The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

All political parties have been urged to behave “in a more mature manner” over the Value-Added Tax (VAT) debate, the Chamber’s chairman warning that the credit rating agencies might draw “unflattering conclusions” from their recent assertions.

Gowon Bowe told Bahamian politicians they had to remember that the very same persons who had just downgraded this nation’s creditworthiness to ‘junk’ status were continually watching their every word and action as it relates to fiscal policy.

Emphasising that no party, neither the governing Progressive Liberal Party (PLP) nor its opponents, had covered itself in glory last week over VAT, Mr Bowe warned that some remarks could have caused confusion and uncertainty as to whether the Bahamas has a proper grip on its fiscal woes.

This, he added, could have troubling consequences for the Bahamas and its economy, given the impact on foreign investor perceptions, plus the views of Standard & Poor’s, Moody’s and the International Monetary Fund (IMF).

“I think as we enter the political season what we don’t want to lose sight of is external parties are watching our press,” Mr Bowe told Tribune Business.

“What we have to be careful about is sending messages to the IMF, the credit rating agencies and foreign investors about our fiscal intellect and responsibility.

“If we’re saying things for convention mania, persons will ask: ‘Do you know better, and are manipulating the story for political purposes, or is it that you don’t know better? Neither of these things is flattering to draw conclusions on.”

The Chamber chairman was responding after Michael Halkitis, minister of state for finance, used the PLP convention to respond to complaints about ‘where the VAT money gone’.

Many Bahamians, not just the Government’s political opponents, have become increasingly concerned that the $1 billion-plus revenues generated by VAT since its January 1, 2015, implementation are not being used for the purpose stated by the Christie administration - that of narrowing, then eliminating, the fiscal deficit and paying down the national debt.

Mr Halkitis sought to answer these charges by laying out a lengthy list of projects supposedly financed by the 7.5 per cent consumer levy, with PLP supporters joining him after each one to chant: ‘That’s where the VAT money gone’.

The Minister identified numerous government projects and expenditure said to have been funded by VAT monies, such as the $232 million and $100 million upgrades of the Royal Bahamas Defence Force’s and Bahamasair’s fleets, respectively; a $150 million healthcare outlay in preparation for National Health Insurance (NHI); and investments in scholarships and the University of the Bahamas transformation.

Tribune Business research, though, shows that the Defence Force and Bahamasair enhancements were financed by project-specific loans, from Deutsche Bank and Credit Suisse/CIBC, respectively.

The Princess Margaret Hospital Critical Care Block, too, was financed by loans from Royal Bank of Canada and CIBC ($35 million), the former of which was latter paid out by Public Hospitals Authority (PHA) bonds.

Thus another way of interpreting the Minister’s remarks, and what he was really saying, is that VAT is financing increased government spending and borrowing, paying for the continued growth of the public sector and the ever-increasing debts resulting from this.

Mr Bowe did not disagree, but he called on the Opposition parties as much as the Government to “elevate the debate” surrounding VAT and the Bahamas’ fiscal position.

“Unfortunately, I think partisan politics and convention mania overcame the Minister with the way he delivered it on the convention floor,” Mr Bowe said of Mr Halkitis’s address.

“Sadly, that’s the ignorance I expected... as we go into the election cycle. We’re dumbing down the conversation to sensationalise and rouse the party base, as opposed to taking the high road and educating the public.”

Mr Bowe said Mr Halkitis had been correct in explaining that VAT, like all other government taxes and fees, generated revenues which went into the Treasury’s Consolidated Fund to defray the Government’s operating and capital expenses.

“The way it was delivered should have been done in a more mature manner,” he reiterated of the convention speech.

Mr Bowe said the Minister should instead have focused on the scale of the $400 million-plus deficit that the Christie administration inherited upon taking office in May 2012, and explained why certain expenditures where necessary despite the need for austerity.

Further explanation, he added, should have been given as to why VAT’s introduction was necessary, namely to “correct some of the inefficiencies” that existed in the Bahamas’ taxation system.

“Unfortunately, in a political rally, you can’t have a conversation saying the expenditures were necessary, and done in a controlled, efficient manner, and how you’re going to reduce other expenditures to mitigate the increase,” Mr Bowe said.

“The Opposition parties jumped on it with the same vigour. They should have seized the opportunity they were given to say: ‘This is what the Minister described; x, y, z, and this is our expenditure and fiscal plans. Elevate the debate.”

Mr Bowe added that given “the social responsibility of government”,discussions on new spending programmes were not necessarily easy to have, given the Bahamas’ $300 million-plus deficit and $6.8 billion national debt.

“We have to educate the populace to only demand what we can afford,” he told Tribune Business. “While some citizens look at the government as responsible for providing anything and all things, there is a growing class of citizens” who appreciate that such spending has to be dictated by affordability and the Bahamas’ fiscal circumstances,

“People will enjoy a party speech,” added Mr Bowe, “but many are hurting economically. If a political party can demonstrate they will improve their status in life, as opposed to just giving them food and drink, most people will appreciate that.”