works and Utilities’ capital budget has been slashed by some $20m to $101.399m, with cut backs in areas such as building maintenance, bridge repairs, road repairs, ports and docks, water and airport infrastructure. The $20m cut matches the increased Water & Sewerage subsidy.

The Ministry of Finance’s capital works budget, too, has been lowered by some $18.069m. Small and medium-sized business support has been cut by 50 percent, from $8m to $4m, although financing to aid this sector is contained elsewhere in the Budget. And funds earmarked for Family Island capital development have been reduced by $10m - from $12m to $2m.