The Tribune

By NEIL HARTNELL

and YOURI KEMP

Tribune Business Reporters

TAX and duty cuts to counter surging inflation are ruled out given the Government’s “precarious finances” and $12b-plus national debt, a governance reformer warned last night.

Hubert Edwards, head of the Organisation for Responsible Governance’s (ORG) economic development committee, backed the Prime Minister’s call for Bahamian consumers to be frugal in their spending given that this nation’s need to import virtually all it consumes leaves it at the mercy of global economic forces.

Acknowledging that inflationary pressures may have yet to peak, with Bahamians feeling higher prices at the food store and gas pump, in particular, he argued that there was little the Government could do to ease the pain beyond the May Budget’s tariff cuts due to the growing need for tax revenue given its own fiscal crisis.

“The Bahamas is a net importer of inflation and, coupled with a regressive taxation regime, the continued heightened level of inflation holds serious implications for consumers,” Mr Edwards asserted to this newspaper. “Our inflation comes hard baked into our imports, which gets further impacted by the regressive nature of the taxation system.

“The one thing which appears to be certain is that inflation continue at the heightened levels we are currently experiencing and possibly go higher.... The Prime Minister is acknowledging the fact that since The Bahamas is an importer of inflation there is nothing we can do. Citizens and residents will have to become more aware of how they spend, budget more effectively and adjust spending habits as a way of compensating for price increases.”

Mr Edwards pointed to the Government’s “difficulty in giving up taxes at this time” due to its own deficit and debt pressures, and the scrutiny it is receiving from sceptical financial markets, rating agencies and investors. “The nature of our economy renders the Government extremely limited in doing anything about the level of inflation or its impact save giving up a portion of its already narrow fiscal revenue,” he added.

“Short of giving up revenue, the Prime Minister is accurate. There is nothing much that can be done and giving up revenue at this point given our precarious finances... holds implications for the future of the country’s debt. The Prime Minister’s call is therefore wise as it will likely get worse before it gets better.”

With inflation, and associated price hikes, largely negating the relief intended by the Budget’s tax cuts, Mr Edwards nevertheless urged the Government to focus on ways to enhance its “social safety net” as a means to protect the most “vulnerable segments of the population” from the cost of living crisis.

Not all segments of the private sector agreed with Philip Davis QC’s call for “frugality”, with one businessperson branding it “the dumbest thing” they have ever heard amid fears it will cause a reduction in consumer spending and, subsequently, a contraction in economic activity.

Manera Rolle, owner of Willow’s Wheelz, told Tribune Business it was a “silly statement” for the Prime Minister to say that consumers must now be “frugal” because inflationary pressures will continue to mount over the coming months. “It’s obvious he never took an economics class, clearly. One of his advisors should have told him differently,” she argued.

“If we stopped spending, doesn’t that mean that the economy would go down? So I must not go to Goldie’s for a conch salad to help him pay for his staff. Wouldn’t that cause a trickle down effect if he tells us to stop spending? That’s the dumbest thing I have ever heard.”

Mr Davis said at the weekend that Bahamians must be frugal with their spending because it appears the country is in for “a rough ride for another few months” from inflationary pressures.

Ms Rolle has been unable to bring in her usual batch of vehicles to properly run her business due to the inflationary pinch. “I’ve found another way of bringing in cars,” she added.

“I have a link with someone who is able to bring in cars on a percentage, and what this new supplier is trying to do is they are trying to sell-off the cars before they get to Nassau, meaning that at least a person who was invested with them would be able to get paid back in addition to the remaining balance being paid-off. So that’s what this new supplier is trying to do.”

Alfredo Bridgewater, owner/operator of Coco Nutz in Grand Bahama, said the “rationale is that you should try to support your economy by having money in circulation”. He, too, was perplexed by the Prime Minister’s comments because for a small country such as The Bahamas “contractionary economic policy will make things worse”.

Philip Darville, owner/ operator of SolveIt Bahamas, said he understood what the Prime Minister is trying to convey because there has been a “slow erosion of disposable income” due to rising prices. “If you are not budgeting effectively, you could be in for a tough time especially within most households,” he added.

“Whether it’s in grocery stores, whether it’s with electronics or with the cost of raw materials, they have gone up and labour, too, has gone up. The cost of transportation is sky high. That means that you are going to get a lot less than what you are currently spending, and even less products for the amount of money. It’s going to be a challenge.”

The cost of travelling has also become more expensive for tourists. “This is what we have to be careful about because we don’t know how long this is going to drag on, but this is like a pre-recession approach. Most banking executives are warning against excessive spending, too,” Mr Darville added.