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12% - Now The Backlash

Minister of Finance Peter Turnquest delivers the Budget Communication. Photo: Terrel W Carey/Tribune staff

Minister of Finance Peter Turnquest delivers the Budget Communication. Photo: Terrel W Carey/Tribune staff

photo

Gowon Bowe

By Morgan Adderley

Tribune Staff Reporter

madderley@tribunemedia.net

BAHAMAS Institute of Chartered Accountants President Gowon Bowe believes the government’s plan to increase value added tax will create further distancing between the “haves and have-nots” and possibly create the conditions for class unrest, he told The Tribune.

During his budget address to Parliament on Wednesday, Finance Minister Peter Turnquest announced an increase of the VAT rate from 7.5 percent to 12 percent. This decision immediately sparked controversy across the nation.

In an interview with The Tribune, Mr Bowe discussed the emotional response to the increase, its potential economic and social ramifications, its impact on businesses, and tax alternatives.

“There’s always an emotional response when you hear about an increase in a particular tax rate,” Mr Bowe said.

“And ultimately what we have learned, even with the implementation of VAT (some) two and a half years ago…was that the actual impact is not as drastic or dramatic as people believe it will be simply from an emotional standpoint.

“It will have an impact because until persons are comfortable that it is a rate they can bear, there will be the apprehension about spending… Because it will be the uncertainty or unknown about what the price is going to be when you get to a 12 per cent line.”

Mr Bowe added that people are speculating whether they will be able to absorb these new taxes.

“I know a lot of people have jumped to say well it’s going to be 27 per cent now when you go out for dinner. Well in reality it was 22.5 (per cent),” he said, referring to the 15 per cent gratuity added at restaurants plus VAT.

Consequently, he advised people not to create an “exaggerated difference.”

Mr Bowe also addressed concerns about the poverty line.

“I do not foresee that it’s going to say drive people who are on the poverty line further below,” he said.

“I think what it is going to do though is it’s going to create a further distancing between the haves and the have-nots. And the danger you create in that one is…class unrest.

“Because if you are saying ‘I’m trying to do something to accommodate things being cheaper for those on the lower income spectrum,’ you’re also bucketing them to say that they will only be able to purchase those cheaper items.”

Mr Bowe clarified that “haves and have-nots” refers to what people have the ability to purchase.

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One such unintended consequence, he said, would be “that really what you’re now doing is… restricting equilibrium between those who are earning more and those who are earning less. By making certain items… labelled as ‘poor man’s food’ and ‘poor man’s items’ and other items being luxury.

“And that creates social unrest, which is what we really have to be very careful of.”

Mr Bowe explained that when the cost of living increases, the purchasing power of those on the minimal sustainable line decreases.

“There’s always the emotion to say that ‘yea, you’re now making poor people poorer,’ but in reality, what you’re probably doing is just creating a divide.

“And that is possibly equally as dangerous, because you don’t want there to be such a class separation. You want us to all feel equal and…able to afford the same luxuries.

“My income level should not dictate whether or not my children can be treated to things when they have good grades.

“But if certain items get taxed out of my range simply because of a tax strategy, then that is not what the government would intend.”

Mr Bowe noted that such class segregation is very dangerous in a small community.

He added that the message should instead focus on elevating persons on the lower income level— such as expanding opportunities for them, increasing employment, increasing take home pay, so they can purchase items regardless of exemptions or concessions.

Mr Bowe also discussed the impact of the sudden hike in VAT on businesses.

For example, businesses that have both taxable and non-taxable items will have to change systems to accommodate it. Mr Bowe said there could possibly be a time where people will inadvertently be charged for things they should not be or vice versa.

Businesses will also have to look at expenditures they previously made where they were able to deduct the VAT they paid on them, a large portion will no longer be deductible.

“And when the cost base of a business increases…there’s only two ways a business can recover that. Either reduce other expenditures, and the principal expenditure of a lot of businesses are payroll costs, and if not with payroll costs in terms of reduction of staff sizes, then the possibility of increase in prices,” he said.

