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Greatest Debt Ratio Cut From Spend Drop

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Increased tax revenues will not by themselves cut the Bahamas’ debt-to-GDP ratio to desired levels, a Tax Coalition co-chair yesterday telling Tribune Business that comprehensive fiscal reform must be this nation’s “mantra”.

Gowon Bowe’s comments came as the Coalition for Responsible Taxation confirmed it had submitted preliminary numbers from six different tax reform scenarios, developed by consultants Oxford Economics, to the Government on Tuesday night.

Robert Myers, Mr Bowe’s fellow co-chair, conceded yesterday that while there was “a lot to get your head around”, the numbers supplied by the Coalition were likely conservative.

He explained that, for example, the Oxford Economics study did not account for the impact that improved compliance rates on existing taxes would have, as this was impossible to include in a dynamic economic model.

Reiterating his personal belief that increasing just Customs duty and real property tax compliance from below 50 per cent to 70 per cent would raise an extra $485 million revenues annually, Mr Myers said the objective was to simultaneously find the right form of taxation and provide the platform for further economic growth.

The six scenarios run by Oxford Economics on the Coalition’s behalf include the Government’s original 15 per cent Value-Added Tax (VAT) proposal, together with all its planned exemptions and other pieces, plus VAT at the lower rates of 10 per cent and 7.5 per cent.

Two payroll tax options have also been modelled, along with another alternative that Mr Myers was unable to recall.

However, Mr Bowe, his fellow co-chair, emphasised that the modelling showed tax reform, whether VAT or another option, was not by itself enough to get the Bahamas where it needed to go.

“All the preliminary numbers show tax, in and of itself, is not going to get us to the debt-to-GDP ratio we want to achieve in the short and long run,” Mr Bowe told Tribune Business.

‘The ones [scenarios] that have the greatest impact are the ones that curb expenditure by a meaningful percentage.”

He added that the models employed by the Coalition were “not trying to maintain a GDP ratio, but looking at the raw dollars and holding it firm or reducing it”.

“The mantra will be that there has to be fiscal reform,” Mr Bowe added, echoing a constant Coalition theme that revenue-side reform was not a panacea, and that it had to be accompanied by spending adjustments and economic growth as part of a total package.

Mr Bowe, meanwhile, explained that the Coalition’s numbers had not been provided to the Ministry of Finance for it to comment on the data, dismiss it or tear it apart.

Instead, given that the Oxford Economics study had to make “assumptions” in areas where no statistical data was available, the Coalition wanted to make sure these - and the resulting numbers - were consistent with those produced by the Government’s own consultants.

This effort was designed to ensure no economic models were “way off”, and Mr Bowe said the Coalition had been able to speak with the Government’s hired US economists, Compass Lexicon, to co-ordinate their efforts.

Compass had shared its initial work with the Coalition, and the Coalition co-chair added: “The Government, in the last few days, has been very keen to get all the reports and findings in a central location, so they know what is coming back. If there is any major variation, it can be worked out.

“While we may have different interpretations and views on certain elements, the data is the same, so we should be coming back with similar results from an empirical perspective.

“The numbers should be fairly consistent, and policy decisions may be made from the same place.”

Mr Myers, meanwhile, said the Coalition was still aiming to produce its full VAT report by May 15-20, and would “immediately start” writing it once members were happy with the numbers.

“When we look at the six scenarios, the idea is you can very carefully see all sorts of things that allow you to make some fairly accurate decisions,” Mr Myers said.

“We haven’t really sat together and looked at what’s best. There’s positives in the scenarios of payroll and VAT, but there are lots of other things that it’s quite challenging to get your head around, such as what’s coming with WTO in the future and tariff reductions.

“As far as today goes, easy decisions can be made, but we want to make decisions for tomorrow; we want to make the most responsible decision for the future.”

Mr Myers, though, said the Oxford Economics study would enable the Coalition to say its final fiscal numbers were based on solid data and empirical foundations.

“The key is to bridge the gap and come up with what is right for the country, population and business,” he told Tribune Business, “and then we need to focus on growing the economy and GDP.

“Once we have that, and the Government is behaving themselves on recurrent and capital expenditure, and working within guidelines, there’s no reason why we shouldn’t be growing like crazy. It means a lot to us all, it really does.”

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