By NEIL HARTNELL
Tribune Business Editor
The private sector “could have fought harder” for Fiscal Responsibility-type legislation and rules, a well-known businessman has conceded, but “had to take the Government at their word” on Value-Added Tax (VAT).
Robert Myers, who chaired the Chamber’s Coalition for Responsible Taxation (CRT) during the VAT implementation negotiations, said the Christie administration warned the Bahamas would be unable to meet its financial obligations without the new tax.
Mr Myers, who no longer heads the CRT, added that VAT was “sold” as essential for reducing the fiscal deficit and paying down the $7 billion national debt, with the private sector agreeing to its implementation provided the proceeds were used for these purposes.
But Prime Minister Perry Christie, in his recent House of Assembly address on how the $1.14 billion in gross VAT revenues have been used, said just 40 per cent of this sum had been applied to reduce the fiscal deficit.
Besides reducing the Government’s ‘red ink’ by a collective $500 million for the 2015-2016 calendar years, Mr Christie said some $256 million in VAT monies had financed additional public sector hirings and new borrowings, such as the $232 million re-equipping of the Royal Bahamas Defence Force (RBDF).
“I put it like this,” Mr Myers replied, when asked by Tribune Business why the CRT and private sector did not hold firm on demands for Fiscal Responsibility-type legislation during the VAT talks.
“The problem that exists is that we can only make suggestions; we’re not the Government. Yes, we could have pushed harder, but we had a situation where the country may have been unable to meet some of its financial obligations.”
Mr Myers said this was how the Prime Minister and other senior government officials presented the Bahamas’ fiscal position during extensive negotiations with the private sector.
“We said we’re OK with this,” Mr Myers recalled of VAT, “provided it goes to paying down the debt and narrowing the deficit.
“That’s what we were told would happen. We had to take it at face value. That’s how they sold it. We have a problem. That’s what he [Mr Christie] said.
“I went to many of those Town Hall meetings and read the ‘VAT White Paper’, and they said it was intended to pay down the debt and narrow the deficit.”
The latter objective has only been partly achieved, with the Government’s annual fiscal deficit having remained stubbornly above $300 million throughout the Christie administration’s five-year term.
Although Hurricanes Matthew and Joaquin are partly to blame for the 2015-2017 and 2016-2017 deficits, the current administration has massively overshot its projections on a consistent basis - by $150 million or more.
The Government is now forecasting that it will achieve a balanced Budget in the 2018-2019 fiscal year. Although the deficits have come down from around $500 million, and the national debt’s growth rate has slowed, the Christie administration has still added more than $2 billion to the latter.
Mr Myers said VAT was effectively described by the Government as a device that would allow them to plug the worst fiscal leaks, giving them breathing room to work on addressing other problems.
He added that the CRT and Chamber of Commerce, in their final position paper, made it “abundantly clear” to the Government that VAT was only one part of the solution, and that other measures and actions were required to prevent a Bahamian fiscal crisis.
These, Mr Myers said, included greater transparency and accountability over how Bahamian taxpayers’ monies were being spent, and the need for greater checks and balances, such as a Fiscal Responsibility Act.
“We made it very clear in our position paper; we made it abundantly clear that we were OK with a tax of this nature, but that these other objectives needed to be attained,” Mr Myers told Tribune Business. “They were laid out very clearly in the position paper to the Government.
“We could have fought harder, but had a growing deficit and increasing debt..... We took them at their word.”
Some in the private sector believe it should have taken a much harder line with the Government over VAT, only agreeing to its implementation in return for the introduction of a Fiscal Responsibility Act and so-called ‘fiscal rules’.
They argue that these would have been an appropriate ‘trade-off’ for agreeing to VAT’s increased taxation burden, as the Government would, in theory, have had discipline and limits imposed on its spending. It would also have been forced to be more accountable and transparent on the use of taxpayers’ monies.
The Christie administration, sensing increasing private sector disquiet, moved to mitigate the growing pressure through its February 2015 mid-year Budget statement.
It promised to initiate consultation on whether Fiscal Responsibility-type legislation was suitable for the Bahamas, with a ‘White Paper’ setting out the opposing arguments to be released in summer 2015.
All feedback was to be received by the Government by year-end 2015, with Cabinet to determine the way forward shortly afterwards. However, the ‘White Paper’ was never released, and no more was heard from the Government on the matter.
Yet the issue of Fiscal Responsibility legislation, and so-called ‘fiscal rules’, returned to the agenda last week after an Inter-American Development Bank (IDB) paper warned that the Bahamas and other Caribbean nations will not solve their fiscal and debt challenges without imposing discipline on governments through such mechanisms.
The IDB paper argued that spending ‘rules’, which would force the Government to adjust its expenditures to maintain a target debt-to-GDP ratio, were the best option for the Bahamas.