“So, it really bears the question on whether a proper empirical analysis has been performed.”

Comments

BahamaPundit 1 year, 3 months ago

What these idiots don't realize is that business owners won't just raise the price by 4.5%. in order to stay profitable, while paying 12% VAT on electricity, commercial lease etc. they will have to raise their prices by 10%. So, the final increase at say SuperValue will be around 22%. These guys don't have a clue about business, if they think prices will only go up 4.5%. SMH

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DDK 1 year, 3 months ago

The shame is that we are presented with mostly eejits as candidates who offer themselves at the General Elections. Some are well intended, but don't have a clue, the majority are in it for money and power and may, or may not be eejits to boot!

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realfreethinker 1 year, 3 months ago

This is a bit misleading.The businesses should only increase prices by 4.5% because they do not pat vat. They will just be collecting more money for the government.

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Chucky 1 year, 3 months ago

businesses don't pay vat, not net anyway. Sure they pay out for vat on electricity and lease etc but they get all that back via VAT received on goods they produce / sell etc.

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BahamaPundit 1 year, 3 months ago

The Government should have held a series of consultations with the private sector over many months before raising VAT. That's just so obvious, makes me think they are running the country by the seat of their pants, while cooking stew fish.

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jackbnimble 1 year, 3 months ago

Business owners will just use this as another excuse to price gorge. They're going to say, our costs have increased, but truthfully VAT is still a consumer tax. The persons using the service has to pay it, not the person giving the service. In fact, to my knowledge, the business owners get their money back on any VAT paid on their utilities. The only expenditure that I believe that is incurred, is adjusting their computer systems to calculate the new VAT rate at the point of sale.

I remember when VAT was first implemented how businesses like Gallaria Cinemas and Lowe's went up 30% or more on their prices. I suspect it won't be any different come July 1st. We as consumers just have to be smarter about our purchases. If I don't need it, I'm definitely not buying it. That will be my stance going forward because it's getting next to impossible to live in the Bahamas.

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Dawes 1 year, 3 months ago

with VAT on all it is a consumer tax. However i think with the VAT exemptions (like bread basket items) this becomes a cost to the business. If i understand it correctly a company such as Super Value will now have to work out how much of its sales are Non Vatable. Lets say this is 20%. They then will only be able to claim back 80% of the VAT they pay (such as Utilites) and will then have to expense the other 20%. They in turn will then increase the prices of their other items to cover this increase in their expense.

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DDK 1 year, 3 months ago

That's the way it goes and that is why our PM AND MP's just don't give a damn! They can afford whatever they dish out. It is possibly not a good idea to put the affluent in Parliament! Look at what's happened to the great U.S. of A. and other 'western' countries. We are just following suit. IT'S THE PEOPLE'S TIME! Maybe it's time for a Bahama summer.

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BahamaPundit 1 year, 3 months ago

At the end of the day, business owners' personal expenses will increase: school fees, maintenance fees in gated communities, phone and cable fees etc. So they will need to increase their prices to maintain their profit margin. Also, consumers will purchase less stuff from their business, so they will need to increase their margin on every purchase.

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John 1 year, 3 months ago

There is some underhanded wickedness to totally disenfranchise Bahamians economically. Because of the constant increases in the cost of living, less and less Bahamians are able to become home owners. In face more Bahamians are losing their homes. And even though the taxes continue to increase, so does the National Debt. So Bahamians are losers both on the personal and national level.

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sheeprunner12 1 year, 3 months ago

Gowan Bowe??????? ........... Who was massaging Perry dem for five years????????

He has little credibility left to criticize this Government.

