By Neil Hartnell
Tribune Business Editor
The Bahamian economy’s 2018 GDP growth underperformance shows there is “no room” for new or increased taxes in next weeks’ budget, a former finance minister said yesterday.
James Smith, who held the post from 2002-2007, told Tribune Business that a repeat of the 2018-2019 budget’s VAT hike and other tax increases would only throw the Bahamian economy further back - and halt its potential recovery - by depressing consumer demand even more.
Suggesting that a budget which held steady, and kept the government’s three-year fiscal consolidation plan on course without any new revenue measures or spending cuts, was likely the best option, Mr Smith said “it might be wise” for the Minnis administration to take stock and assess which initiatives were working.
The former Central Bank governor again voiced concerns that KP Turnquest, deputy prime minister and minister of finance, was too “obsessed” with meeting deficit reduction and other fiscal goals at the expense of using the budget to lay-out a road map for dealing with some of The Bahamas’ economic and social ills.
Calling for the government to focus on reducing the near-25 percent unemployment rate among Bahamians aged between 15 to 24 years-old, Mr Smith said “debt-to-GDP ratios mean very little to an unemployed person and even less to a student coming out of high school”.
He predicted that the Minnis administration was likely to focus on “tightening loopholes in the tax code” and “more aggressively” cracking down on tax cheats in the 2019-2020 Budget, combined with further recurrent and capital spending restraint given that the Fiscal Responsibility Act mandates that it further narrow the fiscal deficit to a sum equivalent to one percent of GDP - around $110m - in the upcoming year.
“Having said that, as a Bahamian, I would prefer to see more emphasis placed on how resources are allocated to grow the economy in such a way that it absorbs much of the unemployment among young people and creates sustainable jobs,” Mr Smith told Tribune Business, “to address those issues of great concern to different segments of society.
He added that such a focus would ensure that school leavers were literate and trainable, and had the skills that private sector employers are seeking. “It’s what one would expect to hear,” Mr Smith said. “I don’t think, important as it is, that debt-to-GDP ratios mean very much to an unemployed person and even less to a student coming out of school.”
He added that while the Minnis administration, now two years into its term in office, was beginning to focus on “meeting real needs” in Bahamian society, it had yet to produce a “guide and pathway” for doing so.
And, with the Bahamian economy’s 1.6 percent real GDP growth for 2018 undershooting the International Monetary Fund (IMF) and government’s own estimates of 2.3 percent and 2.2 percent, respectively, Mr Smith argued that there was virtually no scope for new and increased taxes in next week’s Budget.
“If the economy has grown by less than 2 percent there isn’t further room for taxation,” he told Tribune Business. “You can only do that by depressing consumption, which will only push the economy back further, so I hope they don’t attempt anything like that. I don’t know if there’s that much room left.
“There are signs of a comeback, particularly with the major industry, tourism, and a large part of it is explained by Baha Mar, which is holding its own. It might be wise for the Government to hold still for a year and see exactly which way they’re going.
“By changing so many variables as they’ve been doing it’s very hard to track where the impact of policy is going, and whether they need to do it or not. There may have to be adjustments in time, as it is difficult to understand what is having the greatest impact.”