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Chamber Chief Backs Govt: ‘Something Had To Be Done’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Harsh fiscal austerity measures in the 2018-2019 budget were inevitable, the Grand Bahama Chamber of Commerce’s president arguing yesterday: “Something had to be done.”

Mick Holding, pictured, told Tribune Business that The Bahamas’ “very precarious position” meant the government had little choice but to act, although questions remained over whether there were better alternatives to its preferred solution - the “controversial” 60 percent VAT rate hike.

Conceding that many in the private sector were blindsided by the proposed 12 percent VAT rate, Mr Holding said Grand Bahama residents would likely feel the impact more due to the island’s higher unemployment rate.

He added that the Chamber was now developing a “consensus”, based on feedback from its members and the wider business community, on budget-related concerns that it plans to take up with the Government “possibly as early as this week”.

Mr Holding said the narrow 30-day window provided to businesses to adjust their pricing, and software and point-of-sale systems, for the higher 12 per cent VAT was “one of the specifics” the Chamber was examining.

Yet he backed the Minnis administration’s tax grab on the basis it was better to “address the problem now”, rather than keep pushing the day of fiscal reckoning further out for future Bahamian generations to address when it will be “a lot worse”.

The GB Chamber chief also credited the Government for seeking to minimise the higher VAT rate’s impact on lower income Bahamians through ‘zero rating’ breadbasket food items and treating Bahamas Power & Light (BPL) bills under $200 as ‘exempt’.

“The increase in VAT has obviously been controversial, but I think one has to look at it in the total context of the state of the economy and the huge debt the country has,” Mr Holding told Tribune Business.

“There is also the context of concessions that will benefit some of the less well off in our society with the breadbasket items and the utility bill concessions.”

Mr Holding added that the Budget’s contents, and likely impact, had generated a “mixed” reaction among the private sector, many of whom had been caught off-guard by both the VAT rate increase and its magnitude.

“It caught many people by surprise; we didn’t expect it,” he conceded, “but the views are somewhat mixed on what it means for them as business people in terms of administration of the changes. That’s one issue for the business community, and they are also members of the wider community, so it affects them personally.

“We are in discussions with our members to get a consensus on what the concerns are and, in turn, we will be speaking to the Government about those issues and concerns very soon; possibly as early as this week.”

Mr Holding said the July 1 deadline for the private sector to implement the new VAT rate, which is due to rise some 4.5 percentage points, was among the major concerns from both an administrative and compliance perspective.

And he suggested that Grand Bahama, with a higher unemployment rate than islands such as New Providence, will be affected more by the VAT hike given that it is a regressive, consumption-based tax that results in lower income Bahamians spending disproportionately more of their income on taxes.

Yet the GB Chamber president backed the Minnis administration’s decision to implement its fiscal correction now, given that the pain from such measures will be even greater if the Bahamas further delays efforts to eliminate $300 million-plus deficits and arrest the growth rate for its near-$8 billion debt.

“Something had to be done,” Mr Holding told Tribune Business. “I think that is understood. The country is in a very precarious position. Regrettably, from time to time, these decisions have to be taken.

“I think it was right the problem is addressed now, and not leave it until later, because it only gets worse. If one looks at the debt and annual interest bill, if the solution gets delayed it only gets worse.

“Is this the best solution? That’s what’s controversial at the moment, but something has to be done,” the Chamber chief continued. “There’s no way around the problem. There may be alternatives to the solution, but there’s no getting around the problem.

“We are where we are as a country. We don’t want to end up in the same position as countries like Barbados. We’ve got to avoid that.”

Mr Holding cited Greece as another country that sank under the weight of unsustainable debt and, as a result, lost control of its fiscal affairs. The International Monetary Fund (IMF) and European Union (EU) imposed harsh austerity measures on Greece in return for a bail-out, which led to a deep recession, massive public and private sector lay-offs, and cuts to social benefits.

Barbados, following its recent election, was forced to seek IMF assistance as its debt-to-GDP ratio spiralled to more than 170 per cent, with foreign currency reserves standing at just $220 million and likely to be drained further. Debt payments to external creditors have been suspended.