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Well_mudda_take_sic 1 year, 3 months ago

Gowan Bowe was a most aggressive and vociferous proponent of the introduction of VAT by the last Christie-led government......back then he harped on and on about how we must trust the corrupt Christie-led government to do the right thing because they supposedly (according to Bowe) had no choice but to do the right thing. Bowe assured us the well known crooked PLP would apply our VAT dollars towards reducing our annual budget deficits and national debt. What a bunch of malarkey that turned out to be. The crooked PLP government did exactly what I cautioned they would do - they took our VAT dollars and did what any well-tax fed corrupt and spendthrift government would do.....further grow the size of our bloated government in an effort to buy votes at the taxpayers expense. The Minnis-led FNM government have proven they are no different than the last corrupt Christie-led government by their persistent refusal to take the harder and more painful road of adopting much needed austerity measures. Well Mr. Bowe, we are being stung and crippled by hikes to the new form of taxation that you so strongly endorsed. Just what is it Mr. Bowe that you do not understand about the basic rule that you must starve a spendthrift government of tax dollars rather than give them a mechanism to feed themselves with additional tax dollars?!

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DDK 1 year, 3 months ago

Ten/ten again, Mudda! Too bad they don't listen!

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TalRussell 1 year, 3 months ago

Obviously Comrade KP ranks 'Tofu' high on middle class 'must have eats' have exempted from 12% VAT?

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Well_mudda_take_sic 1 year, 3 months ago

You can tell by the way Bowe glibly talks about "the haves and the have nots" that he has no real great difficulty at all with the VAT hike to 12% - after all, he regards himself to be an elitist member of the ruling class. And he certainly has zero understanding and appreciation of VAT's effective tax multiplier consequences for our economy or the fact that a tax induced decrease in the purchasing power of the Bahamian dollar is effectively a devaluation of our currency in disguise. Or perhaps Bowe fully understands and appreciates the destructive forces now put at play, but like Minnis and Turnquest, he just does not really give two hoots because he is among the "haves" and could not care less about the "have nots" he so glibly speaks about!

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BahamaPundit 1 year, 3 months ago

Agreed. The Bahamian dollar will be only worth 88¢ now.

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TheMadHatter 1 year, 3 months ago

Jackbnimble commented "...That will be my stance going forward because it's getting next to impossible to live in the Bahamas."

Really Jack? Sloops are landing every week loaded with hundreds coming here to take on jobs that are waiting for them...offered by immune-to-prosecution employers.

Tens of thousands have done and continue to find it very possible to live in the Bahamas. The situation here is way way better than where they are from (at least for the time being).

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BahamaPundit 1 year, 3 months ago

A main concern is social unrest. At some point, there will likely be a revolt in which the poor loot and pillage stores in order to survive from starvation, and they may also loot and pillage the homes of the rich. This should also be considered.

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bogart 1 year, 3 months ago

Election Campaign finance laws are needed. Parliamentarians need to keep their political contributers happy.......the 10 to perhsps 25 million it takes to run a political party campaign needs to be looked at .......it is no secret that the poor cannot contribute the millions to buy chicken wing an bake macaroni. It is common semse there is political payback.....

VAT is a consumer tax and given the majority are the PORE some up to 50,000 below poverty line some 5,000.....some 1 in 8 goes to bed hungry.....mmany slightly above the poverty line clinging to family members who can hhelp to help.....pore first needs money to buy.....some reduction in food tax is good....but pore dont only need food alone......

Absolutely incredible none of the govt agencies have been put up for sale. BOB, BEC, BAHAMASAIR etcetc to ease the burden the ppre have to carry on their backs, noone ever flund guilty of wasting money - and public now sympathetic to the few fellas dey dragging back and forth to court...back an forth....an back an forth again...and yet more back an forth.....might as well just stop wasting time an let them go..justice delayed is justice denied....

CONFUCIUS .....SAY ... "IN A COUNTRY WELL GOVERNED, POVERTY IS SOMETHING TO BE ASHAMED OF, IN A COUNTRY BADLY GOVERNED, WEALTH IS SOMETHING TO BE ASHAMED OF"

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sheeprunner12 1 year, 3 months ago

POOR ................. POOR .............. POOR

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BahamaPundit 1 year, 3 months ago

In truth, I believe a "sin tax" would have been much better. A 50% tax should have been placed on alcohol and cigarettes etc. Of course, they left alcohol alone, because that's where their supporters make their money.

