VAT

Budget 2019/20 – Much Ado About Nothing

  • Budget communication falls flat

  • Government has credibility deficit

  • No relief in sight for hurting masses

  • Focus on figures at the expense of Bahamians

  • Duty reductions will have minimal impact after VAT


The Minister of Finance delivered his third Budget Communication in the House of Assembly yesterday to a nation in desperate need of hope and some positive news. Once again, the Free National Movement (FNM) administration showed its lack of compassion and disconnection from the plight of the masses. The delivery of the communication was both uninspiring and underwhelming, while the extended rendition of shallow pronouncements was painful to watch.


In a communication that fell flat for most Bahamians, the government’s idea of positive news was the continuous reminder that the Value Added Tax (VAT) rate will not be increased again. In the aftermath of a 60% increase in the VAT rate in the previous year, this heartless administration expected nationwide jubilation for choosing not to worsen the financial condition of the Bahamian people.


Bahamians can now confirm that the Democratic National Alliance (DNA) was right in its assessment of the 2018/2019 budget of hardship when we stated that the government would fall short of its revenue projections and the economy would be negatively impacted. The admission by the Minister that the government fell short of its revenue target by hundreds of millions of dollars is testament to the accuracy of our prognosis a year ago.


The government is projecting that the GFS deficit for 2018/2019 will come in at $229 million dollars despite the revenue shortage as a result of spending cuts. We note that this administration was forced to admit that the Minister of Finance’s deficit forecast for the 2017/2018 fiscal year was higher by $105 million dollars. Hence, the government has a credibility deficit when it comes to projections on both revenue and expenditure.


We witnessed another episode of self-aggrandization and pats on the back by politicians who have forgotten that they are not doing taxpayers any favors but rather spending our hard-earned dollars on projects they select. The reduction in customs duties to the tune of $28 million in the face of the massive increase in taxes to the tune of $500 million last year is a slap in the face of struggling Bahamians. A closer look at the reduced tariffs and the affected items for the 2019/20 budget will show that they will have minimal impact on the finances of majority of Bahamians.


It was noted that the deficit is at its lowest in 10 years and the Minister demanded some commendation for this achievement. What he failed to mention is that 10 years ago, the government’s revenue was half (about $1.3 billion less) of what it is today, and total expenditure was $1 billion less than it is in 2019. Hence, within a decade, successive administrations have significantly increased taxes on the backs of the Bahamian people to fund their insatiable appetite for spending and wastage.


The current administration is out to lunch and oblivious to the dilemma of Bahamians challenged to make ends meet daily. They believe that eliminated tariffs on pencils, crayons and sharpeners is worthy of praise while being convinced that several Bahamians have the disposable income to embark on the purchase of new furniture and appliances. This follows a recent international report that notes that The Bahamas is the fourth most expensive nation in the world to live in. While taxes and fees have continued to rise, so have unemployment figures while the income of average Bahamians have remained the same or lowered.


The budget communication perpetuates the practice of the Progressive Liberal Party (PLP) which places the burden of taxation on the poor and the middle class. The pontification on tax fairness is disingenuous when taxes are not based on individuals’ earnings and ability to pay. The current system of governance for special interest groups will not change until there is campaign finance reform in The Bahamas. Until then, he who pays the piper will continue to call the tune and the decimation of the Bahamian middle class will not cease.


The highlight of the show that was the budget communication was the suggestion that the FNM is committed to meritocracy. This follows several conflicts of interest, failure to provide details on spending, appointment of FNM cronies to high-paying jobs, award of contracts to supporters without a transparent bidding process and political interference in government agencies among others.


The DNA will be taking a deeper dive into the numbers within the actual budget in the days ahead and provide the Bahamian people with the key themes from a budget that is anything other than the people’s budget.


Arinthia S. Komolafe

Leader

Democratic National Alliance


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