While the Bahamas is some way from falling into the same trap, there are several factors/pressures that appear to have convinced the Minnis administration it has to act now in paying down $360 million worth of unfunded arrears within the next three years.

One is the need to meet the targets set out in the Fiscal Responsibility Bill, which require the Government to slash the fiscal deficit from $310 million this fiscal year to a sum equal to 1.8 per cent of GDP ($237 million) in 2018-2019, and then to 1 per cent in 2019-2020 before reaching 0.5 per cent (around $50 million) in 2020-2021.

This helps explain both the magnitude of the VAT hike, and the Government’s bid to close its present $400 million ‘funding gap’ within three years - a timeline that many have questioned. The Bahamas’ impending World Trade Organisation (WTO) accession, and tax restructuring that will be driven by the elimination of Customs tariffs, will also enter the equation.

The Government will also want to ‘clean up’ its finances, and eliminate the arrears, prior to moving the public sector to accrual-based accounting by 2022. It is also likely to be looking longer term, and targeting completion of its own fiscal clean-up first before tackling fundamental civil service pension and National Insurance Board (NIB) reform - the latter of which is likely to involve a major contribution rate increase.

Mr Holding yesterday agreed that the Government needed to look at both revenue increases and spending curbs, but warned that reducing the latter “has consequences” for the economy and consumer demand as civil servant lay-offs translate into an increase in social security outlays.

He added that the projected $400 million increase in VAT revenues will “not necessarily” cause the Bahamian economy to nosedive back into recession, and said: “Time will tell. Whatever, something has to be done. Something has to be done.”

on the Freeport, identifying one

Comments

DDK 5 days, 11 hours ago

In case anyone is interested, this was published on 14th February, 2017 in the Kingston Gleaner.

Former Barbados Prime Minister Owen Arthur says he is concerned that the island’s Central Bank could soon be running out of foreign reserves and that the Caribbean island is headed for a serious financial crisis.

Arthur, an economist, who served as prime minister from 1994 to 2008, said the reserves at the bank have fallen from BDS$1.5 billion (One Barbados dollar =US$0.50 cents) to BDS$600 million and that the Freundel Stuart government has three months to get its act together to avert a collapse of the economy.

“Barbados’ foreign reserves have plunged from about BDS$1.5 billion to just BDS$600 million. They fell by BDS$200 million in December and they are likely to continue to fall, so that by June there is a possibility that unless something is done … Barbados could virtually run out of reserves,” Arthur told the Barbados Nation newspaper.

“The next three months will perhaps become the most decisive in the modern Barbados experience and could determine what happens to us as a country for the next generation,” he added.

Arthur told the paper’s New York desk that the current impasse between Central Bank Governor Dr. DeLisle Worrell and Finance Minister Chris Sinckler is more than just a difference in fiscal policy.

“There is an inevitability to this precisely because a lot of very bad policies have been instituted at which the Central Bank has been at the centre,” he said.

“Dr. Worrell would have accommodated the government and he knew he should not have,” Arthur said.

A former finance minister, he said the bad policy of printing money to cover government’s deficit over the past few years is partly responsible for the country’s current economic situation.

He said measures such as project funding and privatisation geared to boost the economy have not worked and that the government has exhausted its ability to borrow from local banks, the National Insurance scheme and on foreign markets thereby running out of options to support the foreign reserves.

“That whole process by which the Barbados economy was being driven into the ground has to be addressed within the next three months or we have no future,” Arthur warned, adding that the time is right for a stronger Central Bank, a strong Finance Minister and a strong Prime Minister. .

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ThisIsOurs 3 days, 22 hours ago

From what I'm hearing references to Barbados' situation is a red herring.

In the article Owen Arthur points out they have 12 weeks of reserve. We have 23. The recognized standard (from what I heard fromZhivargo Laing) is 24.