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DDK 1 year, 3 months ago

Cigarettes are already 220% + VAT, wine 50% + VAT, beer 10.00 per gallon + 10% + VAT, and spirits 15.00 per gallon + VAT, which is high on less pricey items. In any event, it is all way high already. Visitors are already complaining and if they cannot go out and have a good time at a fairly reasonable rate they will go elsewhere. As for the locals, they won't be able to drown their sorrows or rest their nerves over the high cost of living. I suppose they will have to stick with the illegal plant (which we COULD legalize and tax)............

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TheMadHatter 1 year, 3 months ago

People NEED alcohol to survive the stresses of life - literally. If you make it unaffordable - they will turn to crystal meth. Then you'll really have a problem. This is what happened under President Obummer.

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TalRussell 1 year, 3 months ago

By the way, Comrade Minister KP knows he has greater emergency cash flow problem than he wants people public knows about... why else would the red shirts have borrowed $2,5 BILLION within first 365 days governing... have they increased government's overdraft and if so, by how much... has overdraft now doubled? Bank Bahamaland bad loans are right in face KP, so why hasn't the reds gone after the securities lodged against declared noncollectable $100 million in Bank Bahamaland loans... likes who exactly is on bad loans list privileged political? Truth is, every revenue prediction KP has made, were NOT met. Truth # 2, even when VAT was 7.5%, government's finance minister were incapable collecting more than 50% due and payable. It's all F** bullshi#,

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Well_mudda_take_sic 1 year, 3 months ago

Minnis and Turnquest should just think for a moment about the number of Bahamians who are going to die sooner rather than later as a result of the recent hike in VAT to 12%. There are already way too many struggling Bahamians who simply cannot afford any additional increase in their cost of living. The "Have Not" Bahamians with already poor diets must now endure an even greater proportion of meals consisting of VAT-free unhealthy foods. Disadvantaged elderly Bahamians will now have to forego buying even more of their prescribed medications in an effort to help buy unhealthy VAT-free foods to feed their poor hungry children and grandchildren. Down and out Bahamians must now do without so many things necessary for a healthier and longer life just to be able to afford to buy a few gallons of gas each week to try keep their jobs in an over-taxed shrinking private sector, where employers are being forced to cut their payrolls or go out of business. We are all going to pay a dear price (some of us the ultimate price) as a result of Minnis and Turnquest taking the easier road of additional VAT rather than the much more politically unpopular road of austerity measures. Austerity measures were the only way for our nation to go for numerous sound financial reasons. But no, Minnis and Turnquest just could not resist taking the easy road of additional taxation, just as corrupt politicians before them have done. The additional 4.5% VAT will most assuredly go the way of the initial 7.5% VAT, i.e. it will be squandered in growing the size of the public sector. Minnis and Turnquest have betrayed the solemn promises they made time and time again to registered voters while on the campaign trail. They repeatedly promised no new taxes and serious austerity measures to reduce the size of our grossly over-bloated and non-productive public services sector. Their betrayal of the voters is tantamount to treachery of the highest order and is guaranteed to cause hell on earth for many "Have Not" Bahamians despite all of the lip stick they tried to put on the lips of their "Tax Hog"!

And to think Turnquest had the temerity to say: "We did what we had to do because we could no longer afford to kick the can down the road as previous governments have done." Well that's exactly what he in fact did do, with the full blessing of Minnis: HE KICKED THE CAN DOWN THE ROAD!! Forget serious austerity measures aimed at a much needed tightening of our public sector belt - these two bozos, Minnis and Turnquest, have exposed themselves to be hell-bent on further growing our public sector through added crippling taxation of private sector businesses and all Bahamians alike.

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TheMadHatter 1 year, 3 months ago

If ya got money to breed;
Give Caesar what he need;
He pay for all ya school; And doctor and dentist tool.

Pickaninnie dis come fast; But the party cannot last; Try a condom or a snip; *And pull ya pants over ya hip;

Ya hired gardeners for so cheap While tell ya brethren "Take a leap!!!"
Seven and a half couldn't change your way? Now ya ass gah really pay

 *  ... and that's all I got to say  :-)
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sheeprunner12 1 year, 3 months ago

Do Bahamians understand that they have to pay for the Government bills???????

