The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Fiscal Responsibility legislation will not work if it seeks to “box in” the Government, a leading QC warned yesterday, while noting that such laws worked best in countries with similar governance structures to the Bahamas.

Brian Moree, senior partner at McKinney, Bancroft & Hughes, told Tribune Business that the experiences of other nations with Fiscal Responsibility-type legislation showed it seemed to “operate better” in small, developing countries that employ the Westminster system of government.

Such a description would perfectly fit the Bahamas, but Mr Moree said the initial evidence suggested this nation would fare best under a “less prescriptive” Fiscal Responsibility model that did not tie the Government to hitting specific targets.

Instead, he said the Bahamas would be better off implementing legislation that held the Government to “general fiscal criteria”, establishing a transparent framework for the management of its finances and the economy - a device that could be used to hold it to account.

Pointing to New Zealand as a likely model the Bahamas could emulate, Mr Moree told Tribune Business that a Fiscal Responsibility Act could be a “win-win” for all Bahamians if it was structured and implemented properly.

He added that it was a potential tool that could help the Government achieve its key fiscal and economic objectives - higher growth rates, bringing public spending under control, increasing government revenues and boosting compliance/administration with existing taxes.

However, Mr Moree backed Michael Halkitis, minister of state for finance, in warning that a Fiscal Responsibility Act “will not be a silver bullet or panacea” for the Bahamas’ fiscal woes.

And he agreed that such legislation would not succeed unless there was “the necessary political will” to comply with such legislation and the requirements it set.

Mr Moree said his research had shown Fiscal Responsibility legislation had “not proven to be very successful” in some of the world’s more advanced economies, including the US, plus some European and Latin America countries.

However, in a finding that bodes well for the Bahamas and its own fiscal reform efforts, he told Tribune Business: “Where Fiscal Responsibility legislation seems to work best is in smaller countries where you don’t have the statutory separation of powers between the legislative and executive branches.”

Such nations, Mr Moree said, typically used the same Westminster structure of government employed by the Bahamas, where the legislative body (Parliament) held “the power of the purse” and could call the Government to account.

“It works better in countries like the Bahamas, which are small developing countries with the Westminster system of government, and where the Fiscal Responsibility legislation is based on general fiscal criteria as opposed to specific fiscal targets,” Mr Moree told Tribune Business.

“This gives the Government of the day sufficient flexibility to manage its fiscal policies, but nevertheless hold them to account through the legislative branch, which is Parliament.”

The McKinney, Bancroft & Hughes senior partner backed the Government’s decision to initiate a public consultation on introducing Fiscal Responsibility in the Bahamas, and which model was most appropriate for this nation.

“This is not a question of one size fits all,” Mr Moree told Tribune Business. “In my own view, and this a preliminary one, it seems the better option for the Bahamas would be a less prescriptive model, much like the Fiscal Responsibility regime in New Zealand.......

“It does allow the Government of the day the necessary flexibility to manage the nation’s fiscal affairs based upon the prevailing circumstances, but it does require the Government to disclose its medium-term fiscal plans and adhere to specific economic criteria, by which they can be held accountable.”

The private sector has long been campaigning for a Fiscal Responsibility Act as a way to prevent unchecked, unaccountable government spending that could potentially squander the extra $300-$350 million in new revenues generated by Value-Added Tax (VAT).

Some view such legislation as a ‘trade-off’ for the private sector’s willingness to accept VAT, and the Government fulfilling its side of the bargain.

A Fiscal Responsibility Act would force the Government to be more accountable and transparent in the management of the public finances, and require it to return to Parliament for approval to raise more money if it had to exceed the limits approved in the annual Budget.

Several observers have suggested that this Act should set fiscal targets, such as deficit reductions and debt-to-GDP ratios that the Government must hit, but Mr Moree suggested yesterday this would be a mistake.

Apart from the likelihood that the Government would miss them, Mr Moree said it would “find ways to get around” such benchmarks and limits.

“If you put the Government in too much of a box, it’s not going to work,” Mr Moree told Tribune Business.

“You want to create a Fiscal Responsibility framework that does not take away the ability to manage the economy and fiscal policy, bit holds the Government accountable with greater levels of transparency and accountability. That’s the task if it’s going to work.”

Apart from New Zealand, Mr Moree said the Bahamas should also study similar Fiscal Responsibility frameworks in the UK and Australia, plus learn lessons from Latin American countries where it had not been so successful.

“While it is readily conceded that this type of legislation is not a magic wand or silver billet, and is not an instant solution to our problems, it does incrementally move us to a higher level of good governance, accountability, transparency and efficiency in the management of our economy,” Mr Moree said.

“I strongly support the concept of the Bahamas looking at the introduction of Fiscal Responsibility legislation, which would be a rules-based framework comprising fiscal rules, procedural rules, transparency standards, reporting requirements and effective enforcement mechanisms.

“I think this would significantly contribute towards higher levels of good governance in the country, and would promote greater stability in our economy, particularly with regard to controlling the public debt and our deficits.”

Mr Moree continued: “It could be a very significant development in the governance model of the Bahamas which, if we can do it right, it would ultimately inure to the benefit of us all.

“There would be higher levels of accountability and transparency, and it would inspire greater confidence in our fiscal policies, which is a win-win for all of us if we do it properly.”