Where’S The ‘Modern Governance’ Pledged In Return For Vat Hike?

Where’S The ‘Modern Governance’ Pledged In Return For Vat Hike?

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is not getting the “modern governance” promised in return for the VAT hike, a leading reformer blasted yesterday, with people “sick and tired” of financing a bloated public sector.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business that not only had the promised governance improvements failed to materialise but the Government was also missing its fiscal deficit and debt targets.

He described the 2017-2018 deficit’s $105m overshoot, compared to year-end projections by the deputy prime minister, as “too big a swing” for comfort, arguing that the Government will be “perpetually struggling” with a problem “dangerous for running a country” unless it implements proper public sector controls and accounting standards.

While praising KP Turnquest and Marlon Johnson, the Ministry of Finance’s financial secretary, for their efforts to “get the fiscal house in order”, Mr Myers said the Bahamian people were continually having to pay for waste, inefficiency and under-performance in the public sector through ever-increasing fees and taxes.

He directly attacked the Government’s newly-published Fiscal Strategy Report, which justified the 12 percent VAT rate increase and other tax rises on the basis that the Government was not earning sufficient income to meet the country’s needs, on the basis that Bahamians had yet to reap the benefits from losing more of their income in tax dollars.

“It talks about increasing taxes to finance modern governance,” Mr Myers told Tribune Business of the report, “but we’re not getting it. “Even more upsetting in that statement is not only are we not getting modern governance; we’re missing our targets.

“It is the largesse and inefficiency of our public sector that causes these increases in costs and taxes. They’ve got no control over these state-owned enterprises (SOEs) which are over-staffed, inefficient and under-performing. It’s high time they address the largesse and inefficiency of the public sector.

“They can’t keep coming to the public and raising fees and increasing taxes, and not address that gorilla in the room. The public are saying they are sick and tired of increasing fees and taxes to support largesse in government. Create a modern government that’s efficient and not bloated.”

The Fiscal Strategy Report, which sets out the Government’s medium-term Budget projections and thinking, said the Minnis administration had no choice but to increase revenue yields via tax hikes because it was not earning sufficient income to meet its needs and those of the Bahamian people.

“As amply demonstrated in recent years, the revenue yield of the tax system was grossly inadequate to the needs of modern governance,” the report said. “The various revenue measures in the 2018-2019 Budget, including the increase in the rate of VAT from 7.5 to 12 per cent, are projected to secure a boost in revenue collections from 16.1 per cent to 19.9 per cent of GDP.

“While lagging regional norms at that level, the increase in the tax yield is nonetheless appreciable and is poised to make a significant contribution to the attainment of the Government’s key fiscal objectives.”

Mr Myers, though, argued that Bahamians had yet to get anything in return - in terms of improved governance and public services - for reduced living standards, higher living costs and lower disposable income that have resulted from the VAT increase and higher energy costs.

These were cited as the principle grievances among protesters who took over Rawson Square and Bay Street on Wednesday, and the ORG principal also challenged the Government’s decision to compare revenue yields to those of other Caribbean states.

Mr Myers told Tribune Business that the Government was “trying to make itself look good by comparing itself to the rest of the Caribbean”, which was just as - if not more - inefficient, and included countries such as Jamaica and Barbados whose national debts exceeded the size of their economies.

He added that the private sector never compared itself to poorly-performing rivals, saying: “If we did that in business, we’d all be out of business.”

Mr Myers said the 2017-2018 fiscal deficit, which overshot both the initial and year-end forecasts by $94m and $105m, respectively, highlighted the need for the Government to rapidly transition to accrual-based accounting that recorded spending commitments when they were made and thus presented a more complete picture of its financial affairs.

“We’re not happy about the lack of fiscal controls that happened at a time prior to the Fiscal Responsibility Act,” he said, while praising Messrs Turnquest and Johnson for their intent. “My impression, and I think they deserve credit, is that they are trying to get their fiscal house in order.

“But this further wildly indicates they have to move to accrual-based accounting or they will remain perpetually struggling, with the right hand not knowing what the left hand is doing. That’s just dangerous from a Budget standpoint and trying to run a country.

“That’s too big a swing. It’s too big of a swing,” he added of the $415m deficit. “It’s a function of your accounting processes. It’s telling you; it exemplifies the fact there aren’t enough controls in the current accounting system, and we must move rapidly to an accrual system. They need to make good on that promise. We’ve got to stop talking and do something about it otherwise we’re failing the country down the road.”

Emphasising that he was not picking on the current administration, Mr Myers said inaction would simply push The Bahamas further away from fiscal sustainability.

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