By NEIL HARTNELL
Tribune Business Editor
The Tax Coalition has four months to “convince” the Government that commitments to spending curbs are “essential”, a co-chair adding that expenditure increases across 30 ministries do little to inspire confidence.
Robert Myers told Tribune Business that the private sector group would be seeking “clarifications” from the Government on several key issues post-Budget, chiefly which industries/products would still be VAT ‘exempt’ and the decision not to slash border taxes in proportion to the new levy.
And he disclosed that there seemed to be a ‘disconnect’ between the Coalition and private sector on what role would be performed by the three-person ‘Task Force’ announced by Prime Minister Christie during his 2014-2015 Budget presentation.
While Mr Christie said the private sector Task Force’s role would be in the “public education campaign”, Mr Myers said the Coalition for Responsible Taxation thought the two sides had instead agreed it would be on the committee dealing with the Value-Added Tax (VAT) legislation and regulations.
The Budget contained little new when it came to controlling spending and the size of government, with the Prime Minister running through a list of previously-announced measures that chiefly involve greater central oversight via the Ministry of Finance.
“There’s nothing there,” Mr Myers said, in terms of new spending measures. “It can’t be tax and spend, tax and spend. The public want to see the Government be fiscally responsible.
“When you guys run the headline that 30 departments have an increase in spending, it doesn’t give the public a lot of confidence that the Government is not on a tax and spend programme.”
In fairness to the Government, some of the spending increases appear to have resulted from the consolidation of certain functions (Budget line items) within specific ministries. For example, the $202.438 million increase in the Ministry of Health’s Budget, from $12.074 million in 2013-2014 to $214.513 million in the upcoming fiscal year, appears to have resulted from the consolidation of the Public Hospitals Authority (PHA) into the Ministry.
And Mr Christie said total recurrent (fixed cost) spending would increase by a total $103 million year-over-year to $1.823 billion, with almost 40 per cent of the rise resulting from greater debt servicing payments.
Still, Mr Myers indicated the Coalition would stick to its guns in demanding that the Government pass something akin to New Zealand’s Fiscal Responsibilities Act.
Its position paper, submitted to the Christie government last week, the Coalition called for a law that limited the Government’s capital and recurrent spending relative to gross domestic product (GDP); required a mandatory ‘balanced Budget’; and mandated a reduction in the $5.567 billion national debt.
“That has to happen,” Mr Myers said. “It’s an ongoing problem. We have got to get that to happen. We have until January, and it needs to be done well before that.
“We’ve got three to four months to get them [the Government] much closer, and it has to happen. The public and private sector will require that, and it’s up to us to convince the Government that’s essential.”
The Coalition’s fiscal reform position paper warned that the private sector and Bahamian people would not support VAT or any other new tax without the Government improving spending controls, compliance and accountability.
Mr Myers told Tribune Business that another task for the Coalition would be to obtain a formal response from the Government to its position paper.
“There’s some clarifications we need to get from Government,” Mr Myers told Tribune Business. “We need to go back to them and say: ‘What do you mean by this?’, and we need to see what they’re thinking with regard to exemptions. What industries, and products, are going to be exempt? We’re hoping none.”
Mr Christie pledged that the restructured 7.5 per cent VAT would have “far fewer exemptions”, but it is unclear how much this previously extensive list has been reduced. If the Government plans to adopt a ‘New Zealand’ model, that country ‘exempted’ only health, domestic rent and financial services.
‘Exempt’ services and products are those where companies are unable to ‘net off’ their VAT input payments, leaving them with increased costs. A major reduction in these, as hinted at by the Prime Minister, would shift the tax burden away from the private sector and place it more on Bahamian households and consumers.
Mr Myers, meanwhile, said the Prime Minister’s suggestion that the ‘Task Force’ would be working on the private sector and consumer education campaign did not dovetail with what the Coalition thought was agreed.
The Coalition co-chair said he though the private sector would be represented on, and involved in, the steering committee responsible for drafting the VAT Bill and accompanying regulations.
“We need to be on the same page with regard to this matter,” Mr Myers told Tribune Business. “I’m not sure whether he [Mr Christie] meant implementation committee or steering committee.
“We’d agreed on steering committee. The steering committee is what’s critical at this juncture. The exemptions list is going to be critical, and we need a response with regard to our position paper. They didn’t address a lot of the things in that.”
Mr Myers added that a further concern was the Government’s decision not to reduce Customs and Excise Tax simultaneously, and in proportion, to the 7.5 per cent VAT - a major departure from the original 15 per cent model.
“We didn’t expect it to be a 7.5 per cent reduction, but we did expect some reduction in duty,” he told Tribune Business. “Even at 10 per cent, we did not expect it to be 10 per cent, but we did expect it to be there.
“We’d like to see a reduction in duties, because it’s going to lower the increase in the Consumer Price Index. If there’s a 6-7.5 per cent drop in duty, that accounts for a huge drop in the Consumer Price Index.”
Mr Myers added that the Government also appeared not to have accepted the Coalition’s call for a reduction in Business Licence fee rates. Its position paper had recommended an ‘across the board’ 0.5 per cent rate for all VAT registrants, and 1 per cent for non-VAT registrants.
Suggesting that such a proposal would “stimulate” business, he said: “We feel that is a disincentive for businesses to invest, and we need businesses to be confident moving forward and start to invest in the economy.”
While much work remained to be done, Mr Myers praised the Christie administration for its willingness to work with the private sector and the progress made thus far.
“We all anticipated this was going to be the first course. We’ve made major accomplishments with regard to collaboration,” the Coalition co-chair told Tribune Business. “It’s getting closer to the middle ground, and we’ve just got to keep that effort moving.
“We’re headed in the right direction and have to work through these issues, which I think we can. There’s going to be some noise. Some people are never going to be happy. They’ll only be happy with no taxes. That’s just the way the world’s going.”