The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Prime Minister Perry Christie yesterday said 40 per cent of the $1.14 billion Value-Added Tax (VAT) revenues has gone towards reducing the deficit, as he gave an accounting designed to end the “grave and nonsensical misconceptions that revenues were being squandered”.

Delivering on his promise to give a detailed accounting of how the Government had used the VAT monies during the tax’s first two years, Mr Christie said that of the balance, 30 per cent of collections had replaced foregone other taxes, with the remaining 30 per cent  going towards “general expenditures”.

In reality, 70 per cent - or 70 cents out of every dollar - are going towards financing government spending, and helping to narrow fiscal deficits that remain stubbornly above $300 million - something Mr Christie blamed on Hurricane Matthew.

The Government’s newly-launched website, understandingVAT.org, reveals that the 30 per cent of ‘general expenditures’ are helping to finance an expansion of the public serive and repay government borrowings, such as the $232 million re-equipping of the Royal Bahamas Defence Force (RBDF).

Among the new hires cited by the Prime Minister as being financed by VAT were 99 police officers; 166 more Defence Force officers; 347 more teachers; and 103 more doctors and health professionals.

The website also provided further confirmation that while VAT monies have helped to reduce the deficit, they are also being used to finance an expansion in the size of government and increased social programmes.

In response to a question as to why the $7 billion national debt was continuing to increase, and the Government still borrowing, despite VAT’s introduction, the website said: “Governments have to make hard choices.

“An important goal is to reduce our country’s debt, but at the same time, we have to continue to invest in people and make the changes we need to improve our security and our economy.

“If we cared only about reducing the debt, we would not be funding new scholarships, building new sports stadiums, fixing roads and docks, or introducing National Health Insurance, for example. But all these things are important to a nation’s health and well-being.”

K P Turnquest, the FNM’s finance spokesman, told Tribune Business that much of the Prime Minister’s VAT accounting was “superficial”.

He said: “They’ve given us nice little round numbers, but when you drill down there’s not much that they’ve told us.”

Mr Turnquest also challenged Mr Christie’s assertion that “not one dollar of VAT revenues collected over the past two years has been frittered away or spent surreptitiously”.

The FNM deputy leader said: “Where he indicated they’d spent money, he gave no highlights as to where money had been wasted.

“When you look at Junkanoo Carnival, over-priced contracts, monies wasted on Urban Renewal, he still hasn’t given an accounting of that money.”

Mr Turnquest argued that Mr Christie’s VAT accounting was notable more for what it did not say, as there was no explanation forthcoming for why the Government frequently overshot its Budgetary targets by sums between $150-$250 million - something that was happening before Hurricane Matthew.

Nor did the Prime Minister explain why his administration has added more than $2 billion to the national debt during its five years in office, albeit the rate of growth has slowed.’

Mr Turnquest added the Prime Minister’s argument that his government would have reduced the fiscal deficit to an average of “less than $250 million” had it not been for hurricanes Joaquin and Matthew, rather than $400 million, was “meaningless” since this did not change the ‘red ink’ the Bahamas is facing.

Of the $1.14 billion in gross VAT revenues collected in 2015 and 2016, Mr Christie said: “Of this total, the Department of Inland Revenue collected $726 million: $316 million in 2015 and $410 million in 2016.

“The Department also refunded some $20 million in VAT over these two years. The Department of Customs collected $415 million over the two-year period: $209 million in 2015 and $207 million in 2016.”

Mr Christie acknowledged that there may have been a “deficiency” in how the Government communicated VAT’s role in achieving fiscal consolidation, saying it had never been billed as achieving an immediate reduction in the $7 billion national debt.

Revealing that the Government was forecasting a ‘break even’ position on the GFS fiscal balance by the 2018-2019 fiscal year, Mr Christie said VAT’s introduction had allowed it to reduce other taxes,

“In this context I would note that the first tax reduction announced was in respect of the hotel occupancy tax that we chose to eliminate at the introduction of VAT, since the latter would now be applicable to hotel accommodations,” he explained.

“With the elimination of the hotel occupancy tax, some $42.5 million in annual revenue has been forgone for a two-year total of roughly $85 million or 7 per cent of the total VAT collections,” said Mr Christie.

   He revealed that the Government had foregone, between 2015 and 2016, $86 million in Customs and Excise Duties; $60 million due to the change to freight on board for Customs and Excise duty; $7 million in foregone VAT on conveyances under $100,000; and $38 million as a result of reducing the Business License rate from 1.75 per cent to 1.5 per cent.

“Including the fiscal impact of the elimination of the hotel occupancy tax’s $85 million, and VAT refunds of $20 million, the total reduction is $344 million in foregone revenue since VAT introduction,” Mr Christie said.

“Therefore, VAT gross collections over the two year period were $1.1 billion, but the net impact on revenues to the Government was $756 million.”

   He added that the Government’s medium-term fiscal consolidation plan, including VAT net of the other tax reductions and expenditure increases, had secured a reduction in the GFS deficit of nearly $500 million over a two-year period.

“This means that $500 million of the VAT revenue went to deficit reduction,” said Mr Christie. “The residual amount that went to ward expenditure is $256 million of the VAT revenue.”