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‘Taxes Will Increase To Cover Debt’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading Bahamian banker has warned that taxes will "increase significantly" to pay for the Government's COVID-19 spending, leaving individuals and businesses left with less money "for quite a while".

Gregory Bethel, Fidelity Bank (Bahamas) president, urged Bahamians to plan for grim economic times that lie ahead as he warned that "no organisation, family or individual will be exempt from the price to be paid" for deficit spending that is projected to add more than $2.9bn gross to the national debt over the three-year period that closes on June 30, 2022.

Despite the harsh austerity that awaits, Mr Bethel also urged the Government to provide Bahamians with "immediate hope and confidence" that it and other institutions have their backs in times of need. He warned darkly that unless this happened, the economic and social hardship produced by COVID-19 may cause many Bahamians to "revolt", resulting in social unrest and increased crime.

Writing in Fidelity Bank (Bahamas) just-released 2019 annual report, Mr Bethel sought to prepare Bahamians for the "life-changing challenge" produced by the twin health and economic crises sparked by COVID-19, warning that financial and lifestyle habits must change immediately if medium and long-term prospects are to improve for hundreds of families.

Suggesting that new and increased taxes are an inevitable consequence of COVID-19, he pointed out that this burden will fall on a Bahamian private sector and consumers that fund the Government through generating 80 percent of this nation's economic activity.

"Since we had no tourists visiting the Commonwealth of The Bahamas (The Bahamas) for three months, up to 60,000 Bahamians suffered loss of income. All households had less income. Some had none," Mr Bethel explained in a "message" written before the reimposition of further restrictions that have slowed tourism's July 1 reopening to a trickle at best.

"And because the tourists will not return in the required numbers until the economies of the United States of America and Canada fully recover (not projected until the beginning of 2022), the Government of The Bahamas and the private sector – which funds the Bahamas government – must step in and assist those in need.

"The private sector (businesses and individuals) fund the Bahamas government through taxes, fees and loans. The private sector, which is 80 percent of the Bahamian economy, provided the funds which the Bahamas government spent to help people during and after the global pandemic."

Outlining the near-term fall-out, Mr Bethel added: "This extraordinary social expenditure by the Bahamas government (at the same time experiencing a significant revenue loss) added to the Bahamas government’s deficit and debt. This means that taxes will increase at some point. They will likely increase in a significant way.

"The wealthy, upper-middle income earners, and the profitable businesses will have to pay even more to fund the Bahamas government, including the costs of safety, security, salaries, social assistance, healthcare, education and servicing of debt. So, individuals, organisations and businesses will have less income and money to spend for quite a while."

Urging Bahamians and the private sector to brace for the coming storm, Mr Bethel wrote: "Now is the time to reset or adjust goals, objectives, budgets and future plans. Now is the time to spend only on what is urgent and important, or will generate a positive return in the future.

"No organisation, family or individual is exempt today, nor will they be exempt from the price to be paid during and after the recovery period. We must all strategise and think about the future."

K Peter Turnquest, deputy prime minister, in unveiling the 2020-2021 Budget said the Government had ruled out the imposition of new and/or increased taxes as a means to cover its massive deficit spending for fear that they would further depress an economy in danger of imploding due to the tourism industry shutdown and associated COVID-19 lockdown.

He subsequently voiced optimism that The Bahamas will be able to grow its way out of any post-COVID-19 fiscal woes, and avoid increased taxation over the medium-term, when repeatedly pressed by Tribune Business on the matter.

For the Ministry of Finance's own fiscal projections suggest that the pandemic is pushing The Bahamas into uncharted territory, with the Government's direct debt forecast to reach 82.8 percent of gross domestic product (GDP) by end-June 2021.

That figure, which is forecast to rise further to 85.6 percent come end-June 2022, excludes around $600m in "contingent liabilities" that the Government has guaranteed on behalf of state-owned enterprises such as Bahamas Power & Light (BPL) and unfunded civil service pension liabilities thought to be approaching $2bn.

Even without including those two factors, the Ministry of Finance's own projections show the national debt breaching the $10bn mark in the next 2021-2022 fiscal year, ending 2022-2023 at $10.614bn.

This is due to deficit spending estimated to have totalled $773.7m in 2019-2020, due to a combination of COVID-19 and Hurricane Dorian, and further "red ink" forecast to hit $1.327bn and $813.4m over the present and next fiscal year, respectively.

Mr Bethel, meanwhile, urged The Bahamas to target major markets such as the US, Canada, the UK, China and Europe in a bid to lure tourism and foreign direct investment (FDI) to these shores once COVID-19 is contained.

