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‘NO WAY’ TO PAY BILLS WITHOUT NEW TAXES: Reformer says Budget is most important in history of The Bahamas

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Hubert Edwards

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A governance reformer yesterday said he was “confident” some tax increases will be unveiled in tomorrow’s Budget, which he branded as the “most important” in Bahamian history to-date.

Hubert Edwards, the Organisation for Responsible Governance’s (ORG) economic development committee head, told Tribune Business there was “absolutely no way” to increase government revenues to 25 percent of gross domestic product (GDP) - the Davis administration’s target - without implementing new and/or higher taxes.

And, given The Bahamas’ post-COVID situation with multiple challenges confronting it, he argued that the 2022-2023 Budget is the most pivotal yet as “the country could languish below its potential for some time to come if we don’t get this right” on the short, medium and long-term reforms needed to direct it back on a sustainable economic and fiscal path.

Mr Edwards argued that The Bahamas was in uncharted territory with a $10.5bn-plus national debt that was increasing towards $11bn; underlying economic fundamentals that were “overturned” by the COVID-19 pandemic; and bonds that continue to trade at significant discounts to their face value - and yields between 12-14 percent - on the international market.

Besides these difficulties, the Government and Bahamian people are also presently dealing with a cost of living crisis sparked by global inflationary pressures that will likely force an increase in social security spending and other measures - such as targeted tariff cuts - to mitigate the impact on society’s most vulnerable in the upcoming 2022-2023 fiscal year.

Yet the Government also needs to earn sufficient revenues, and cut spending, to restore fiscal sustainability while ensuring there is sufficient investor, consumer and creditor confidence such that the economy will grow its way out of the hole created by Hurricane Dorian, COVID-19 and recent cost of living pressures. As a result, Mr Edwards acknowledged that the Government faces a delicate “balancing act” with the Budget given multiple competing objectives.

Noting that the elevated national debt “will likely remain an uncomfortable Achilles heel” for The Bahamas, the ORG executive added: “Due mainly to the debt stock and the effects of the pandemic, this Budget might be the single most important in the life of the country.

“It must therefore pave the path, and lengthen the runway, to the future by taking positions which allow for recent changes to effectively mature while laying the foundation and establishing the initiatives that will crystalise in the long term.”

Asked by this newspaper to justify his assertion that tomorrow’s Budget, which will lay out the Government’s fiscal strategies, spending plans and policy priorities for the next 12 months and beyond, is likely the most critical in Bahamian history to-date, Mr Edwards said: “It is the first time that we have had this concentration of debt. The country has a significant amount of debt, and we have never been here before.

“The underlying fundamentals of the economy have been overturned because of the COVID-19 crisis. I don’t think we have ever been here before, and the treatment and response seen from the credit market in terms of the way our bonds are being treated, we have not seen this over such a long and extended period that we are experiencing now.”

The Bahamas’ $825m bond, which has an 8.95 percent interest coupon and is set to mature in 2032, closed yesterday’s trading on the Frankfurt stock exchange at a more than 25 percent discount to its face value. The yield demanded by investors was just over 14 percent, indicating that the global capital markets still view The Bahamas as ‘high risk’ and would demand double digit interest rates in return for investing in any new debt issues.

It is a similar story with the $300m bond, carrying a 6.95 percent interest coupon, that is set to mature in 2029. It, too, closed at a 25 percent discount to face value with the yield set at slightly over 12.5 percent. “I really believe this Budget has to fix the fundamentals and right this thing for the future,” Mr Edwards told Tribune Business.  

“If we don’t get this right, and set the credit back on the right path to have a conversation with the credit markets to create options and opportunities for new growth, the country could languish below its potential for some time to come, which is why I view this Budget as one of the most important announcements...

“There are some hard decisions which need to be made, and made in a fundamental way. Making these decisions comes with balancing a number of issues. They’re not so easy. The fact the administration has so many balls to juggle all over makes it a very difficult scenario, but underlies the importance of getting it right, changing the path, changing the trajectory, making changes to the plan and the reforms that are going to create a different set of outcomes.”

With an “over cooling” and recession in major economies upon which The Bahamas depends a very real danger, as interest hikes are implemented to fight inflation, Mr Edwards said: “It’s the inter-play between these different things which is why I believe we’re at an historical, critical moment.”

Senator Michael Halkitis, minister of economic affairs, has promised several times that tomorrow’s Budget will include no new and/or increased taxes. He has indicated that some fees associated with government services may be raised to cover the cost of providing them, but has repeatedly asserted that the Government is focused on The Bahamas growing its way back to economic and fiscal health.

The Davis administration’s public stance has been that new/increased taxes would only set back the economy’s post-COVID rebound, while deterring new employment hirings and undermining business and investor confidence. Ultimately, its position has been that it is far too early to implement such measures, although it has paved the way for new revenue streams such as carbon credits should they materialise in the future.

