By NEIL HARTNELL
Tribune Business Editor
The Government has cut its $29 million subsidisation of Grand Bahama’s economy by 50 per cent, the Prime Minister yesterday calling on the Bahamas to show “courage” in avoiding an investor incentive “bidding war”.
Unveiling the Mid-Year Budget in the House of Assembly, Mr Christie said future governments would have to make critical decisions on whether to use taxpayer funds to ‘bail out’ failing businesses in return for keeping hundreds of Bahamians employed.
The former Ingraham administration did exactly this, invested public monies in joint marketing campaigns and other subsidies to prevent the closure of Grand Bahama’s Grand Lucayan resort and its casino.
While this created an extra burden on Bahamian taxpayers, it had the beneficial effect of keeping several hundred Bahamians employed during the worst recession in living memory.
However, Mr Christie said the extent to which such practices continued would “heavily influence” the Bahamas’ future development.
“Our predecessors spent as much as $29 million in subsidies in Grand Bahama to keep the Grand Bahama economy afloat,” the Prime Minister told the House of Assembly.
“Without second guessing [their decision], I would say we’ve reduced that by half.”
But, looking at the bigger picture, Mr Christie said “the whole extent to which concessions and incentives in our country” are granted to foreign investors, and the Bahamian private sector, was an issue his and future administrations will have to grapple with.
He suggested that the demands for ever-greater incentives and tax breaks “becomes an open bidding war, so to speak”, against rival economies and competitors in the Caribbean.
And Mr Christie said that, increasingly, troubled large employers were increasingly looking to the Government for financial support to help them out of their predicament.
He cited the hypothetical example of a 500-strong employer, losing $5 million per year, which then ran to the Government for help.
Support, Mr Christie suggested, has frequently been given in the form of ‘soft’ subsidies, such as a $1 million contribution to a joint marketing programme if the business was a hotel.
This dilemma, whether to support failing companies with taxpayer dollars or let them fail and risk the economic consequences of several hundred Bahamians becoming unemployed, was one that Mr Christie suggested would confront successive governments for years to come.
“It becomes a very interesting subject,” he said, “because the way of the future of our country will be heavily influenced by the courage we have in looking at the economy and making the right decision as to [whether] the Consolidated Fund is used to keep businesses afloat in our country,” the Prime Minister said.
Whether the Government can afford to ‘bail out’ troubled large employers is a pressing question, given its current strained fiscal position, and one that administrations throughout the world have faced.
Moreover, the International Monetary Fund (IMF), which has estimated the Bahamas grants total investor incentives worth around $285 million annually, has suggested these be cut and rationalised because this nation is not getting sufficient returns from them.
John Rolle, the Ministry of Finance’s financial secretary, in a presentation to the hotel industry last year, pegged the collective value of investment incentives at $200 million.
His presentation showed that while the tourism industry attracted 25 per cent (one-quarter) of the Government’s annual subsidies and incentives, the lion’s share went to the industrial sector at 33 per cent.
Another 12 per cent went to manufacturing, with utilities and the public corporations gaining 12 per cent and 8 per cent, respectively, of government subsidies and incentives. Agriculture, too, gained its fair share with 4 per cent.
The Government appears to have taken the IMF’s advice on board, having hired KPMG, the accounting firm, to conduct a study of whether it is getting full value for money from its investor incentive regime. The study’s results are currently unknown.
Elsewhere, the Prime Minister yesterday indicated that the Ministry of Finance may sometimes have been over-zealous in enforcing its “strict expenditure discipline and accountability’ mandate.
He suggested that this may have resulted in agreed spending commitments being delayed, “causing great anxiety on the part of Ministers”.
“It’s a work in progress and we have to make sure we are not slowing things down that we want to do,” Mr Christie said. He alluded to Urban Renewal’s home repair programme as one such project that may have been held up by the Ministry of Finance.
Mr Christie said the Water & Sewerage Corporation, Bahamasair and the Broadcasting Corporation (ZNS) had all been asked to cut their subsidy demands to levels the Government can afford.
Together they consume about $50 million in taxpayer dollars annually, and whole not naming them, Mr Christie said: “The Government has asked subsidy-dependent corporations to better align their expenditure plans with the resources that are available from Government.”
He added that this would “bring focused attention to areas that we subsidise”, the Government’s ultimate goal being to “bring them to a point where subsidies are minimal”.
“We are vigorously striving for higher levels of accountability and transparency,” Mr Christie said.
“As regards public corporations, the Ministry of Finance is exerting more direct oversight of their financial affairs to ensure that they strive for greater levels of efficiency and effectiveness, and that they are subject to greater accountability to the Government.
“This will allow our budgeting process to be more comprehensively informed by the budgets of public corporations, and so that a truly comprehensive approach to fiscal discipline is achieved.”