The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition yesterday branded reform of government spending as an “absolute necessity” as it argued that the $804.5m increase in total expenditure compared to pre-COVID levels is “possibly unsustainable”.

Michael Pintard, the FNM leader, in a letter sent to Simon Wilson, the Ministry of Finance’s financial secretary, in response to the Government’s corporate income tax ‘green paper’ (see other article on Page 24), argued that the subsequent ‘white paper’ the initial consultation will produce must also address “efforts to contain public spending” as part of a comprehensive fiscal reform package.

“We maintain that any further discussion on business or corporate tax must be a sub-component of a broader fiscal and economic reform effort,” Mr Pintard wrote on his party’s behalf. “Simply considering a move to Bahamian corporate tax outside of the necessary fulsome dialogue and consideration of broad-based structural reform will not allow the Government to consider the overall implications and possible adverse outcomes that could accompany a partial reform effort.

“At this stage, we wish in particular to point to the absolute necessity of a focus on public spending reform. The Government is presently increasing spending in unprecedented and possibly unsustainable ways. The Budget for fiscal year 2023-2024 is seeking to increase total spending - recurrent and capital - by some $804.5m as compared to fiscal year 2018-2019 - the last fiscal year before the twin economic calamities of Dorian and the COVID-19 pandemic.

“With no immediate contingencies requiring ongoing ramped-up spending, we are concerned with the sharp growth of public spending. The resulting ‘white paper’ must speak to efforts to contain public spending and maximise the efficiencies of current spending.” Mr Pintard thus indicated there was no need to keep government spending at elevated levels given that the need for COVID support and pandemic-related health expenditures has fallen away.

Total government spending, recurrent and capital combined, is forecast to hit $3.45bn for the 12 months to end-June 2024. This compares to $2.646bn for the 2018-2019 fiscal year that Mr Pintard referred to, creating the $804.5m figure identified in the letter, which represents just over a 30 percent increase in total government spending over a five-year period.

However, Michael Halkitis, minister of economic affairs, previously pointed out that when inflation is factored in the projected $11.8m year-over-year increase in recurrent spending for the 2023-2024 fiscal year actually represents a decrease.

The Government will thus argue that it is containing spending, holding it relatively constant, and will also likely assert that some of the increase since 2018-2019 is due to post-COVID inflation. It will also assert that the country’s needs are great, especially when it comes to the demand for new and improved infrastructure across multiple islands, and that these needs must be met especially as capital spending has frequently been trimmed to meet deficit targets.

Mr Pintard, meanwhile, in his letter to Mr Wilson, added: “An integral part of tax reform must be the ease with which taxpayers can digitally interface with government agencies, especially tax collection agencies. Furthermore, the Government systems must be able to capture, archive, analyse and report statistics and financial data quickly, and in ways that help policymakers to have timely access to relevant data at their fingertips to make time sensitive assessments and decisions.

“Urgent, comprehensive digitisation of our government and related systems must take place. Thus, it is our earnest and steadfast recommendation that the next iteration of the tax reform paper include a section on the specific policy measures that will be put in place to contain spending and radically improve public sector efficiency, with the accompanying full implementation of related transparency and accountability mechanisms.

“Without such an undertaking, we submit that no consideration should be given to measures that place an additional tax burden on Bahamians individuals and businesses.” While backing reform of business taxation, and especially the Business Licence fee, Mr Pintard urged that consultation on the proposed corporate income tax be broadened to “the full spectrum of tax and expenditure reform”.

He added that The Bahamas’ fiscal policy framework “must accomplish” moving the debt-to-GDP ratio towards 50 percent, as opposed to its 80 percent-plus current level, “reduce the current inequitable tax burden on the Bahamian middle class and the poor”, boost opportunities for Bahamian entrepreneurship and ownership, and stimulate economic activity in both “undeveloped Family Islands” and “depressed urban centres”.

Noting that a corporate income tax would likely be “revenue positive” for The Bahamas, as this would require multinational groups with a presence in this nation - and who meet the 750m euro annual turnover benchmark set by the 15 percent “minimum” G-20/OECD initiative - to pay a proportional share to the Public Treasury based on what they generate in this nation.

“We support the fulsome reform of the current Business Licence regime that would abolish the current arrangement that is based solely on gross receipts. The reformed tax regime should seek to eliminate taxes on audited businesses posting losses, and at the same time reduce the unfavourable treatment to high turnover/low margin businesses when compared to low turnover/high margin businesses,” Mr Pintard wrote on the FNM’s behalf.

“Bahamian micro businesses with turnover under $100,000 per year should not be subject to any form of Business Licence fees or taxes. Bahamian small businesses with turnover under $1m should have the option to pay a straightforward set fee based on a structured and tiered system.

“The resulting white paper on business tax reform must develop and express specific tax incentives that provide targeted tax relief to Bahamian businesses that commit to material investments in domestic expansion, hiring of under-represented Bahamian employees (young people, the impoverished, the disabled, etc) or who make contributions to civic initiatives.”

Calling for “calibrated” tax rates, so that what he described as a “multitude of minor transactional taxes and fees inherited from a different era” can be eliminated to aid compliance and the ease of doing business, Mr Pintard added: “The reform effort must respect the tax regime that forms the basis of the Freeport zone in Grand Bahama and, as such, operations in the Port area should remain free of any direct business tax levy...........

“To allow for appropriate feedback and useful input into the process, the Government must clearly state its intended fiscal and economic expectations upon implementation of the reform efforts. What does the Government need and expect the business tax to contribute to the Treasury and to overall macroeconomic performance? Does the Government need and want the proportionate contribution from business tax to the revenue base to remain the same? To increase? To decrease?”