VAT

DNA Responds to IMF Article IV Statement

·      IMF confirms aspects of DNA’s position on economy

·      FNM approach inherently flawed and socially disruptive

·      Government ignores significant impact of VAT increase

·      Fiscal accomplishments disconnected from plight of masses

·      Economic and financial service growth plan still lacking

 

The International Monetary Fund (IMF) in its recently released statement following discussions on the 2019 Article IV consultation provided confirmed observations that have been made by Bahamian experts over the years.

 

The Democratic National Alliance (DNA) acknowledges the efforts made by the government to address the fiscal challenges confronting our nation but contends that the approach adopted is inherently flawed and socially disruptive. The sixty percent increase in the regressive Value Added Tax (VAT) rate and the aggressive timeline for elimination of the GFS deficit has imposed significant hardship on the Bahamian people.

 

In its statement, the IMF estimated growth in Real Gross Domestic Product (GDP) of 2.3% at 2018 and projected 2.1% for 2019. However, the economic growth rate is projected to stabilize at 1.5% in the medium term in the absence of a comprehensive economic growth plan which could deliver the 5.5% required to absorb new entrants into the labor market annually.

Our nation remains plagued by unemployment in double digits and youth unemployment at an alarming rate of 23%. The fiscal targets and accomplishments touted by the government have simply failed to translate into economic empowerment or relief for the Bahamian people. The current administration has simply continued the infamous friends, family and lovers’ mentality.

The absence of a growth strategy for the financial services industry has reduced our government to a blacklist avoidance and escape agency.

 

The government is under pressure to restore credibility to financial planning and fiscal projections communicated to the nation under the watchful eyes of international observers. Expenditure and revenue forecasts cannot simply be inserted into the national budget as placeholders but must be underpinned by realistic expectations and assumptions. The current administration must find the empathy to end its relentless assault on the middle and working class in our society. The pontification on prudence in public sector hiring has been discredited by subsequent admission that terminated employees have been retained or replaced. They must rein in expenditure while discontinuing the tax, spend and borrow philosophy which burdens residents under a regressive and oppressive system of taxation.

 

The DNA has long advocated for a comprehensive review of the Bahamian tax system and the introduction of an equitable tax regime. The IMF noted that “Global tax trends and the prospective accession to the WTO thus present an opportunity for a comprehensive review of the Bahamian tax regime with a view to achieving a more equitable and less distortionary tax system. To strengthen transparency and inform future policies, a quantitative review of existing tax and other investment incentives is recommended”.

 

It is regrettable that the Free National Movement (FNM) is heavily influenced by special interest groups and party loyalists that do not want a progressive and equitable tax system. The endangered middle class and less privileged have been relegated to the proverbial backburner with no relief in sight as a result.

 

We have long called for initiatives aimed at addressing structural deficiencies within the Bahamian economy and deliberate efforts to improve the ease and cost of doing business. The DNA maintains that the government has failed to make the case for The Bahamas’ accession to the World Trade Organization (WTO) in an environment that places Bahamian businesses at a competitive disadvantage.

 

The current administration is notorious for not taking advice or counsel originating from locals but has gained a reputation for moving with haste to implement recommendations made by international and multilateral agencies. Perhaps they will now implement policies that benefit the masses now that the IMF has implored them to do so.

 

Arinthia S. Komolafe, Leader

 Democratic National Alliance

Government imposed hardship not delivering desired results

  • Lazy approach to governance continues

  • Bahamians will not forget hardship FNM imposed

  • DNA warned government on projections

  • Revenue shortfall was foreseeable

  • Poor planning, poor execution and incompetence impacting credibility

The Free National Movement (FNM) opposed the imposition of Value Added Tax (VAT) while in opposition and described the introduction on taxes on the Bahamian people as a lazy approach to governance. In true fashion and living up to their reputation as hypocrites, they increased the VAT rate by 60% on the backs of the struggling masses.

The Bahamian people will not forget the actions of a government that passed a budget of hardship. A government that focuses more on numbers than economic growth and the people that are impacted daily with rising cost of living.

The Democratic National Alliance (DNA) warned the government against embarking on an overly aggressive timeline for eradicating the fiscal deficit and urged them to develop an economic growth action plan. We further advised them that based on elementary economics, it has been proven that an increase in tax rate does not automatically yield a corresponding increase in tax revenues.