Next he points out that the govt is printing money to cover debt, I've not heard anyone make a similar claim about us

Next he says the govt has exhausted its ability to borrow from local banks and international financial organizations. No one wants to lend them money. KP and Johnson themselves went on a private tour and came back bragging how they were oversubscribed so many people wanted to lend them money.

So while we certainly don't want to be in Barbados' state and we do need to change the way things are being done we are nowhere Barbados was in Feb 2017 when Owen Arthur made this statement. Balancing the budget as KP proposes is a good objective, the only problem with it is the aggressive timeline and the naive assumptions he makes to get to that goal. For example he actually believes that a 60% increase in tax rate will give him a 60% increase in revenue.... That's what he wrote down and defended. Then he says he wants to create an economic think tank. For what purpose? You already have the economic council that you've padded with cabinet ministers who know nothing about economics. You'll end up with the same situation as WSC, technocrats reporting to a "board" who knows nothing about their craft.

As to being a hurricane away from that devastation. The entire world is at the whim of Mother Earth. Nothing we do will ever remove the threat of a devastating hurricane, that will always loom over us. You can only pray one doesn't come and if it does, that you have sufficient to hold out till help arrives.

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bogart 5 days, 11 hours ago

Is this guy from Grand Bahama...one of the worst off islands....people on soup lines...high inemployment....people sheltering in the Bazaar,..living in cars..those with something helping family and friends...many on the margins....approving this Consumer Tax .....and as head of the Chamber of Commerce ???......do they still have the security guard check point wid the two lamp post between Eight Mile Rock an Freeport where pore coloured Bahamian workers are searched going home to EMR and those on the other side in Freeport who dont leave the bonded area of Freeport??????

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thephoenix562 5 days, 10 hours ago

What soup lines?Where is this security check point?I have lived here in Grand Bahama 40 years i havent seen any check point yet.When is this searching of poor colored workers going on?i can assure you there are people sleeping in cars in any major city in this world.We have our problems sure but Grand Bahama will be fine.Please talk what you know not what you hear.

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birdiestrachan 5 days, 11 hours ago

Mike Holding is smart like doc. as Trump says if he shot people. persons will still support him this is Mike Holding he will support the FNM party and doc right or wrong.

The brilliant Bahamians say it is wrong it will hurt the poor and middle class .Take note Holding says The bread basket items absence of VAT is a gift to poor people. He does not know that rich folks buy bread basket items.

Holding is like doc in smarts and lack of concern for poor people.

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bogart 5 days, 10 hours ago

The security guards by the Freeport EMR junction was there to stop the pore workers from taking tings from the Freeport area to their homes outside cause it is known they did not live by bread alone.

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Porcupine 5 days, 9 hours ago

Mr. Holding,

Neither the chamber, nor businesses are people. There are many ways of raising revenue without straddling the poorest of our people with even more suffering. Your lack of imagination in solutions is likely due to the sound of money, rather than people's voices. Your "constituency" says we would not have jobs without businesses. Others of us say that without people, you would have no businesses. Many of us who still study these things, say that taxes should all be on business earnings and property. Never on wages. I find it funny how many "Christians" cannot see the evils in how we currently tax. This says a lot about the education and scholarship of our religious leaders.

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sheeprunner12 5 days, 8 hours ago

Indeed ........... Taxes are not Christian in origin ........ and what happened to the "jubilee" policy??????

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bogart 5 days, 8 hours ago

TRIBUNE article, Wednesday, February, 14, 2018 "Soup kitchin andstores team up tp feed Grand Bahamians" by Denise Maycock

'....feeds on average 200, people on the sidewalk..' ........... ON the matter of security guards searching pore coloured Bahamians.....just check Grand Bahamian history .....lazy illiterate people like you Phenix must be pitied and feared for in your ignorance and blind subserviamce to your racist ways, much history is whitewashed over. Shameful that you refuse to acknowledge the suffering of Grand Bahamians many of whom are in Nassau semdong back money to help families while you amd your kind oblivious to the pore really should have income taxes slapped on yinna hip instead of the pore paying.

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