However, many have questioned how the Government plans to raise revenues from the equivalent of 18.2 percent of GDP, as projected for the 2021-2022 fiscal year, to a 25 percent ratio by 2025-2026 without new and/or increased taxes. As outlined by its Fiscal Strategy Report, this would require a $1.3bn revenue increase over the next four fiscal years - a jump of 55.7 percent - to achieve a Budget surplus of $71.9m by the 2024-2025 fiscal year.

Based on ORG’s recent pre-Budget roundtable, at which Mr Halkitis was a panellist, Mr Edwards forecast an increase in an existing tax/taxes was likely in the upcoming Budget based on the minister’s response to one of his questions. The ORG chief said he asked Mr Halkitis to say ‘yes’ or ‘no’ to the question of whether tomorrow’s Budget will start The Bahamas on the path to a 25 percent revenue-to-GDP ratio, and the minister responded in the affirmative.

“I’m confident there will be,” Mr Edwards said of tax rises, due to the minister’s response, although he ruled out new levies. “I interpreted that as if there will be some increase. There’s absolutely no way to shift from 18 percent to 25 percent by keeping the same taxes and fees and there being no increase. It’s not possible.”

The Davis administration faces having to keep multiple audiences, each with their own competing objectives, needs and desires, happy through tomorrow’s Budget. For starters, it will have to protect the most vulnerable Bahamians from the cost of living crunch, while doing what it can to mitigate inflation despite having relatively little room for manoevere.

It will have to ensure critical public services are still delivered, while balancing this with the need to foster and improve investor and business confidence so that the Bahamian economy continues to grow its way out from COVID-19 and deliver the necessary jobs and employment opportunities.

These goals have to be met while accounting for the external audience of IMF, World Bank, rating agencies and other lenders and creditors, all of whom want to see The Bahamas return to fiscal sustainability as quickly as possible through increased tax revenues and reduced government spending that eliminate the annual fiscal deficits. They will be seeking a realistic plan on the way forward that lays out measurable benchmarks and goals for The Bahamas to achieve.

Comments

Sickened 1 month ago

“Due mainly to the debt stock and the effects of the pandemic, this Budget might be the single most important in the life of the country."

And the PLP are in power... Jesus take the wheel 'cause these guys will steer us right over the cliff.

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tribanon 1 month ago

Tax to death all the enterprises controlled by the 'big corrupt men' like Sebas Bastian, Craig Flowers, Snake et al.

No new taxes on the struggling 'small honest man' who cruel Davis steadfastly refuses to provide much needed relief to by way of VAT-free breadbasket food items and a gasoline tax holiday fir at least the next year or so.

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GodSpeed 1 month ago

Amen, also liquor and any other vice. But they probably won't tax them cause they already have these politicians in their pocket.

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ohdrap4 1 month ago

Brazil has cut import taxes on staples like flour and rice, and on fuel by 10%.

duty on chicken and eggs should be reduced, I hope.

They should tax all men named hubert edwards. It is a type of sin tax. Talking like that is sinful.

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Maximilianotto 1 month ago

CUT EXPENSES! Starting with global traveling expenses.

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sheeprunner12 1 month ago

Start by Ministers being transparent & accountable for what is spent ....... who gets contracts ........ and what is owed to the Government by PEPs & please start to sell off some SOEs.

Stop making the Budget debate a puppyshow ......... a tasteless, mud-slinging exercise

Change the Government accounting system to accrual-based, so that the practice of kicking the $$$$$$ can down the road will come to an end.

Streamline the public sector, so that more persons will become contractual and rate of pension increase will begin to decrease ....... The public pension liability is well over $2billion now & NIB is staring fiscal collapse in under 10 years.

But will any of this happen??????? ............ Or will we witness the same old, same old for the next 4 weeks????????

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bahamianson 1 month ago

Government reformer,hey? You'll better stop talking foolishness about increase taxes when VAT was introduced to pay our debt. Stop talking fool ,bey!

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sheeprunner12 1 month ago

Very good point ....... The PLP sold us VAT as the silver bullet for our debt problem ....... SIX years later we are deeper in debt and no closer to accounting for where the VAT money goes ...... More VAT, more loose spending.

Regarding Hubert Edwards, he's a typical slick talking Yardie

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DDK 1 month ago

Debts will never be paid and services will never be provided for The People by way of the taxes they pay, as long as we have governments that continue to squander stupidly and steal shamelessly with impunity from The People's Fund!

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DDK 1 month ago

Cut the M.P. salaries until Government gets out of the red! Eliminate their pensions. Take away their fancy cars and allowances. Cut the civil service in half. Stop giving contracts for work that should be done by government departments, agencies and government employees. Let them work for a living. Stop taxing the poor people and businesses to death so that the politicians and their cronies and sweeties can continue to live large....

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TimesUp 1 month ago

5 years ago in 2017 we had a whopping $6.55 billion dollars in debt.

