EDITOR, The Tribune.
With all due respect to Mr. Tony Gomez, whom I know to be a well-informed Bahamian professional, the answer to getting value from wealthy foreign residents in our country is far simpler than he suggests. We just need to tax them more.
If anyone is expecting wealthy residents to miraculously create economic growth just by being rich and being here, then they are fundamentally misunderstanding the nature of capitalism.
Covid-19 is infectious. Wealth is not. In fact, the very wealthy are so good at keeping their wealth to themselves that a whole industry exists to support their efforts. This industry was once huge in The Bahamas but ironically seems to thrive less where its customers are physically resident – hence “offshore”.
In neo-liberal capitalism, people who become billionaires do so by extracting profits either from other people or from natural resources. If you are sane, rational and have a choice in the matter, you do not want foreigners doing either of these things unrestrictedly inside of your country – especially if you are tiny and trying to sustain your own nascent local business class.
Rather, you want to attract investors that bring their own (foreign) customers from which to extract their profits, while you determine (through immigration, tax and labour policies) how the benefits of that profit-extraction are leveraged and distributed domestically. No added benefit accrues from these investors actually living in the country.
That is why the creators of that ingenious thing called “Bahamianization” explicitly prohibited foreigners from operating within our domestic economy. Instead, they limited them to selected, major investment activities that comprise the ‘external’ economy. When we began to blur this distinction is when our economic model (and the middle class that it created) began to falter.
Atlantis and Baha Mar are of course owned by foreigners. But since they form part of the external economy, they extract their profits almost exclusively from other foreigners, rather than from the domestic Bahamian economy. The only parts of the exchange that Bahamians are involved in are the beneficial ones: jobs, contracts and the purchase of local business and professional services (all of which are reserved for Bahamians).
Contrast this to the impact of the myriad wealthy foreigners now resident in The Bahamas. Quite apart from pricing Bahamians out of scarce land resources, they often complicate efforts to protect domestic businesses and labour from competition. The Filipino community clearly benefits from Lyford Cay, but it is hard to see how, on balance, the wider Bahamian one does.
Moreover, when wealthy foreign residents are pressured to invest locally, they naturally look to areas historically reserved for Bahamians. Inevitably, the conversation then turns to the impediments to doing business in The Bahamas - by which they do not mean, for instance, the ambush predators known locally as “banks” (and to which, unlike Bahamian businessmen, they themselves are not prey). Rather, they tend to mean such things as our pro-Bahamian immigration rules and other polices that created our middle class.
Having gotten into the business of massive foreign residency by accident, rather than design, successive Bahamian governments have been convinced by self-interested professional lobby groups that this policy is a natural recipe for economic growth, which we are somehow not properly harnessing.
The reality, however, is that it is far from a natural recipe for economic growth. In fact, it is a more natural recipe for economic malaise (displacement of locals, inflationary price rises and a consequent reduction in local spending power and living standards) if not managed carefully. That is why well-governed places that attract lots of wealthy second homeowners all have one thing in common: extremely high taxes on luxury properties.
West Palm Beach does not have to ask itself how it can benefit from its many billionaire second home owners. It is too busy benefitting itself by building its schools and libraries and keeping its roads immaculately manicured, courtesy of the high property taxes that it collects from them. If they don’t pay, it takes their homes and sells them to others who will. Far from harming its luxury real estate market, this keeps it active and within reach of enterprising locals.
No mansion in West Palm Beach has anything on the average cay in the Exumas. Yet while both are prohibitively expensive to most locals, the latter carries a tax concession so extreme that it signals a government literally begging for rich residents merely for the sake of having them around – then expecting economic benefits to magically drop from them.
Unless we propose to slash local wages to Filipino levels and retrain our professionals as maids and gardeners, the only benefit that most Bahamians can ever possibly derive from the presence of wealthy foreign residents here is the opportunity to collect high, progressive taxes on the luxury properties that they alienate from Bahamians.
Yet this is the very thing our governments seem determined not to do - and our professional classes and media equally determined not to talk about.
ANDREW ALLEN
Nassau,
November 21, 20
Comments
joeblow 2 years, 4 months ago
... the ultra wealthy have one thing most Bahamians do not, options!
skeptic 2 years, 4 months ago
And so they leave......so what????? Did you not read the remainder of my letter? Their presence here has NO positive effect on balance. Don't confuse "investors" with "foreign residents".
Someone who comes here and buys a house brings very little to the economy, but they drive up costs massively by land-based price inflation that filters through the whole economy.
No sane place on the planet wants rich foreigners to live among them just for the sake of it. Hence there is a direct relationship between HIGH property taxes and places that host them - except the Bahamas!
It's like the Haitian migrants threatening to leave. The only difference is that the Haitian migrants do NOT price us out of land and play an important role in our economy that benefits most Bahamians.
You seem to be confusing foreign investors (people who invest in our productive sectors, make their money off foreigners and DON'T LIVE HERE) with an activity (high end real estate) that benefits only people like me (a land lawyer) and realtors.
Please actually look into things before engaging a knee-jerk reaction.
joeblow 2 years, 4 months ago
... since "land based inflation" actually occurs, then that is an automatic benefit of high net worth individuals being in the country since every person involved in the sale of all land benefits (sellers, mortgage corps, banks, lawyers etc) from these inflated prices which puts more money into circulation, not including jobs created by ongoing construction etc. This suggests your argument is a specious one!.
