The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian private sector yesterday warned it will withdraw its consent to Value-Added Tax (VAT) “at any percentage” if the Government fails to follow through with wide-ranging fiscal reform, saying of the latter: “It’s not an if; it’s a must.”

Robert Myers, the Coalition for Responsible Taxation’s co-chairman, told Tribune Business that it was “hell bent” on ensuring that the Christie administration went beyond just tax reform.

He was speaking after the Coalition delivered its latest position paper to the Government yesterday, which reiterated calls for the Bahamas to follow New Zealand’s lead in passing a Fiscal Responsibilities Act to restrain - and justify - all government spending.

The Coalition again urged: “Implement an Act that amongst other things provides limits to capital and recurrent expenditure relative to Gross Domestic Product (GDP); requires comprehensive reporting of projected costs and benefits of planned programmes as a condition precedent; requires a balanced Budget; and mandates reductions in the national debt and the building of national reserves (namely a Fiscal Responsibility Act).”

Prime Minister Perry Christie, though, in his 2014-2015 Budget announcement rejected advice by the Government’s own US advisers, Compass Lexecon, to implement a ‘fiscal rule’ for the Bahamas.

This would have established a 65 per cent ‘ceiling’ that the Bahamas’ debt-to-GDP ratio could not breach; set an annual 1 per cent of GDP debt reduction target; and mandated an increase in the VAT rate if the targets were not met.

Asked by Tribune Business whether the Coalition was likely to succeed with its Fiscal Responsibilities Act recommendation, given the Prime Minister’s public position, Mr Myers replied: “We still have six months to change our minds on VAT.”

He told Tribune Business: “The Coalition is not suggesting this is an option; this is a necessity. We agreed to a tax reform so long as there’s fiscal reform. It’s not if; it’s when. It’s not if; it’s a must.

“The Government has given a commitment, and that commitment needs to be lived up to. If the Government doesn’t do it; if they’re not committed, we’re not committed to VAT at any percentage.”

“We all agreed that fiscal reform is necessary,” Mr Myers added. “Nobody wants to pay more taxes and continue on the path the country’s been on for 30 years. Nobody we’ve spoken to in the private sector or public sector wants to do that.”

Mr Myers said the Coalition was not asking the Government to “drop everything”, noting that it took New Zealand 12-18 months after introducing VAT to pass its Fiscal Responsibilities Act.

Yet he emphasised that it was vital for the Bahamas to continue “moving down that path”, adding that such an Act would show the international capital markets and institutions that the Bahamas was “serious about tax and fiscal reform”.

“If we don’t do it, we will likely suffer another credit downgrade like other jurisdictions,” Mr Myers warned. “If we don’t put our money where our mouth is, we won’t fix this thing. If we don’t do this thing, we will end up like our other brothers in the [Caribbean] chain.”

He added that any further downgrade of the Bahamas’ sovereign credit rating would be “a direct reflection” that it had failed to put the necessary fiscal reforms in place.

Suggesting that the Bahamas would be upgraded, not downgraded, if it followed through, Mr Myers said: “We should be able to show the rating agencies, the IMF, the IDB, that we have put solid fiscal reforms in place.

“There’s no reason the external forces will not accept the numbers showing significant debt reductions over 10 years if we follow it, have the right discipline, improve compliance, implement expenditure controls and fiscal reforms.

“There’s no reason for us to suffer further downgrades. We should have a rating upgrade. If not, we’ve failed.”

Mr Myers told Tribune Business he wanted a debt-to-GDP ‘ceiling’ limit of 60 per cent, while warning that the projected $260 million debt servicing bill for 2014-2015 - the greatest line item in the Budget - was “unsustainable”.

The Coalition co-chair said reducing this by $50-$60 million annually, or around 20 per cent, would free up significant resources for the Government, adding: “We have to get that number down. We’re not sustainable at that number.”

Mr Myers commended the Government for starting the switch to accrual accounting, suggesting this was a “first and foremost” move to “drive a top-down Budget that has value and meaning”.