The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known businessman yesterday suggested that the Government’s plan to redistribute $30 million in Value-Added Tax (VAT) revenues to prevent it from increasing poverty levels exposed the “inefficiency” of its preferred tax reform option.

Ethric Bowe, principal of Advanced Technical Enterprises, told Tribune Business that VAT seemed counter-intuitive, given that a portion of its revenues would have to be returned to some of the very same people it had taken monies from.

Noting that the conclusions of the Inter-American Development Bank’s (IDB) study on VAT’s likely economic/social impact on the Bahamas were not surprising, Mr Bowe suggested that national debate should instead focus on boosting productivity and economic growth, and reducing crime and associated costs.

Focusing on the study’s findings that VAT would increase poverty levels without a compensating expansion of social safety nets, Mr Bowe said: “It’s interesting that everybody agrees people are going to be made poorer.

“You’re going to cause the poverty [by introducing VAT], and then you’re going to take the money you’ve taken from the people to give back to the people, except you’re giving it back to different people. That seems a bit inefficient.”

The IDB study had estimated that the poorest Bahamians would face an 11.2 per cent spending/disposable income cut over 10 years as a result of Value-Added Tax (VAT) if no ‘social safety net’ was provided, with poverty levels increasing in line with the tax rate.

It added that poverty “would increase” in almost all the scenarios/models it ran unless the Government took action to counter the impact on the poor.

In 10 of the 16 models run, low income Bahamians (the poorest 20 per cent) suffered a decline in disposable income/purchasing power.

And, for those Bahamians in the next quintile up (20-40 per cent, or the working and lower middle class, their disposable income/purchasing power fell in 15 out of the 16 scenarios.

“In the case of the scenario with VAT rate of 15 per cent, the fall in expenditure for the quintile one (poorer 20 per cent of the population) amounts to 11.2 per cent of the levels of the baseline scenario,” the IDB study said.

“The need to complement the introduction of the VAT with a social safety net program is a clear message that transpires from the simulation exercises.”

In response, John Rolle, the Ministry of Finance’s financial secretary, told Tribune Business that the Government “would restore spending power” to lower income Bahamians via a “redistribution” of the increased revenues earned from VAT.

No new social security programmes will be initiated, he added, implying that the Government would seek to mitigate VAT’s impact on the poor and working class Bahamians via increased assistance through existing mechanisms.

Meanwhile, both Rupert Roberts, Super Value’s owner and president, and Dionisio D’Aguilar, the Superwash president, agreed that the IDB’s findings in relation to poverty and cuts in consumers’ disposable income/spending power under VAT came as no surprise.

Mr Roberts said the report was “saying what the whole community has been saying all along”.

Mr Bowe, meanwhile, urged the Bahamas to focus on widespread improvements in productivity, pointing out that everyone was paying for corruption, waste and inefficiency in government, plus the costs associated with crime.

“My point from the very beginning is we’ve got to improve productivity, we’ve got to make ourselves more productive,” Mr Bowe told Tribune Business. “That is not a solution that can come from government; that is a solution we all have to do.

“We need the business leader, the Government, the church leaders, the educators, every facet of society has to be preaching a fair day’s work for a fair day’s pay.

“I get paid $500 a day; I have to do $500 of work. We have got to grow this economy. The Government can help by removing the barriers to being more efficient. We are losing a lot to inefficiency.”

Suggesting that increasing the minimum wage was “as socialist as I want to get”, Mr Bowe said the debate had to focus on productivity at the same time, adding: “We cannot be a wealthy nation if we have poor habits.”

He added that Bahamians were being taxed to pay the salaries of public sector workers, and if they failed to give ‘value for money’ they became “a drag on the economy”.

“If we call it VAT or go through what we’ve been going through every July, we have to make people poorer to match the output,” Mr Bowe said.

“It’s a mindset change we have to go through, but the mindset change has to start at the top. When we talk about corruption, when we talk about waste, when we talk about the costs of crime... if we look at the costs associated with crime and fix that, we might not need VAT.”