It comes as no surprise that the Minister of Finance has finally admitted that the government will fall short of its projected revenue for the 2018/2019 fiscal year by seven percent or a whopping $185 million.

The argument that the renegotiated tax structure for gaming houses, lower than expected VAT collections and delay in the establishment of the Revenue Enhancement Unit is responsible for the shortfall is simply unacceptable and inadequate. It speaks to the poor planning, unreliable assumptions, incompetence and poor execution by the government. The FNM administration cannot talk this away or minimize their failure in meeting projections that have been relied upon by Bahamians, investors and international agencies. This could negatively impact the credibility and trust reposed in our nation’s projections in future.

While their admission is commendable, it was always foreseeable and does not exonerate them from this embarrassing outcome. Having placed Bahamians and taxpayers under intense unnecessary financial strain to meet their own self-imposed targets, the DNA submits that an apology is warranted.

As part of its budget of hardship and pain, the government had sought to extract an additional $500 million out of the private sector and by extension the economy. The Minister is now hopeful that they will collect about $400 million in extra revenue as a result of the increases in VAT, fees and other taxes. It is unfortunate that this administration’s focus is not the people but rather making the figures look good; an objective they are also failing to achieve.

The Bahamian people are still waiting for this administration to unveil its economic growth plan rather than grandiose announcements and public rewarding of special interest groups and political supporters.  In the absence of a plan, the government is still struggling to get its fiscal house in order. A priority item for any administration should be addressing the burden and inefficiencies State-Owned Enterprises (SOEs) impose on the public purse and ultimately the Bahamian taxpayer. It is common knowledge SOEs receive subsidies and subventions to the tune of approximately $400m annually.  The Government has announced that further studies and analysis will be commissioned in the coming months. This is in spite of multiple studies and reports on SOEs over several years and successive administrations. After almost two years in office, they still lack a comprehensive strategy or plan for SOEs and continue to pontificate with political rhetoric while wasting taxpayers’ funds.

There is nothing to celebrate in the mid-year budget statement for the average Bahamian who continues to struggle to make ends meet amidst rising unemployment. Any commentary on the reduction in the fiscal deficit year on year must be considered in the context of a massive increase in taxes by this government. They continue to pat themselves on the back at the expense of the masses that have seen a decrease in their disposable income and spending power while special interests’ pockets continue to be lined. The Bahamian people are simply not impressed with this uncaring government.

The DNA calls on the government to shape up and harken to the voices of the people. As the saying goes “Time is longer than rope”

Arinthia S. Komolafe, Leader

Democratic National Alliance


Government Urged: Release Fiscal Forecast Details

  • Fiscal projections were in jeopardy before legal challenges

  • Budget impact analysis remains a secret document

  • Transparency and accountability continue to elude us

  • Details of projections should be released

  • Actions fuel suspicion that no financial modeling done prior

 

It was recently reported that the Minister of Finance believes that the legal challenges by the web shop industry will put additional pressure on the Government’s 2018/2019 fiscal projections. This is bearing in mind that the Government had supposedly anticipated an increase in revenue of between $30 million and $40 million based on changes to the taxation system for this industry.

The Minister further suggested that a cutback in the form of more austere measures may be on the horizon should the Government be unable to meet its revenue targets. This is unacceptable; the Bahamian people should not be subject to additional hardship and suffering due to the lack of proper analysis, planning and consultation prior to the implementation of new fiscal measures by the Government.

The Government has ignored repeated calls for the release of the economic impact assessment conducted to justify the significant hike in the VAT rate, other taxes and fees. Rather, the modelling and forecasts document that was referenced remains shrouded in secrecy and away from the Bahamian people. The Government has effectively chosen to ignore the people’s demand for transparency, accountability and good governance while seeking our empathy for potentially missing their revenue targets.

We note that there was significant resistance to the proposed revenue measures in the lead up to the budget debate. The duplicitous actions of the current administration in increasing the VAT rate after opposing the implementation of this tax while in opposition has been highlighted on numerous occasions. The Government was advised that an increase in the tax rate will not necessarily translate into a corresponding increase in tax revenue with potential consequences in the form of reduced consumer spending, confidence and purchasing power. The reality is that the risk of missing revenue projections was always present prior to the legal challenges referenced by the Minister.

