By NATARIO McKENZIE
Tribune Business Reporter
THE BAHAMAS can neither tax nor "borrow our way out" from its near-$8bn national debt, the deputy prime minister yesterday branding the latter as a greater fiscal risk.
K Peter Turnquest, addressing the Bahamas Chamber of Commerce's breakfast meeting, said: "We can't tax our way out of debt, and we can't borrow our way out either. It's just a reality that we are faced with as a country that demands services, and those services have a cost attached. Up to now we have been borrowing in order to meet that demand."
He added: "There is no way we can continue on that path otherwise the $7bn debt we have today will be, in a couple of years, $8-$9bn. All of this at some point will have to be paid. While today we still have fiscal headroom where we can go out and borrow, the day may come when we are unable to, and at the most vulnerable time.
"For instance, if we have a catastrophic hurricane or another war somewhere that disrupts our ability to borrow or obtain goods, that could have a catastrophic effect and result in us not being able to meet our payments or borrow in order to meet the challenges that arise."
Mr Turnquest said that while the budget's VAT increase was a challenge, continued borrowing poses "even more of a risk going forward".
"We have made a calculated decision as to what is the best approach for us going forward. We believe that the level of VAT at 12 percent that we have put forth is going to give us the stability and the certainty to be able to address our challenges, and to start to reverse some of the trends we have experienced over the past couple of years," he argued.
Mr Turnquest said the tariff issues that have impacted cross-border commerce following the Budget have also been addressed. "With respect to the tariff codes there's been some amendments to the tariff codes to comply with the World Customs Organisation codes," he conceded.
"There was some delay in printing the booklet so brokers would know which codes to use and what the new ones are. That's all been resolved as I understand it, and that information is available to the brokers. Hopefully there will be no issues going forward."
Mr Turnquest said conversations have taken place with major real estate developers regarding the VAT rate increase. "We have had conversations with the real estate industry, and developers in particular. We do recognise what exemption versus zero rating would mean to developers, and we are intent on a addressing that issue," he explained.
When asked about calls by the Bahamas Real Estate Association for a "grace period", Mr Turnquest said: "We have with all industries given the due consideration to long-term contracts, and we continue to offer that kind of help where there is a legitimate concern.
"But, at some point, we do need to enforce the taxes, and so for transactions that occurred prior to July 1 they will carry the 7.5 percent even if it is a project that may run over, but as of July 1 any contract entered into will be at the new rate."