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Downgrades are a blessing in disguise

EDITOR, The Tribune.

There are few problems easier to fix than the fiscal “crisis” facing The Bahamas.

We spend the lowest proportion of our Gross Domestic Product on our people (18%) in the region and among the lowest in the world (which averages 35% to 45%).

Meanwhile, we burden the majority of our population with massive taxes on consumption yet collect no progressive income taxes on wealthier locals or even on corporations that earn millions of dollars exclusively from the pockets of those overtaxed consumers.

Not only does the consumption tax drag down the economy by reducing disposable income, but such taxes as are paid by businesses (like business license fees, VAT and duties) are themselves regressive in that they disadvantage small and emerging businesses and benefit large and established ones.

As former Member of Parliament Gregory Moss once pointed out in probably the most honest and on-point statement ever made in that chamber, insofar as we have a national debt it is essentially the size of the tax break we have over the years extended to the rich.

By reducing or removing consumer taxes and taxing incomes and property instead (like almost every other independent country on earth) we would not only increase and make more flexible our revenue stream but also boost the economy by freeing up disposable income. The government that did it would remain in power for probably a generation.

Yet they don’t. In fact, one after another politician stands up to boast about their lack of plans to do so.

Why? Because, at least in part, politicians have listened to their own inherited narrative for too long. It is a narrative informed by a simplistic and one-sided view of fiscal matters that looks only at the spending side and ignores the revenue side. And it serves vested interests.

The fact that The Bahamas spends too little rather than too much on its population’s needs is laid bare by the reality that, while they frame discussions on fiscal issues in terms of “discipline”, every government since independence has known better than to actually engage in “belt-tightening” sufficient to meaningfully impact spending. If they did, it would not only be deeply irresponsible but would rightly result in electoral decimation.

The result is a predictable cacophony of “reformers” and pro-rich interest groups pushing for austerity and politicians pretending that they can deliver it while also meeting the administrative, social and infrastructural needs of an over-taxed, under-served majority.

To date, they have managed this contradiction by a reliance on borrowing, a testament to our historic creditworthiness with institutions (like the IDB) that listen to groups like Moody’s and Standard and Poor’s.

It has allowed our leaders to maintain the pretense that our regressive tax and fiscal regime are somehow normal, or at least can be sustained alongside developmental needs that militate against austerity.

With each downgrade borrowing gets harder, making this false narrative harder to sustain. Eventually, our leaders will simply have no choice but to shift taxes away from consumption and onto wealth and property and thus move this country into a virtuous cycle of growth and equity.

What a pity it takes a fake ‘‘crisis” to make them do it.

ANDREW ALLEN

Nassau

November 14, 2021

Comments

Hobo2500 8 months, 4 weeks ago

What we really need is a government that is interested in investing in The Bahamas and Bahamians. Until then you can raise all the taxes you want and nothing will change.

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joeblow 8 months, 4 weeks ago

... politicians in this country stay in power by expanding the social welfare net. They make promises that they have to fulfil with borrowed money. Meanwhile, we produce nothing. More revenue through taxes will solve nothing since neither party has a national development plan or the fiscal maturity to adhere to one if they did. Income taxes will only produce more money for them to waste. Heck, they can't even allocate VAT to pay down the national debt, even though that's why it was implemented!

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Dawes 8 months, 4 weeks ago

We do tax property, at least in Nassau. I do agree they should extend this to family islands. On Income tax we would need to be sure that we would raise enough to fund what is needed. So lets say anything over $20,000 is 10%, and then it increases as you go up, say 40% over $100,000. At a guess most people who may earn over $100,000 are the offshore banks, so they are gone. Yes the second home owners will still stay here, but they wouldn't be paying income tax anyway. So basically it will be up to those middle class Bahamians to pay. Will be interesting to see if they are able to or not. There are many other ways to raise revenue which would be easier, one no real property exemption, 2 RPT in Family islands, 3 increase yachting fees by a lot. Those 3 alone should bring in 10's of millions and won't decimate a whole industry.

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oceantonguer 8 months, 4 weeks ago

40% property tax? What are you smoking. This would INSTANTLY make all real estate in the Bahamas WORTHLESS and mean all wealthy people would LEAVE within weeks. We would become Haiti but unlike Haiti we dont grow our own food.

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Dawes 8 months, 3 weeks ago

The 40% was on income tax, not property.

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oceantonguer 8 months, 4 weeks ago

The ONLY reason wealthy people or corporations are in this speck in the middle of the ocean is because the taxes are low. Change that and they will all leave within DAYS. There are plenty of places with beautiful beaches and many of them have better service and far cheaper food and workers

Doubt me? We used to have the worlds reinsurance industry based here and then Pindling tried to tax them so they moved en-masse to Bermuda within weeks.

We used to have a large liquor industry and then trying to tax them made the Bacardi's et al moved all their production to Puerto Rico

If you think you can tax your way to prosperity then think again, it just isnt an option here. The only route to prosperity for average Bahamians is for them to gain some valuable skills and education so that people will hire them and invest in them and pay them well. If you think you can shake down the wealthy you will be committing national suicide

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Proguing 8 months, 4 weeks ago

Pure socialist BS as usual. Caymans have less taxes than the Bahamas only 38 million deficit in 2020 and a better standard of living.

https://www.caymancompass.com/2021/03...">https://www.caymancompass.com/2021/03...

The problems with the Bahamas are, low compliance with tax collection, corruption, and one of the highest rate of civil servants to population in the world. This is what needs to be fixed.

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