The adhoc policy decisions on certain tax measures fuel the suspicion that no proper financial modelling was done by the Government prior to the preparation or implementation of the national budget. We are hopeful that this is not the case and urge the Government to dispel this notion by releasing their detailed projections to the public. The revised projections will ideally factor in the purchase of the Grand Lucayan, the tax revenue forgone for breadbasket items, VAT exempt implications for insurance products and medicines, the increase in the VAT exempt minimum threshold for BPL customers and reversal of the tax treatment for owner-occupied dwellings.

In releasing the economic impact analysis, the Bahamian people will be better informed on the anticipated impact on Gross Domestic Product (GDP), unemployment, the poverty index, inflation and consequently economic growth projections. The Bahamian people are intelligent and can decipher information for themselves. This is the least that we can expect from the people’s time government.

 

Arinthia S. Komolafe

Deputy Leader, Democratic National Alliance

The “Rich People’s” Budget

Let them eat cake or salmon! After examination of the budget communication by the new Minister for Finance, Peter Turnquest on behalf of the new FNM administration it is clearly a budget which favors the rich but does very little for the small man.

In their latest campaign promise bait and switch, the FNM has moved away from reducing duties on bread basket items, and instead decided to reduce duties on “much needed” goods and foods like salmon, cakes, x-ray machines and gym equipment.

The FNM has backed away from it’s pledge to reduce Value Added Tax on core items and services. Similarly they have also backed away from their inner-city tax initiative which was supposed to be a Hallmark of their government. That promise, however, was unsustainable as suggested by the IMF and other analysts prior to the election. That did not stop the FNM from saying it because they felt they could win by telling Bahamians anything!

We are left to wonder if Minister Turnquest’s declaration of “No New Taxes” was true and sincere. At the rate at which the FNM has backed away from central themes of their 2017 campaign, we are not prepared to believe that the FNM administration will not back away from their promise of “No New Taxes” or little else it has proposed to do!

The DNA notes The FNM pledges to borrow in excess of $720 million dollars in the current fiscal cycle. $400 million will be borrowed to cover the shortfall of the 2016/2017 budget deficit of a “staggering” $500 million dollars. Additionally, $320 million dollars is expected to be borrowed for the next budget year 2017/2018! Unbelievable! Unthinkable!

The DNA believes this is too much, too soon for the forecasted borrowing estimates for the 2017/2018 fiscal year. The conventional wisdom is that if you borrow that much in advance on the expectation of expenditure, without even presenting a budget slimming programme to go along with it, you will run the risk of spending that which you forecasted to borrow and we will be back to higher debt for the foreseeable future.

This magnitude of borrowing begs obvious questions which the Minister has yet to answer. They are:-


1. Where will the money come from to finance this debt?
2. Will new forms of taxation be introduced?
3. Will the VAT rate be increased?
4 Who is waiting to finance this debt?
5. What are the proposed terms upon which this debt will be borrowed?
These must be answered, brought to parliament and debated. The Bahamian people deserve to know.

The DNA also waits patiently for the approved estimates, because, while we appreciate more invoices and receipts will be uncovered, it is our expectation that the final deficit for the 2016/2017 budget will eclipse $500 million dollars. Further, we hope that the new Minister does not transfer the accounting cost of the 2016/2017’s debt into the new 2017/2018 fiscal year. We hope the current administration will not continue this process employed by the previous PLP administration in an attempt to hide the accounting cost.

The former administration has left the country finances in a deep financial hole that we will not be able dig ourselves out of any time soon, however it must never be forgotten that it was the FNM that added to the same financial mess when they were last in office. In fact, in June 2013, the current Prime Minister who at that time was leader of the Opposition, conceded that it was the FNM that left economy and its finances in a wheel chair. Now, the current Deputy Prime Minister and minister of finance has likened the state of the country’s finances, after 5 years of PLP governance, to a house with bare cupboards. The narrative between the FNM and PLP is ominously similar. Both of them have exploded the country’s debt.The clear take away from this budget is that the FNM has turned “The People’s Time” into “Their People’s Time”. This is a budget for the rich and not the small man, or the inner city.

In summary: This new FNM administration has backed away from many of its campaign promises and commitments just weeks after winning office, giving us a better understanding that they were unaware and incapable as an Opposition Party especially with its use of the Public Accounts Committee. They never addressed core issues nor gave real solutions aside from bashing the then sitting government. They are setting themselves up to be nothing more than a care-taker government, with no real plan for the Bahamian people and, the growth and development of this country!

The DNA still stands ready to hold this government’s feet to the fire and to the promises which they made to the Bahamian people!

Chris Mortimer
DNA Deputy Leader