The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman yesterday slammed the Government’s ‘hurricane tax’ proposal as “nonsense”, warning that an “already devastated” society and economy would find it impossible to bear further cost increases.

K P Turnquest told Tribune Business that the fact the Christie administration was even entertaining such a proposal showed that the Government had “reached the top of its limit” in terms of borrowing capacity.

This newspaper understands that the proposed new, or ‘special’, tax to help finance storm-related relief efforts was discussed “briefly” at yesterday’s Cabinet meeting.

No decision was taken on whether to implement it, and Tribune Business understands that further discussions on the proposal are set to be held.

Mr Turnquest, meanwhile, suggested that the Government might seek to increase the Value-Added Tax (VAT) rate to 8 per cent as an alternative to introducing new taxes.

And he added that the Government’s ‘floating’ of a revenue solution showed how “real” the threat of a post-Matthew credit rating downgrade is.

Calling for the Bahamas to get “creative” in financing restoration, Mr Turnquest urged the Government to tap all potential grant funding sources before looking at taxation or taking on increased debt.

He also demanded that the Government redeploy the ‘contingency’ funds, which have been allocated throughout the 2016-2017 Budget to numerous ministries and departments, to the Matthew relief effort.

The east Grand Bahama MP estimated that by doing this, a sum equivalent to around 5 per cent of the Government’s planned $1.7 billion recurrent spending - some $85-$90 million - could be freed up to assist the recovery drive.

“We are at the top of our limit,” Mr Turnquest told Tribune Business. “There is no fiscal headroom left, which is why they are looking for alternative sources of funding, and the threat from the rating agencies is very real.

“The Government is trying to figure out alternative arrangements, but no matter what it comes up with, it’s still going to potentially affect the rating.

“Hence why they’re floating ideas of increasing the VAT rate or new taxes, as that will not impact the direct charge on the Government or increase the national debt.”

Matthew is likely to have blown the Government’s fiscal consolidation plan and deficit reduction projections well off course, not to mention its 2016-2017 Budget calculations.

The Bahamas is hovering just one notch above so-called ‘junk’ status with both Moody’s and Standard & Poor’s (S&P), and the multi-million dollar repair bill Matthew has left in its wake could prompt both agencies to downgrade this nation again depending on how it responds to the disaster.

Borrowing to finance relief efforts will further increase the $6.778 billion national debt, and could potentially spark such a downgrade, but Mr Turnquest warned that revenue-raising measures carried “their own risks”.

In particular, he warned that new or increased taxation threatened to slow the economy further at the worst possible time - when it is already struggling to rebound from Matthew.

“They could risk pushing the economy further into depression,” the FNM deputy leader told Tribune Business of the proposed ‘hurricane tax’. “It hurts the most vulnerable in an economy at times like this, and at times like this.

“You’re sucking dollars out of the hands of the productive sectors, and out of the hands of consumers. It means that they have to make adjustments, and as they do, it affects the spending patterns and bottom lines of businesses, so overall productivity comes down”.

Prime Minister Perry Christie, in floating the idea of new or increased taxes to finance post-Matthew restoration, promised any such initiative would have “minimal impact on people”. He also indicated that it would be a temporary measure.

However, pronouncing himself “amused” by Mr Christie’s “musings”, Mr Turnquest argued that the suggestion showed “once again that he and his government are lost, and out of ideas and out of time.

“Certainly, they are obviously out of step with the Bahamian people and our circumstance,” he added. “Now they are talking about a new Hurricane Relief Tax, and even rumours of increasing VAT rates to 8 per cent in order to stave off another downgrade.”

Mr Turnquest said that in the days immediately following Matthew’s passage, there were numerous stories of relief supplies being turned away or sent to Haiti because of inefficiencies in accessing tax and Customs duty exemptions.

“Now, having irritated some donors and having lost God knows how much goodwill, they are talking about adding another tax on the backs of an already devastated population,” the east Grand Bahama MP added.

“Where do they think this money is coming from? With a limping economy, which has likely been thrown back into depression, with another negative growth year likely as a result of the devastation in Grand Bahama in particular, how does the PLP expect the private sector and consumers to bear this additional tax?

“It is clear that this PLP Government is a tax and spend government, lacking in fresh ideas, fiscal discipline and concern for the average Bahamian family, following increases in the cost of living brought on by VAT and other taxes implemented in the last four-and-a-half years.”

Mr Turnquest urged the Government to get “creative” in funding Matthew restoration efforts, having again failed to properly prepare the Bahamas to weather such a storm financially.

Apart from seeking out grant funding, he mentioned ‘crowd funding’ as another potential avenue, and called on the Government to eliminate “the red tape” so that organisations such as Habitat for Humanity were encouraged to rebuild Bahamian homes.

The FNM deputy leader also called on the Christie administration to re-purpose the ‘contingency’ funds allocated in the 2016-2017 Budget, suggesting these could account for up to 10-15 per cent of recurrent spending.

“Maybe it’s time to look at some of these contingencies, look at some of these contracts that can be delayed to free up money to be used in the relief effort,” Mr Turnquest told Tribune Business, “rather than go out and incur additional debt, and put an extra burden on the Bahamian people.

“I haven’t looked at the exact numbers, but I imagine there’s 5 per cent in the Budget, to be conservative, and possibly up to 10-15 percent, when you add up the contingencies in various ministries. Let’s be realistic about where we are.”