The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas would not have escaped its fiscal "come to Jesus moment" even if the Christie administration had been prudent with its VAT windfall, a Cabinet Minister argued yesterday.

Dr Duane Sands, pictured, minister of health, told Tribune Business that this would "only have delayed the day of reckoning" as the government's financial ills extend far beyond its central balance sheet to the National Insurance Board (NIB) and other floundering public entities.

Expressing optimism that the Minnis administration will "not go down" as a result of its efforts "to save the country" from bankruptcy, Dr Sands said The Bahamas' 45-year run of annual deficit spending was unsustainable and had to be brought to an end.

He pledged that he and other Cabinet Ministers stood shoulder-to-shoulder with KP Turnquest, deputy prime minister, on the need to inflict painful fiscal austerity on Bahamian households and businesses through a 60 percent VAT rate hike and other revenue-enhancing measures.

Dr Sands also revealed that efforts to restructure the so-called "breadbasket food" items had not been halted by the budget, suggesting that the inclusion of healthier foods would occur within "two to three months maximum" once Family Island consultations were completed and the list's VAT "zero rating" was enshrined in law.

While the Minnis administration has directed much fire and fury at its predecessor for squandering the net $750m revenue increase that VAT produced in its first two calendar years, the Minister conceded yesterday that wiser use of this money would not have prevented last week's drastic fiscal measures.

"The day of reckoning would certainly not have come as quickly, but we would still have had to have this "come to Jesus" moment where we acknowledge the basic issue," Dr Sands told Tribune Business.

"One of the fundamental issues is that we cannot continue spending more than we collect, and every single year for the last 45 years we have done exactly that. When you get to the point of spending $1bn a year for debt servicing (interest and principal redemption) and have a $2.4bn budget, and an $11-$12bn economy, that's unconscionable.

"That's unsustainable. It's enough. We're just over the top. There has to be a major correction. In the first instance, everyone is going to bristle, everyone is going to baulk. When you slap people in the face with a hefty dose of reality, the response is never easy or positive. We've been lied to and made to feel good for the last 45 years. Why tell us the truth now?"

The Government spent $930.172 million on a combination of debt servicing (interest) and principal redemption costs during the nine months to end-March 2018, although a sizeable chunk of that reflects the short-term borrowings taken out by the $750 million foreign currency bond. A further $709.413 million is earmarked for such purposes in 2018-2019.

Dr Sands, though, said the Government's three-year strategy addresses only its own, direct balance sheet. Giving an insight into further hardship that may await Bahamians, he pointed to the unfunded civil service pension liabilities - projected to hit $3.7 billion by 2030 - and a $1.6 billion NIB reserve fund that is forecast to be exhausted at around the same date.

"We're faced with all these things," he told Tribune Business. "You look at the legacy debt and all the unfunded spending. You have the pension issue, the NIB impending disaster. The Bank of the Bahamas is an ongoing disaster, the Bahamas Mortgage Corporation is an ongoing disaster, and I could go on and on."

He added of the Deputy Prime Minister: "God bless him, he's been willing to stand in the front and say: 'OK, take the shot, take the shot'. We're going to stand up with him. If we're going to go down, which I believe we won't, let's go down fighting and try and save this country. Hopefully, we won't go down."

Dr Sands also slammed the $226 million, or 40 per cent, civil service wage bill increase that occurred largely under the former Christie administration as "unconscionable" and "an unfortunate inability to do what was prudent and wise".

Suggesting that the previous government's fiscal turnaround plan seemed to have been based on "hope" alone, he added: "They had a massive revenue windfall with the implementation of VAT and squandered it with wasteful, unnecessary recurrent and capital expenditure."

Dr Sands, though, conceded that "ultimately what's going to get us out of this mess is an increase in revenue for new industries, new investments" although he did not identify these sectors of opportunity.

"You're never going to get out of this mess from contracting. You've got to have economic growth," the Minister agreed, adding that this had to come from the private sector and not government.

Dr Sands, meanwhile, said the Budget will not change his Ministry's plans to overhaul the 'breadbasket' list even though the Deputy Prime Minister read out its existing contents as products that will - initially at least - be subject to 'zero rating' for VAT purposes.

He explained that the Government had been pursuing two parallel, complementary tracks. One was the public consultation on the proposed 'breadbasket' line-up changes, and the other the move to alter their treatment under VAT.

While sugar has been removed by common consensus, Dr Sands acknowledged the 'push back' received on eliminating corn beef and other Bahamian dietary staples. And, with consultation in the Family Islands yet to conclude, revisions to the list have been delayed but will happen.