FREEPORT businesses yesterday blasted the Opposition’s leader as being “in total dreamland” over his defence of the former government’s incentive regime.
Carey Leonard, the Callenders & Co attorney and partner, told Tribune Business he “respectfully disagrees” with Philip Davis’s opposition to the repeal of the Grand Bahama (Port Area) Investment Incentives Act 2016.
Branding the former Christie administration’s legislation as “the Disincentive Act”, Mr Leonard argued that it eroded business/investor confidence and certainty, while rewarding the two entities most responsible for Freeport’s steep economic decline - the Grand Bahama Port Authority (GBPA) and Hutchison Whampoa.
Mr Davis, in a statement timed to coincide with today’s debate on the Act’s repeal, and replacement by the Grand Bahama Extension of Tax Exemptions Act 2017, suggested the Minnis administration’s actions would return the island to “the pre-1967 era in Freeport when the GBPA was lord of all they surveyed”.
He argued that the Christie administration’s legislation was intended to create “a paradigm shift” by making the renewal of key tax breaks (investment incentives) subject to government approval, with the Hawksbill Creek Agreement - Freeport’s founding treaty - having given up too many concessions.
The Opposition’s leader also suggested that the PLP legislation would stimulate $500 million in economic development, although he provided no basis or economic evidence to support his assertion, and claimed that the Minnis administration was in danger of “squandering” two years’ worth of research by McKinsey and other consultants,
However, Mr Davis’s impassioned defence of the former government’s Freeport policies was widely panned yesterday by the city’s residents and professionals, who argued that the legislation - if ever brought into effect - would have the opposite impact.
One Freeport-based businessman, speaking on condition of anonymity, said Mr Davis’s comments betrayed a lack of understanding of Freeport’s economic model and needs, and how the city’s problems needed to be fixed.
“His comments are totally inane,” they said of Mr Davis. “What the PLP government did was to reward the two groups [the GBPA ad Hutchison] that have destroyed the economy by giving them a 20-year concessions renewal.
“Then they punished every other licensee in the Port area by making them apply for concessions and not telling them what they would get. The only way Freeport was going to turn around was to cause the Port Authority and Hutchison to invest and develop. They destroyed any incentive those two would have had.”
The businessman argued that instead of incentivising Freeport’s economy and its participants, the former government had “totally emasculated” the city by requiring that all non-GBPA and Hutchison licensees apply to Nassau for renewal of their key tax breaks.
This, they added, left thousands of foreign second homeowners and companies - including major industrial players such as Polymers International and Pharmachem - with no certainty as to whether their real property, income and capital gains tax exemptions would be renewed, and for how long.
“They were going to punish the fellow with two acres, which they said he should have developed,” the businessman said of the former administration. “He wasn’t going to develop because the Port Authority and Hutchison had destroyed the economy. How could you expect the poor man to develop unless the big boys did?
“Brave missed the boat entirely. He’s in dreamland; total dreamland. No understanding. Nothing was going to happen in Freeport under the former government’s scenario.”
Mr Leonard, adopting a slightly softer tone, said that while Freeport “may not be functioning as well as it should”, the former government had focused on the wrong root causes and chosen a bad remedy.
“The problem is the Government ought to stay out of the regulatory running of the Port area,” he told Tribune Business, “and instead ought to enforce the covenants, conditions and contractual obligations of the GBPA. They have a contract; the Hawksbill Creek Agreement is a contract, and an enforceable one.”
While many observers have long argued that the Government, and wider Bahamas, have failed to hold the GBPA accountable for its governance and developmental obligations under the Hawksbill Creek Agreement, Mr Leonard also criticised the work of McKinsey and the “bipartisan committee” that oversaw it, headed by Dr Marcus Bethel.
The former GBPA in-house attorney described the international consultancy’s report on Freeport as “a blatant waste of money”, given that it had failed to identify new industries “best suited” for the city or to provide a ‘road map’ for how its status could be protected in World Trade Organisation (WTO) accession negotiations.
“The bipartisan committee was really set up to be a rubber stamp as far as I could see,” Mr Leonard told Tribune Business. “The McKinsey report had absolutely nothing in it. McKinsey failed to conduct a proper analysis by seeing which new businesses were best suited for Grand Bahama, particularly in the industrial area.
“There were no recommendations as to how to handle the WTO negotiations to see what type of industries could be attracted and result in real, meaningful expansion. The likes of Polymers, Pharmachem pay good salaries and are looking for well-educated people. There was nothing in the McKinsey report that would encourage those sorts of industries in the Port area.”
Describing the former administration’s legislation as “the Disincentive Act”, Mr Leonard said many foreign second homeowners in the city had been considering “bailing out” due to the uncertainty over whether they would be exposed to real property tax and, as a result, double taxation.
Freeport-based property owners already pay service charges to the GBPA, and the Callenders & Co attorney added: “It seems to me that Nassau forgets Freeport is not a free ride.
“We pay for our garbage to be collected on a weekly basis, unlike in Nassau, and don’t get exemptions from paying the service charges like they do for real property tax. Anything that I buy for myself I pay import duties on.”
Mr Leonard said the language employed by the former government’s legislation was “extremely opaque”, with “nothing concrete in it” in terms of the government’s responsibilities.
“There was nothing in there to encourage anyone to do business in the Port area,” he told Tribune Business. “With the new Bill everyone knows where they stand; second homeowners will not be stuck with double taxation, and every business knows how long they have the exemptions for and can invest confidently.”
Mr Leonard said the current Act tied the granting of investment incentives to a company maintaining its existing employment levels, which he said could prove impossible under circumstances outside its control, such as a deep economic recession.
The legislation, when read with its accompanying regulations, seemed to imply that the Government would be able to ‘claw back’ tax exemptions from businesses laying-off workers, further burdening their balance sheets.
“An accountant told me they would have to account for that as an accrued liability,” Mr Leonard said of the ‘claw back’ provision, “because you never know when that will kick-in.
“If the economy tanks you’re responsible for all sorts of things. The only ones the former government gave a free ride to were the Port Authority and Hutchison. They gave them a free ride, and tried to nail the middle class and those living and working in the Port area.
“I don’t feel it was a particularly good Act. I really think the new Bill makes a great deal more sense, and businesses like certainty.”