The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has been urged to cut spending by 20 per cent over the next five-10 years, with a top QC warning Bahamians they must abandon “cradle to grave entitlements”.

Brian Moree QC, senior partner at McKinney, Bancroft & Hughes, told Tribune Business that the Bahamas “desperately needs” a reworking of its governance model in order to reduce the size of government.

He warned that tax reform and Value-Added Tax (VAT) was “not a panacea by itself”, joining calls from numerous private sector executives for the Government’s fiscal reform efforts to also focus on spending cuts and better collection of existing taxes.

And Mr Moree also echoed concerns about giving the Government a ‘blank cheque’ in terms of what it did with the extra $500 million revenues it is projecting to raise from tax reform, expressing concern that it would simply be used to finance more spending – rather than debt and deficit reduction.

The highly-respected QC added that unless the Christie administration also showed it was serious in these two areas, “entrenched scepticism” about its ability to enforce and administer VAT would not abate.

“Tax reform by itself is not a panacea, and it has to be accompanied by significant, real cuts in public expenditure and enhanced collection of existing taxes,” Mr Moree told Tribune Business.

The Government’s recurrent spending, which covers its fixed costs such as wages, salaries and rents, will have increased by almost 60 per cent in the decade that is set to end on June 30, 2014, its own figures show.

For the 2003-2004 fiscal year, recurrent (fixed cost) spending was pegged at $1.091 billion, with capital expenditure at $116 million.

Yet for the current 2013-2014 fiscal year, recurrent spending is estimated at $1.737 billion - an almost $650 million increase over 10 years. This translates into a more than 59 per cent increase over 10 years and, even allowing for inflation, the Government’s fixed costs will have risen by around 40 per cent over that period.

This shows how the size of government has risen with no appreciable increase, or improvement in, the quality of services provided to the Bahamian people.

Using today’s numbers, the 20 per cent spending cut called for by Mr Moree would imply a reduction in recurrent spending by $348 million to $1.389 billion.

Mr Moree, meanwhile, focused on real property tax as a prime example of the Government’s failure to enforce the Bahamas’ existing tax system, describing it as a “relatively easy tax to collect”, despite the 2010-2011 Auditor-General’s report finding that some $550 million remained outstanding – including $95 million for that fiscal year alone.

“In order to convince the Bahamian people about the ability of the Government to administer and manage any new tax system, the Government has to demonstrate that it is credible when it talks about cutting public expenditure and reducing the size of government,” Mr Moree added, “and, when it addresses this subject, improvement in collection of existing taxes.

“If you don’t convince the Bahamian people you are serious about these two issues , and are actively able and willing to achieve them, then there will continue to be entrenched scepticism about the ability of the Government to collect and manage any new taxes.”

The Government’s proposed fiscal reforms have, to-date, largely focused on revenue raising measures. There have only been vague references to cutting, or controlling, government spending, most Christie administration statements referring to containing expenditure in line with economic growth and inflation.

“Government is far too large in the Bahamas,” Mr Moree told Tribune Business. “It’s omnipresent, everywhere. I don’t suggest you could address this overnight, but I think public spending, over a period of five-10 years, could be cut by 20 per cent.

“That’s why we can’t seriously talk about fiscal discipline and cutting spending without reducing the size of government. It cannot happen without reducing the size of government.

“It seems to me we in the Bahamas desperately need to re-orientate the governance model for the Bahamas, in order to make it more efficient, more responsive, less bureaucratic and much more focused and disciplined,” Mr Moree added.

“Implicit in that process is a reduction in the dependence we Bahamians have on government. We’re going to have to accept as Bahamians that we cannot afford cradle to the grave entitlements. We simply cannot afford it.

“This is a very important development that has to take place if there’s going to be a serious plan to reform government, reduce its size, cut its costs and get rid of the bureaucracy.”

Mr Moree also expressed concern that the Government would use the $500 million revenue increase it is projecting from VAT and other tax reforms to simply fuel more public spending, rather than putting it towards the stated objective of debt reduction and deficit elimination.

The noted QC added that history was littered with examples where governments, enjoying the luxury of more tax revenues, simply increased spending. As a result, fiscal deficits and national debts continued to mount at speed.

“I strongly believe that if we’re going to accept a heavier tax burden, we must not waste this money,” Mr Moree told Tribune Business.