Today we have over $10.91 billion dollars worth of debt.

Remember that truth when the sweet words get sung tomorrow.

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TalRussell 1 month ago

May I add my bit to Comrade Hubert Edwards serious stuff flow. ...There will be ‘No way’ to remain working pay Bills if you contract the Monkeypox. ... Cause unlike COVID, the Monkeypox virus is very visible. There's nothin' anyone can buy at the Guardian's Mr. Carmichael's guest Miss Li's Chinese Cures all kinds pains and aches including those youse never even knows you had with her batch treatment remedies store sells that will camouflage to hide you has contracted the Monkeypox. ... And there is no commercial assay to detect the Monkeypox virus ... There's no social distance that's too far and you can totally forget about entering any work, commercial or medical office or healthcare facility. ... Nor has fashion designer Comrade Peter Nygard's Monkeypox reversal scientists has yet discovered as way to reverse the Monkeypox process. ― Yes?

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Sickened 1 month ago

Thankfully rich Mr. Gates has the 'solution' again. More vaccines coming - every two years.

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ohdrap4 1 month ago

Tal. To avoid monkeypox, all you have to do is avoid anonymous sex.

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TalRussell 1 month ago

@Comrade Ohdrap48, you know how even we colony's Sunday going church worshippers so like scorn others ... you'd be best try to do your best not attempt try Monkeypox social distancing with fellow parishioners ... and tis must wash hands ant to go masked all over whilst walking about in popoulaces domain ... by doing everything like this and that even if it means to avoid *a sinners lifestyle by conducting yourself in popoulaces places as would any upright Christian so conduct he or herself in way so as avoid at all costs ... contracted that disfiguring Monkeypox, ― Yes?

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John 1 month ago

Why are all the images of persons suffering from monkey pox Black persons when none of the recent cases are Black people? Again to widen the racial divide worldwide and put into the minds of the public that it is Blacks who have the disease. It is Blacks who are spreading monkey pox, Blacks are to be scorned, Blacks are to be avoided. But the new wave , they say originated at a (gay/bisexual) event in France and the spread in the US has some link to prairie dogs.

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John 1 month ago

Most of what Hubert Edwards is saying is uncultured bull$hit! Even before one can get into the crux of the matter ( ok waste matter) explain this: the numbers of Bahamian taxpayers have increased over the past fourth years. The amount of taxes paid by each individual Bahamian has increased over the past forty plus years. The number of non/Bahamian high net worth businesses operating in the Bahamas has increased over the past forty years. But the cost of living for Bahamians had increased astronomically over the past forty years. But the quality of living has probably declined over the decades. Hardly any major capital works since the Ingraham era. The lights still go off and the roads are deplorable. And the national debt is through the sky. So where the heck is the taxpayers money going?

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John 1 month ago

Why are Bahamians paying more taxes to their government to receive less and less in return?

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ted4bz 1 month ago

...and, there is no one to tax if no one is working. Nor is there any point to work if superficial policies continue to gobble up the little that barely make ends meet..

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John 1 month ago

That is like Joe Biden asking why the mass murders ( condolences to families and friends of victims of recent killings it the kindergarten school, at the church in California and in the supermarket) continue to happen and why they are happening mostly in the US. Well Unca Joe Biden needs to ask himself two questions: Have he forgotten about the thousands of innocent people that were lynched in the United States? Some strung up in trees and hung, some dismembered, some burned alive in their own homes and with entire families? And (2) why does Joe Biden continue to allow his police force to operate like a lynch mob ? Still, killing innocent people ( on camera) for simple traffic stops, still bursting into peoples homes and killing innocent (sleeping ) victims, not unlike what was done here. Yes, but the latest victims of the last shooting was little innocent children. Little angels. That is the problem. ALL of the victims were innocent. And ALL the families and friends and loved ones felt the same pain. ALL. You cannot fix America or The Bahamad, for that matter and leave some crimes undone. For example, where is the boat captain who shot at police and customs officers? Where is the resident of the gated community who is supposed to be serving time for killing her husband? Who is responsible for saturating this little country with guns, high powered weapons even and contributing to the murder problem here. Joe Biden says the mass killers have mental problems, but what about those committing murder with a sound mind and still a clear conscience? Is America imploding?

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John 1 month ago

When Cain killed Able, God said I will not put you to death. I will put a mark on you so that wherever you go on the earth, they will know of your deed. And Cain said, ‘This punishment is more than I can bear. Once they know I have committed murder, they will come after me and try to take my life..’. Thou shall not kill ( commit murder). Ain’t nothing changed.

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John 1 month ago

The US even has a towns called Lynchburg. Several. Google the history of them. America must fix itself. Some people are genuinely afraid to travel there under the present conditions.

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John 1 month ago

If the government spent 1/4 of what is being spent on Covid and vaccines promotions on anti-crime and gangs and murder campaigns, this country’s murder rate will be close to zero.

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