Who else must pay for these bills?????? ....... Either we pay via VAT or we pay via more borrowing .......... and the interest on the national debt is already $400 million now.

This 12% VAT is the easiest pill to swallow for the short term relief of our indebtedness.

If a person has 6-10 basic/utility bills to pay + rent + car payment + credit card + school fee, who must pay it if there is no income????? ........ either get a second job (VAT) or borrow some more.

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Well_mudda_take_sic 1 year, 3 months ago

If you're fool enough to extend significant amounts of credit to a virtually bankrupt government, then you should suffer the consequences and stop looking to us taxpayers to bail you out. With all of the waste, fraud and corruption at every level of our government, it is unlikely we taxpayers derived any benefit of consequence from the unpaid and no doubt heavily padded bills that Minnis and Turnquest would have us believe should be settled at 100 cents on the dollar with minimal if any verification of their authenticity in terms of value received by the government. We need serious belt tightening in the form austerity measures aimed at significantly reducing the size of our grossly over-bloated and non-productive public services sector. We should not be giving a spendthrift government more taxes to grow the size of government. We've been there and done that with the initial 7.5% VAT. And the same will happen to the additional 4.5% VAT because Minnis and Turnquest have steadfastly refused to make good on their many election campaign promises to address the horrendous size of our public services sector in a meaningful way. Until they do so, more taxes only adds more fuel to the fire of uncontrolled government growth.

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BahamaPundit 1 year, 3 months ago

Sheeprunner12 there is nothing easy about 12% VAT. Trust me. The ripple effect will be a disasterous increase of living expenses for average Bahamians. This will lead to a black market for food and other necessities; food and pampers will be smuggled in on barges in the dead of night, instead of drugs. I can already imagine Bahamians storming onto illegal barges to buy food at black market prices; this will undoubtedly occur in a nation with its roots in smuggling.

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ThisIsOurs 1 year, 3 months ago

I never heard greater hubris than when the FS said he "has to bear the 12% too". We have a Man unqualified on a number of levels for the post, who has external agencies asking, can we speak to someone else please? Someone who understands? he was given a salary over 200,000, at a time when Minnis was making a big deal of cutting any contract over 100,000, it was double that of any FS who preceded him, and he says a 4% VAT increase will hurt him too????

"I know a lot of people have jumped to say well it’s going to be 27 per cent now when you go out for dinner. Well in reality it was 22.5 (per cent),” he said, referring to the 15 per cent gratuity added at restaurants plus VAT."

They look like they've gotten to Bowe already. Prices will rise more than 15+4.5%. Remember business will have all their utility bills, supplies and insurance increasing in one fell swoop. So they'll pass on the increase in the cost of goods AND the increase in the cost to run the business. Food stores will be an interesting case because they price items to compensate for what's not moving.

"it really bears the question on whether a proper empirical analysis has been performed."

Mr Bowe knows KP and Johnson aren't up to this deep economic analysis. They are both excellent "spinners" who love to be in the media. Before the election. I marvelled to a friend, how could Turnquest have so much time to call in to talk shows? It was almost on a daily basis, multiple shows. Left me with an unsettling feeling about someone who should have been managing finances for some mega million organization.

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TalRussell 1 year, 3 months ago

Respect I have give Ma Comrade KP who like Dionisio James will go out there to at least attempt defend his controversial red policies.

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Well_mudda_take_sic 1 year, 3 months ago

We don't expect Minnis to try defend his government's budget. He doesn't know the difference between a 'debit' and a 'credit'. He was heard asking Turnquest: "How can a 'debit' be both a good thing (an asset) and a bad thing (an expense/expenditure item) and how can a 'credit' be both a bad thing (a liability) and a good thing (a revenue/income item)? Nothing in this 'bean soup' budget makes any sense to me!" To which Turnquest responded: "Such is the mysterious language of bean counters like me so just let me keep track of the beans we put in the soup."

