By NEIL HARTNELL
Tribune Business Editor
Dr Hubert Minnis’s plans to offer wide-ranging tax breaks “will lead the Bahamas into bankruptcy” if ever enacted, a well-known businessman has warned.
Sir Franklyn Wilson told Tribune Business that the FNM leader’s strategy for reducing the cost of living and reviving inner-city areas (see other article, Page 1B), coupled with the provision of free tertiary education, would expand the fiscal deficit and undermine consolidation plans.
The Sunshine Holdings chairman added that Dr Minnis appeared to be defying “the reality” of the Bahamas’ fiscal predicament, and warned that this nation’s sovereign credit rating could further decline should the FNM leader become prime minister and deliver on his pledges.
“If Dr Minnis does any significant proportion of what he says, he would lead the country into bankruptcy,” Sir Franklyn told this newspaper.
He acknowledged that politicians typically made promises during election campaigns, conceding that “a legitimate criticism of the PLP last time was that they over-promised”.
But, turning quickly to the present, Sir Franklyn added: “The best you can say for Minnis is that he’s doing it on steroids.
“It’s crazy. You’re going to drastically reduce revenues with all these tax breaks, and subsequently increase expenditure. What are you going to do to the deficit? This is reckless, this is crazy. How do you do this? This is lunacy.”
Dr Minnis has made tax exemptions a central theme of his, and the FNM’s, election campaign, promising to remove Value-Added Tax (VAT) from key products, utilities and services, while also introducing a menu of concessions for businesses and residents in inner-city areas.
The VAT-related ‘exemptions’ are billed as reducing living costs for middle and lower income Bahamians, with Dr Minnis describing the latter set of tax breaks as key to his strategy of revitalising ‘Over-the-Hill’ areas.
Sir Franklyn, though, argued that the FNM plan ran counter to the strategy begun pre-2000 by Sir William Allen, and carried on by successive finance ministers and their ministers of state, of applying more discipline to managing the Government’s finances.
“He will undermine all the progress made in terms of bringing discipline to the public finances,” he told Tribune Business. “Minnis throws all of that out of the window. I hope no one takes him seriously, just like they did when he said he would sell Baha Mar.
“As this campaign unfolds, Minnis is going down a line that is reckless, crazy. I endorse much of what Gowon [Bowe] says; it’s a fool’s argument.”
Mr Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, had last week likened the FNM leader’s VAT ‘exemptions’ plan to a “fool’s argument” on the grounds that it would not achieve the stated objectives.
Dr Minnis has repeatedly stated that, if elected, the FNM will ‘exempt’ so-called ‘breadbasket’ food items; light and water bills; education; and health from the 7.5 per cent VAT levy.
His argument is that this will reduce the taxation, and ‘cost of living’, burden for low income Bahamians, but Mr Bowe warned that this strategy would be unlikely to achieve those results.
For industries whose products are treated as VAT ‘exempt’ are unable to recover the 7.5 per cent levy paid on their ‘input’ (factors of production) costs, since they cannot charge the tax to their consumers.
As a result, ‘exempt’ businesses are left to ‘absorb’ the VAT, increasing their costs, which are inevitably passed on to consumers in the form of higher prices.
Many FNM supporters, and others, will likely argue that Sir Franklyn’s comments on the country’s fiscal management could equally apply to the Christie administration, which in 2012 massively over-promised what it could achieve, then failed substantially to deliver.
However, after echoing Mr Bowe’s assessment, Sir Franklyn added: “When I was in Business School, a professor of mine said that if you had a financial scheme you wanted to sell, and it was marginal or maybe even worse, the first category of persons you should look to is doctors.
“Doctors make a lot of money, but managing money is not their expertise. I’m not saying all doctors are unwise with managing money, but Dr Minnis is showing himself to be the exact type of doctor my professor was talking about with all this foolishness.”
Questioning how Dr Minnis planned to replace the revenue foregone through all his proposed tax breaks, Sir Franklyn suggested that Standard & Poor’s (S&P) and Moody’s, the international credit rating agencies, were also likely to frown upon the FNM leader’s plans.
He added: “The country’s credit rating is already where it is. You go out there and say that despite the reality of where we are, I am going to drastically reduce revenues through these tax breaks and substantially increase expenditure with students paying no more money to study at the University of the Bahamas. How do you not bankrupt the country?”
Recalling when he chaired the then-College of the Bahamas council, Sir Franklyn said there “was always this debate” on whether tertiary education should be made free, or if this should only be done on the basis of merit and need (student incomes).
He argued that tertiary education should only be free for students from low income families unable to afford fees, or “on the basis of excellence” and outstanding achievement.
“Beyond that, why are you doing it? Sir Franklyn queried. “When you make that free, there’s a whole lot of people that don’t need it, don’t want it. It’s a policy that, when you analyse it down, it sound populist but is unwise.”
He also warned that making tertiary education free could undermine the University of the Bahamas’ standing and reputation, as “people tend to look at it a little differently”, along with academic standards.
“There are a lot of people that can’t get in anyhow,” Sir Franklyn added. “It’s better public policy to increase the number of people that can get into the institution without lowering the standard.
“If 500 people can qualify today, spending the money to make it 1,000 is an unwise policy.’