The Tribune

* Governor hints new/increased taxes unlikely immediately

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Central Bank’s governor yesterday argued Bahamians must “embrace the call” to pay for the country’s COVID debt blow-out, but hinted that new and/or increased taxes are unlikely to be imminent.

John Rolle, speaking as the regulator unveiled its 2021 first quarter economic assessment, said the private sector and Bahamian taxpayers “must agree” that they will have to “contribute the resources” to cover the record borrowing and deficits incurred by the government in propping up the economy during the pandemic.

Asserting that the ‘do nothing’ option had simply not been feasible for the Minnis administration or any nation when COVID-19 struck, he added that The Bahamas must face “the reality” that the government will have “significant financing needs” for some time to come.

The national debt is forecast to breach the $10bn mark by mid-2022, which is just 13 months away, following a record $1.327bn deficit projected for this fiscal year and another $954.6m in 2021-2022, but Mr Rolle argued that such excessive borrowing was the only way for The Bahamas to stave off total economic collapse after the tourism industry and much of the wider economy shut down last year.

However, he suggested that new and/or increased taxes were unlikely to be imposed in the short-term as such measures would only add to the pandemic’s costs and further stall a weak, protracted recovery for the Bahamian economy.

“The trade-off is one of two,” Mr Rolle said yesterday. “You intervene, you accumulate some debt to maintain a stable outcome or, as a government, do the opposite and stay within the resources the economy is generating. That is not a policy option recommended in any country.

“This is a time when the government is expected to step forward and provide some safety nets for the economy. What makes this process easier to execute is to recognise, plain and simple, that the government has taken on the debt now and we’re the ones that have to contribute the resources to help the government pay those debts in the future.

“We have to accept that the government has supported the economy. We must agree that the government has supported the economy, and we must agree we are the ones that contribute the resources, whether it’s taxes to to generate smaller deficits to pay down the debt.......”

Reiterating this message, and warning that there will likely be no escape, Mr Rolle added: “I think the most important thing, when we look at the debt, is to embrace the fact the government will call on the private sector to provide the resources to help repay the debt.

“We have to accept that reality. If we don’t accept that reality we have a strong case to push against the deficit and amount of borrowing.” He argued again that there had to be “a simple recognition” that without major government borrowing/deficit spending, the government would not have been able to prop up the economy and provide various forms of social assistance to thousands of Bahamians.

“We have to recognise there is a trade-off,” the Central Bank governor said. “We do have the capacity to repay the debt taken on.” He pointed out that The Bahamas was not unique, as multiple countries were now assessing how they address the unsustainable debt loans forced on them by the pandemic as they move forward.

While many fear that new and/or increased taxes may be imposed as early as the 2021-2022 budget, which is due to be unveiled in just over three weeks’ time, Mr Rolle indicated this was unlikely to happen given that it would undermine the economy’s post-COVID recovery and potentially result in business closures and more unemployment.

Asserting that cutting/eliminating the government’s annual deficits, and slashing the national debt, “needs to be the focus post-pandemic”, he added: “We need to be thinking beyond the present when we talk about rebuilding the public finances. There’s no advice being given to governments globally that they should be raising taxes in the middle of a pandemic to address the costs of the pandemic.”

Mr Rolle said The Bahamas had three options available for addressing the fiscal woes created by Hurricane Dorian and COVID-19. One was to increase taxes on The Bahamas’ existing economic base; another involved “generating returns” from faster economic growth; and “the third element” is to reduce the government’s spending.

“If we look at tax policy, expenditure and growth, they need not be mutually exclusive,” the Central Bank governor added, suggesting a combination of all three may be required. He also said diversifying the economy, and generating growth from new industries, will also help to spread the post-COVID pain.

“A lot of the conversations we are having in The Bahamas right now are about how we mobilise resources and stimulate the economy to help so that not all the burden of repayment lands on the existing base of economic activity,” Mr Rolle said. “That way the average payback is lessened for the economy.”