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TalRussell 1 year, 3 months ago

Ma Comrades, not much worried - that is until there is 12% VAT on Home baked Brownies.

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BahamaPundit 1 year, 3 months ago

Trust is key. I wouldn't trust the FNM or PLP with a dime of my money. Trust has to be earned and neither party has come close (not even within a mile) to earning my trust!

If I could put my finger on one thing the Bahamas Government has done well in 40 years of existence, trust might not be so difficult. But I can't think of one thing!!! Even God says by their fruit you shall know them. Well, by the fruit of the Bahamian Government, I know they are rotten to the core.

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BahamaPundit 1 year, 3 months ago

And for the love of God let nobody in the FNM use the PLP as an excuse again for the following reason:

If Perry dem stole the money, then lock them up!!! If you let criminals run free, I don't care how long or thoughtful a post you write, you just a fool to me!!!

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bogart 1 year, 3 months ago

Instead of grinding it out...it is agreed that the national debt has to be slowed or halted.

What is unacceptable is that the same Shadow Finance persons who were in Official Opposition are the people now who are blaming the other side.

What is unacceptable is the now Finance persons blaming the others knowingly continued to pour tax payers funds, same dire crititical precious funds into BoB....when everyone and their mother pointed out the shortcomings including 100 millipn to start Resolve for assets worth almost 80 million dollars less.

What is unacceptable is the fact that huge wastages of taxpayers money has been poired into ventures like the 9 millon dollar waste water treatment plant now at some 19 million and unfinisjed, plus other projects wasting money....sheer incpmpetance, slackness....and we the people must pay more taxes and ....noone..punished ????

Why tax people more when it will be wasted....incompetance....slackness....trick talk about the economy turning the corner...while Roc wid Doc, bringing relief to the pore...ova da hill...Doc Sands wants to get people healthy......others are simply not following the program and yuckkin up people vexation showing dem up in bad light..!!!!!!

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BahamaPundit 1 year, 3 months ago

Agreed. Minnis this is for you. Either you find out who stole the BOB money and report to the Bahamians people, or you won't get a single dime more from us.

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BahamaPundit 1 year, 3 months ago

Just because you're black, doesn't mean I have to listen to you. I listen to people who make sound economic sense and have a track record of success, regardless of race. Go carry your racist mind. If you suck, you suck, and I will tell you as much. Michelangelo would not have painted the Sistine Chapel, if he knew that everyone was a genius. If you ain't a genius, no matter if you black or white, step the fuck aside for progress.

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sheeprunner12 1 year, 3 months ago

The Bajan white merchant class refuse to pay the Government VAT ....... are you supporting that strategy????????

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BahamaPundit 1 year, 3 months ago

Yes. Sheeprunner12 I believe the FNM should call an election. They do not have the moral authority to raise VAT after running against it. A new election must be called before VAT can legally be raised!

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BahamaPundit 1 year, 3 months ago

Now we have to audit the auditors. SMH. Even the money Minnis spent on audits is suspect. How much did he spend? https://www.moneyweb.co.za/moneyweb-o...">https://www.moneyweb.co.za/moneyweb-o...

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sheeprunner12 1 year, 3 months ago

We look forward to the various Ministers speaking to these audits during the Budget debate .......... Surely, they should have some answers since last May.

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Well_mudda_take_sic 1 year, 3 months ago

I'm entirely in the camp of the many who consider Marlon Johnson to be most ill-suited and definitely unqualified to handle the normal every day tasks of the Office of Financial Secretary. Minnis's appointment of incompetent Johnson to this highly paid government post of great import and significance to the Bahamian people was perhaps the most foolish thing Minnis did early on in the first year of his administration. The consequences of this foolish appointment have already been devastating on many fronts and could prove fatal to the prospects of a second 5 year term for Minnis. As for Gowan Bowe, I'm glad to see he's at least re-thinking some of his earlier erroneous positions which were likely borne out of naivety to politics and too much infatuation with the public limelight shone on him. We can only hope is now thinking straight without love of distraction.

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