"The relevant representatives of The Bahamas need to travel abroad to engage ‘key actors’ in each of these continents [and nations], build up contacts and foster key relationships. The Bahamas needs to do all it can to attract tourists and investors while assuring them that The Bahamas is safe and open for business – with quick decision making," he added.

Warning that the Government must convince Bahamians there is a brighter future amid the harsh reality of COVID-19, the Fidelity Bank (Bahamas) president said: "Today, many Bahamians are afraid, frustrated, and irrational. Many people need immediate hope and confidence that institutions like the Bahamas government, the private sector - including banks, churches and charities - really care, understand, and want to help them now and in the months to come.

"If they have no hope and confidence in our institutions, they will revolt and encourage others to join them. Crime will increase. Leaders in The Bahamas need to give them hope and relief, while at the same time providing them information and useful advice (which they may not necessarily want to hear). As a nation, we need to act prudently and pray that God will intervene to enable us to provide quick tests, a cure and a vaccine for COVID-19."

Comments

UN 1 month, 3 weeks ago

During the good times, a certain someone was important enough to plan their day around (sitting in cars, creating fake scenarios at restaurants, etc) and placed above their own family and friends (one-upping at the expense of ‘true’ bonds). The world has turned to crap and you’d better be okay with being just an official afterthought. No matter what’s going on in your life, be okay with always having an unwanted audience who need to live through you (relishing any stress you may have, dismayed when your happy, make note of all missteps - for future reference, etc).

The rich are quarantining in style (no worries about bills or food) but this person who means so much to us (in a purely evil way) has to always suffer far worse (she’s all alone and we will keep her broke). Yes, a world filled with people who are also clearly suffering from depression (brains are in constant chaos and they need company, want desperately for me to also be in pain).

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tetelestai 1 month, 3 weeks ago

Gee, imagine that - the wealthy actually have to pay more in taxes (paragraph 10). Isn't that a novel concept, Mr. Bethel. Why haven't other countries thought of that. rolls my eyes.

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Proguing 1 month, 3 weeks ago

The rich will flee (they can afford it and many places are competing for their relocation) and the poor will be left to foot the bill

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tribanon 1 month, 3 weeks ago

Precisely! And the real property they may walk away from quickly becomes worthless in a stigmatized failed state.

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tetelestai 1 month, 3 weeks ago

No they will not! Taxes in Bahamas still lower than New York, Geneva, Hong Kong or London. And, unlike us poor folks, they can afford to sit back and wait out the pandemic. Ecomomica 101 .

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tribanon 1 month, 3 weeks ago

Bollocks! There are many low tax jurisdictions in the world with a quality/standard of living better than The Bahamas today. Why do you think our offshore financial sector has shrunk to the size of Minnis's tiny rat-size nuts?

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tetelestai 1 month, 3 weeks ago

Name three of these jurisdictions, please?

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JokeyJack 1 month, 3 weeks ago

Yeah - maybe they can impose a 500% income tax. 5 times zero is zero !!! LOL.

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avidreader 1 month, 3 weeks ago

You would be lucky with 15 percent VAT. Expect more like 20-25 percent. Some countries in South America have 40 percent VAT and higher. Of course there is a lot of tax evasion as is to be expected. Don't forget that there are many ways to tax the people. VAT is not the only means.

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tetelestai 1 month, 3 weeks ago

Agreed, in short term, 2021-2022, we will go to 21 or 22 percent VAT.

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JokeyJack 1 month, 3 weeks ago

Sounds like government planning another trip to China with hat in hand. I'm sure they can't wait to see ya. They won't be in a lending mood this time, though. My belief is they will just come here and take-over on January 21st. The game is over, and now the whole world is going to find out just how expensive all those "cheap" Chinese goods have been over the past 30 years. We all knew there is no such thing as a free lunch, but proceeded as if we did not know. Now it is time to pay the piper.

Something happened in Wuhan (which apparently nobody cares to find out what) - and now other things are happening (which apparently nobody cares to find out why). If only Al Capone had such skills, he would have never been caught. HCQ is a bad word. Uhm. I think we've got more than words to worry about. At least we don't have any "peaceful" protesters here yet.

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tribanon 1 month, 3 weeks ago

The very sinister, evil and ruthless Chinese Communist Party has so far successfully leveraged and manipulated the greed of American corporations and smaller nations in its efforts to achieve worldwide domination. God forbid we become enslaved to them.

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Proguing 1 month, 3 weeks ago

Right now they have sunk a few billions in this country with no return on their investment.

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tribanon 1 month, 3 weeks ago

They've done the same in many African nations with the return on their investment being corrupt governments willing to do their bidding on the world stage. Sadly, I suspect the same applies to our corrupt Minnis led FNM government.

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