The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government yesterday bowed to public pressure by promising to launch formal consultation on whether the Bahamas should introduce Fiscal Responsibility legislation, with the private sector calling for the process to be “accelerated”.

Prime Minister Perry Christie, in his mid-year Budget statement, said the Government would develop a policy paper on the issue that would be released by the summer for public dialogue/consultation.

Once that stage was completed, Mr Christie said he “hoped” final recommendations on whether the Bahamas should introduce Fiscal Responsibility legislation - and, if so, the “model” that should be employed - could be presented to his Cabinet before year-end.

Setting the stage, the Prime Minister told the House of Assembly: “Such legislation is increasingly common in advanced economies, with the stated purpose of guarding against profligate expenditures by governments.

“However, if not well designed, such legislated restraints have the potential to inappropriately inhibit the proper functioning of Government in periods of recession, thereby compounding the hardship of those with the greatest need for governmental assistance.”

Mr Christie’s announcement was warmly welcomed by the Coalition for Responsible Taxation, which has pushed for such legislation as a means to hold the Government accountable for its fiscal policies and how it spends the extra revenues from Value-Added Tax (VAT).

Gowon Bowe, the Coalition’s chairman, told Tribune Business that the Prime Minister’s remarks represented “an about face, if you like” from previous scepticism about Fiscal Responsibility legislation that had been expressed by several Cabinet ministers.

Describing such a law as the only way to hold the Government “accountable” for its spending, Mr Bowe said Fiscal Responsibility legislation was “the next big ticket item” on the Tax Coalition’s agenda.

Many in the private sector view such legislation as the Government fulfilling its side of the fiscal reform bargain, introducing accountability and transparency into the public finances in return for the business community accepting VAT.

Fiscal Responsibility legislation would set limits on the Government’s annual spending, and introducing requirements such as certain debt-to-GDP ratios that cannot be breached. If the Government wants to increase spending beyond the limits approved in the annual Budget, it will have to return to Parliament to get this permission, while all public spending will be exposed to greater scrutiny.

However, Mr Bowe yesterday urged that the consultation process be speeded up, given that the ‘Cabinet recommendations’ deadline set by the Prime Minister would be just 15-16 months away from the likely 2017 general election.

“I would hope we could accelerate the position paper a little bit, as the election is 15-16 months away,” Mr Bowe explained.

“They will be in a time when it is not the most appealing to try and put in difficult legislation that is actually going to govern government’s ability to spend leading into an election, as governments like to take advantage of any surpluses or available cash to sweeten the electorate.”

While describing the Prime Minister’s comments as “very positive”, Mr Bowe said it was vital to complete discussions so Fiscal Responsibility legislation was “in play before election season starts”.

“That is a tremendous acknowledgement,” the Tax Coalition chair added of the Prime Minister’s ‘concession’ yesterday. “Up to this point, a lot of Cabinet ministers were somewhat dismissive [of Fiscal Responsibility legislation], and to have an about face if you like, and go through a position paper and consultation is a positive sign and one we’re eager to follow up on, so it’s something that lets us put in place the 21st century governance we’ve been asking for.”

Describing tax reform as “one plank” of the fiscal and economic turnaround programme, Mr Bowe said another key was to curb “excessive”, uncontrolled spending by the Government.

“If we don’t have legislation that reduces excessive expenditure, then we don’t have any accountability,” Mr Bowe told Tribune Business.

“While you may make promises in the absence of legislation, breaking a promise is as simple as that: Breaking a promise.”

Mr Christie, while promising spending restraint, was vague on how this would be achieved apart from promises of procurement reform to ensure the Government received “value for money” for goods and services.

“My Government remains fully cognisant of the need to continue responsible management of public expenditure. In no other way can we meet the fundamental social and economic policy objectives of my government while, at the same time, containing expenditure at levels appropriate to the size of the national economy,” the Prime Minister said.

Taking another shot at the Opposition, Mr Christie said government spending had grown by 6.2 per cent since his government took office, compared to the 23 per cent increase experienced under the Ingraham administration’s five-year tenure in office.

That conveniently ignores the fact that the former administration was having to grapple with the social effects of the global recession, and the fact total government spending continues to grow.

Elsewhere, Mr Christie said the Ministry of Finance’s more proactive debt management stance, and listing and trading of government debt on BISX, would create minimum annual savings of 0.5 per cent annually.

“The overall impact of this initiative, as well as other cost savings and risk minimising initiatives, such as hedging Yuan denominated debt and interest rate hedges, has led to a reduction in overall interest expense from 5.2 per cent in fiscal year 2009-2010 to a projected 4.8 per cent in the current fiscal year,” the Prime Minister said.

“This has translated into annual savings of $21 million, which have been directly allocated to deficit reduction.”