By DENISE MAYCOCK
Tribune Freeport Reporter
THE government has collected some $2.5bn in value added tax revenue since 2015, according to Finance Minister Peter Turnquest who accused the former Christie administration of mismanaging the money.
Mr Turnquest, who is also deputy prime minister, was in Grand Bahama on Saturday to meet with residents at a town hall about his recent budget communication and plans to increase the VAT rate from 7.5 percent to 12 percent.
Financial Secretary Marlon Johnson also attended the event at the Calvary Temple Church, where tempers of concerned residents sometimes flared.
Mr Turnquest told the crowd the Minnis administration looked at various fiscal options, but felt that increasing the VAT rate was the best route.
In response from questions from the crowd, Mr Turnquest said more than $2bn in VAT has come into the treasury, but added the country is “worse off” than before.
“That is the obscenity that has been allowed to happen in having all this additional revenue, even though we collected that revenue we are worse off than we were, and because the cost has gone up significantly in the same period,” he explained.
He pointed out that the salaries in the public service alone in the last five years went up $266m, in addition to the over $2bn in debt that was racked up in the previous five years.
He said that does not include the $1.4bn borrowed this year to cover last year, bringing debt to $3.4bn.
“You want to know where the VAT money gone? A lot of programmes, hiring, and also contracts given for questionable reasons, also wastage, and corruption,” Mr Turnquest said.
“And while we been in office for one year we accept responsibility for that debt and the burden of the past 45 years, because governments are continuous,” he said.
He also explained why the government has decided to increase the VAT rate instead of an alternative route.
“When we talked about VAT, we looked at customs duties, we looked at the harbour tax, but we still got this (huge deficit), so we had to look at VAT,” he explained.
He said a nine or even 10 percent VAT rate could not suffice because of a $480m hole the country was in, and continued borrowing and interest would have dug the nation deeper in debt to a point where it could not borrow any more money.
“That is reality; we looked at it and the 12 percent gives us the best chance to balance the budget and start addressing the big problem which is the debt, and get it down to manageable levels. It is a sound reason for it (12 percent VAT). No point in playing around with it,” he said.
Some have called on the government to introduce income tax instead.
On Saturday, Mr Turnquest dismissed this suggestion as being viable.
He said that those persons at the bottom end of pay scale would not pay income tax, leaving those with more financial means shouldering the brunt for those who could not support themselves.
“In the Bahamas, if you were to take a survey, you will find the overwhelming of majority of the workforce in under that threshold,” he explained.
He noted that persons who work and earn a living above those that are exempted would consist of a small pool of individuals, resulting in higher effective tax rate because the government still needs the same revenue.
“Now you have to pay for yourself as well as those who do not have a job, and those below or at minimum wage. And so you might think you are winning, but you are not going to win. “The house always got to win and bills got to be paid,” he said.
“There is no doubt that a flat tax as VAT is a much simpler way because it has built-in mechanisms that work,” he said.
Resident Andrea Thompson reminded Mr Turnquest of his remarks about VAT while in opposition. The FNM opposed the introduction of VAT in 2015 and frequently slammed the tax as regressive and a burden on the poor.
Mr Turnquest explained why his position on the issue has changed since assuming office.
“The whole idea about 2014 to 2015, the FNM at the time in opposition expressed opposition to imposing VAT; I was there. The position we took was very clear. It was in recognition of the fact that coming out of the global recession in 2008 and 2009, the then government engaged on spending money on infrastructures and hiring people because the economy was going in a negative direction and the private sector some businesses were shedding jobs. So government intervened to slow it down and so government expense grows.
“Going into 2010 and 2012, the economy started to recover, and by the time in 2014 our position then was, now that we have correction what you ought to be doing is scaling back expenditure to the normal rate, which would not require the introduction of VAT - that was our position,” he explained.
The MP for East Grand Bahama said that after the election in 2017 when the FNM came to office, they met bills and all of the significant costs that the previous PLP administration did not roll back, but added to it.
“So now we are faced with a situation where the cost of government has gone up. It is very difficult to roll back. We did not renew the contacts of the 52-week workers. You know what it takes to bring the public service back down to the normal rate to what it used to be in 2008?
“We need to bring rationalisation to the programmes and the public service, and that has to be a very slow process,” he said.
Mr Turnquest stated that comparing the country now to back then is not realistic.
“Even when the question was put to the leader of the opposition (Philip Brave Davis), he could not answer that question about reversing VAT, we can’t answer the question because circumstance changes and it dictates the posture you take – this is the way it is.”
As of August 1, breadbasket items will be exempt from VAT. However some have said the list does not include healthy items.
In response, Mr Turnquest agreed the list needs adjustment, but explained that it is a slow process that requires education and getting people to acquire a new taste.
“No point reducing the duty on asparagus; who is going to eat it? Wealthy people and we are concerned about the wealthy; we are trying to protect the bottom level,” he said.