The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s plans to raise an extra $500 million in annual tax revenues buy 2017 will “definitely cause a recession”, a prominent businessman warned yesterday, as it represents a massive wealth transfer to the public sector.

Dionisio D’Aguilar told Tribune Business that the Christie administration’s revenue goals meant it would “suck” a sum equivalent to 6.25 per cent of current Bahamian gross domestic product (GDP) away from consumers, households and businesses.

“If you do that, it’s definitely going to cause a recession,” the Superwash president told Tribune Business. “You’re taking a massive amount out of circulation.

“The thing that worries me is that $500 million is coming out of the economy, and at $8 billion it’s only so big. Right now, that $500 million they want is in the hands of individuals. They’re going to take that from individuals and businesses, and out of the economy.”

Tribune Business revealed yesterday how the Government’s fiscal consolidation plans are aiming to generate an extra $500 million in tax revenues, on top of what it currently earns, by 2017.

While 200 per cent, or 40 per cent, of this increase is projected to be earned from the new Value-Added Tax (VAT), an equivalent amount is targeted from better enforcement/collection of existing taxes - chiefly real property tax.

Mr D’Aguilar’s comments thus back what Tribune Business has previously asserted, namely that the Government’s fiscal plans are in reality a massive transfer/redistribution of wealth from Bahamian households and families to get the Government out of its debt/deficit woes.

The final $100 million of the projected $500 million revenue increase is forecast to come from the Bahamian economy’s growth, but Mr D’Aguilar expressed scepticism this would happen given VAT’s likely impact on private sector income statements and confidence levels.

“They will have no economic growth,” the former Bahamas Chamber of Commerce’s president told Tribune Business. “My projection is none.

“Whatever Baha Mar contributes, there will be such a retardation in businesses deciding to invest in their business, growing their business, as a result of VAT.”

Mr D’Aguilar said VAT’s implementation would be easier to swallow if the Government explained more clearly how the new tax would work, and what it planned to do with the extra revenues raised.

Pointing out that “buy in” by the Bahamian private sector and consumers would make VAT compliance much easier from the Government’s perspective, the businessman said he would back the new tax if the Christie administration committed to using the extra revenues exclusively for reducing the deficit and national debt.

“I’m prepared to sign on to this VAT if the Government commits to reducing its debt and deficit,” Mr D’Aguilar told Tribune Business.

“If the Government said we’re at $400 million a year, and we agree not to operate at more than $200 million a year, and reduce the national debt by $1 billion every five years, that’s fine.

“But I’m dreaming. They’ll never tie their hands like that. The more money you give to government, the more they blow it.

“If it takes in this additional revenue, and reduces the deficit and starts to nip away at the debt, that would be wise and prudent. Do I think the Government will do that? Absolutely not.

“They will increase the size of the civil service, more programmes and go back to $400 million deficits. These politicians don’t have a bloody clue how to run a business. They’re swayed by the idea that they need to win an election, and so have to spend money. That’s unsustainable

“I wish we had a group of businessmen that managed where the money is spent, say what is and is not prudent, and are not beholden to political foolishness.”

Mr D’Aguilar also urged the Government not to listen to the ‘sweet talk’ from international and other lending institutions, which were telling them the Bahamas was not like its Caribbean neighbours, and still had ‘borrowing room’.

“We don’t want to be like Jamaica and Barbados,” he added.

In recent VAT presentations to the private sector, John Rolle, the Ministry of Finance’s financial secretary, showed that the Government’s interest bill (debt servicing costs) had increased by more than one percentage point of GDP over the past five years.

It has risen from just under 1.6 per cent in 2007 to around 2.7 per cent in 2012, implying that more than $80 million extra has had to be allocated to servicing this nation’s bills in just five years.

The Financial Secretary’s offering said that while the Bahamas’ debt-to-GDP ratio and debt servicing costs were lower than many other countries, this nation’s worsening fiscal woes needed to be tackled now.

Delaying, he hinted, would only make the eventual correction even more severe. And, in the meantime, the Bahamas would likely suffer a further downgrade to its sovereign credit, coupled with increased financing costs and potential loss of access to credit markets.

The Bahamas would also have less capacity to borrow in emergencies, such as a hurricane or global downturn affecting its major source tourism countries.