By NEIL HARTNELL
Tribune Business Editor
The Government is predicting non-VAT fee and tax increases will generate an extra $100 million in the new fiscal year, amid warnings that "the fiscal chickens have come home to roost".
K P Turnquest, Deputy Prime Minister, yesterday told the National Chambers of Commerce Conclave that Immigration and Port fee hikes; the increased 2 per cent real property tax rate on foreign-owned vacant land; and greater licensing fees for large commercial services were all part of a strategy to align charges with the true cost of government services.
"We considered all of the user fees and services that have not been adjusted for many years and reassessed those," he said. "We looked at Immigration and port fees, which barely cover the cost of operations at this point.
"We looked at real property tax, particularly the tax on foreign-owned vacant land, licensing fees on large commercial vehicles and an increase in other user fees. In total, we came up with about $100 million from non-VAT revenue sources."
Mr Turnquest added that the Government had looked at raising the VAT rate to just 10 per cent, but "ultimately fell on the 12 per cent number as it gives us the best chance of arresting the slide, fixing the imbalance and funding priority modernisation and infrastructure projects".
The 60 per cent VAT rate hike is projected to generate an additional $400 million in revenue, although many observers believe this is unlikely due to compliance issues and reduced consumer spending/economic activity as Bahamians adjust to higher living costs.
Mr Turnquest again sought to suggest that the VAT was short-term, and represented the key component in a three-year strategy designed to pay off $360 million in unfunded arrears and bring the Government's annual fiscal deficit on target with the 0.5 per cent of GDP required by the Fiscal Responsibility Bill for 2020-2021.
He again promised some $100 million worth of Customs and Excise Tax reductions at the end of the period, although the Bahamas will have to make such an adjust anyway as part of its accession to full World Trade Organisation (WTO) membership by late 2019.
"I appreciate that many of these revenue-generating measures are unpopular. In fact, that might be the understatement of the day," the Deputy Prime Minister admitted.
"But we are in this together, as we only have one Bahamas, and we must adapt to be successful together. While the business community has been resistant to these changes, we are calling on you all to embrace the notion of shared sacrifice so that we can restore the public finances to a healthy state on a durable and sustainable basis. A healthy public financial position will redound to the benefit of all Bahamians."
Pegging the central government's direct debt at $7.2 billion, Mr Turnquest said 14 per cent of government revenues were now being absorbed by $381 million in annual interest payments on these liabilities.
And, dissecting the $76 million in under-budgeting for known spending commitments, he added: "Previous governments have been artificially under-budgeting for contractual commitments, which means vital programmes were under funded and some vendors were simply not paid."
Citing three examples, he listed:
A $4 million government food programme that only had a budget of $2.5 million.
A $6 million commitment for Immigration-related software and hardware to support the passport office was never specifically budgeted for.
A $10 million commitment for software and hardware upgrades to modernise the Department of Inland Revenue was never specifically budgeted for.
"Our fiscal state of affairs has been building from years of fiscal hocus-pocus and hide the debt," Mr Turnquest said. "Simply put, the chickens have come home to roost and unless we were willing to risk another downgrade to total crap bonds, with our ability to borrow in crisis evaporating, we had to address the problem.
"I would love to pull the magic rabbit out of the hat or push the liabilities further down the road, but that is simply not possible or responsible. Further, with interest costs eclipsing $381 million we just cannot afford any more large borrowings."
He continued: "Debt levels have been continuously climbing for the past 10 years - increasing by 160 per cent between 2008 and 2017. At $1.09 billion, debt service today is 8.3 per cent of GDP. Just last year, interest on the debt increased by $89 million.
"The corrective actions we are undertaking with the 2018-2019 fiscal plan might be hard and painful, and require shared sacrifice, but they are necessary. And they are made on our terms, not by the dictates of external actors, whose mercy we must subject ourselves to."