By NEIL HARTNELL
Tribune Business Editor
The government's 60 percent VAT rate rise was yesterday labelled "a death wish", amid fears it will plunge The Bahamas into recession by sucking an extra $400m from the economy.
Private sector leaders told Tribune Business they were stunned by the decision to increase the VAT rate to 12 percent for the 2018-2019 budget year, and warned that The Bahamas "cannot tax itself to success".
Robert Myers, the Organisation for Responsible Governance's (ORG) principal, said the government's revenue-focused fiscal consolidation measures were unlikely to succeed unless accompanied by matching "austerity" that reduced public spending.
He added that the VAT rate increase, coming just three years after the tax was first introduced at 7.5 percent, had "whacked economic growth in the knees" just as The Bahamas appeared poised to generate its highest annual GDP expansion for a decade.
Mr Myers also warned the Government against "doing stuff in a vacuum", and questioned whether it had done sufficient economic modelling to determine whether a 12 percent VAT rate rise was the best option for achieving its goals.
"That's what scares me," he told Tribune Business. "The negative backlash really scares me with the increased VAT and taking another $400m out of the economy. There is, without a doubt, going to be a negative backlash to that.
"You can't take $400m out of the economy, increase costs to the economy, and not have a GDP backlash. The last thing we need to do is put the country back into recession. There's no doubt that it's going to slow economic growth and create an inflationary aspect. That's going to have a negative effect on GDP, disposable income and poverty levels as well."
Mr Myers warned that "increasing taxes taxes without fiscal austerity is just a death wish", adding that the Government and Bahamians had "to stop fooling themselves" about the need for spending cuts.
"You can't tax yourself into success," he told Tribune Business. "Many governments have tried and all have failed. The rising ride that floats all boats is economic growth, and you've just whacked that in the knees. I don't understand how they think they're going to tax themselves into success."