Proguing 2 years, 4 months ago
Please explain why your party just lowered VAT on real estate transactions above $2 million and simultaneously imposed VAT on breadbasquet items? Maybe you should have voted for the FNM.
skeptic 2 years, 4 months ago
My party? The tribalism is really sad. For the record, I have more family and other connections to the FNM than the PLP. I just know that the FNM is by far the worst at disfiguring this country in favour of the wealthy and slowing its growth and wrecking its middle class by its policies. Not a PLP. Just a patriot, I'm afraid. But think what you like.
Proguing 2 years, 4 months ago
Maybe I should have said PLP apologist:
http://www.tribune242.com/news/2017/a...">INSIGHT: Six reasons to vote PLP
https://www.bahamaslocal.com/newsitem...">https://www.bahamaslocal.com/newsitem...
http://www.tribune242.com/news/2021/s...">A happy day for The Bahamas
etc.
C2B 2 years, 4 months ago
Outside of property tax, there is nothing else to tax. These people are experts in Offshoring and many use multiple domiciles. Some domiciles allow for income to convert to Capitol over time and then it can be repatriated to their original home Nations without paying tax. Grand Cayman and Barbados are two great examples of competitive domiciles; they don't have to listen to nonsense like you suggest, Andrew. I know it sounds great to take from the rich foreigners to pay for the mismanagement of a banana republic, but the reality is very different. They can leave and you are stuck; that's the truth.
skeptic 2 years, 4 months ago
"Outside of property tax, there is nothing else to tax" says a person who lives in a land that collects only 18 percent of GDP in taxes (among the lowest on earth) and does not tax income, corporate income, capital gains etc. and stands out among a tiny handful of countries that do not tax them. And which gains ZERO benefit from not taxing them as only monies made in the DOMESTIC economy (i.e. Colina, Arawak Homes, J. S. Johnson and local multimillionaires) would be paying. Please, think and read up on our economy before you just engage in reflex. There is no mystery to these things. It is just STUPID policy.
Dawes 2 years, 4 months ago
Mr. Allen shows his ignorance in this letter. Although i agree with increasing property taxes, that is all that can be increased. Also to say the only benefit is the Fillipnos and maids and gardeners, misses the fact these people will live in homes built by Bahamians, eat in restaurants staffed and owned by Bahamians, shop in supermarkets owned and staffed by Bahamians, and on and on. If you are going to write a letter at least be honest in it.
skeptic 2 years, 4 months ago
Ok. Let's test my ignorance then. Where do you base the assertion that wealthy second home residence contribute vastly to our economy by consumption? All of the evidence is that the poor by far the largest consumers and this is clearly demonstrated by anecdotal evidence in The Bahamas. This is why most commercial activity (even owned by wealthy Bahamians) is concentrated adjacent to poor, not wealthy areas. It is also evidenced by the fact that every raise in minimum wages or reduction in consumer taxes quickly enlivens the whole economy.
Besides, any benefit to the economy by the mild consumption by wealthy second home residents would be outbalanced vastly outbalanced by the price inflation that their assault on our available land resources represents. It diminishes the spending power of Bahamian consumers and lowers growth. This is widely accepted economic reality. But if you choose to deal with things emotionally, rather than scientifically, then I guess even a cost-benefit analysis would not satisfy you.
Has a cost-benefit analysis even been done to support the insane policy that our governments have followed since 1992. Or will we wait until the entire middle class is finished and growth gets harder and harder, requiring even more suicidal give-aways and concessions? It is pure non-sense.
Dawes 2 years, 4 months ago
I will assume that when talking about wealthy foreigners you are talking about the gated areas out west. Those areas which have a large number of restaurants then the east. I take it that if all the foreigners stopped spending you feel these restaurants will stay open, as they will not be affected. In addition each home has to have been built (unless the magically appear), who builds them? I agreed that property taxes should increase, but i disagree with your view that we gain nothing else from them. In addition if someone is a second home owner but not working here, how are you going to tax their income? That is earned elsewhere?
skeptic 2 years, 4 months ago
I do not know your age or circumstances, but can assure you that I have a lot more experience with these "wealthy areas our west" having grown up and lived in them since the 1970's (first Prospect Ridge, then Old Fort). Until the MIDDLE CLASSES began moving to places like Tropical gardens and the new subdivisions out west, you could hear the crickets as you drove past the airport. The middle class Bahamian is the only reason for the activity you now have in the far west.
I grew up visiting "Lifeless Cay" since childhood, through teens and twenties charging on my dad's account in the club and the place had no life and attracted virtually no commercial activity until very recent years. Now contrast that with Carmichael road, which had no electricity when my grandfather died living there in 1977. Look at it now. Every single major business from Home Fabrics, to J. S. Johnson, to Modernistic Gardens to the 5th Terrace lab to every bank, foodstore and fast food outlet.
The rich are notorious for being miniscule spenders. And it is beyond serious debate that spending by the poor and middle far outstrips them, especially in an economy like ours.
Besides, even if they did spend, this is massively outweighed by the downsides of their being here as residents. Only by taxing luxury property massively and discriminatively can we make any sense of having them here as second home residents.
It is now beyond clear that Bahamian high end real estate is highly demanded and recession proof. Just read the papers. How on earth can we justify tax concessions to attract it, when taxes are the main benefit of having it?
Again, look at West Palm Beach and all the other places that are in the business of luxury real estate.
Dawes 2 years, 4 months ago
You keep going on about west palm beach, the only time they make more money on the high end properties is when it is over $6 million (which is our top rate). I have agreed that we should not have a limit on real property. however to think that will raise a lot of money is nonsensical. So how do you propose to raise all this serious money without all those areas disappearing? What taxes do you think we should implement.?
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