The Bahamas 2004/2005 National Budget Draws Criticisms, and Praise

National Budget Debate in Parliament,  The Bahamas

New Budget Draws Criticisms; Praise

BY ROGAN M. SMITH

Nassau, The Bahamas

Journal Staff Writer

05/27/04

Some opposition Members of Parliament on Wednesday called the government’s 2004/2005 budget a “sham” that is loaded with hidden taxes and too many unrealistic expectations.

But at least two Independent Members of Parliament pointed to positives in the new budget.

Their reaction came shortly after Prime Minister and Minister of Finance Perry Christie unveiled his government’s new spending plan in a packed House of Assembly.

Brent Symonette, the Member of Parliament for Montagu and Official Opposition Whip, noted that despite assurances from the Prime Minister that there are no new taxes, there are plans to increase certain fees and implement an airport user fee.

Mr. Christie revealed that increases in bank licence fees will provide $3.5 million; and he revealed the plan to put in place the airport user fee.  Revenue collected for this fee will be used to upgrade security at ports and airports, he indicated.

Mr. Symonette said facility fees are just another way of saying taxes.

“It leaves a lot wide open,” he said.  “He (the Prime Minister) talks about coming back later to bring in further increases in fees and taxes.  This indicates on cursory reading of it, that this budget is a sham just to fulfill the legal requirements.

“They say if the economy does not rebound the way they intend it to- they will bring in new taxes and whatever are necessary to fund the government’s expenditure.”

Mr. Symonette said the budget is not very specific, and strikingly resembles last year’s budget in that it makes promises that never seem to materialize.

“There are many ifs in the budget; if the economy continues to grow; if these developments come off,” he said.  “To pin this budget on that is reckless, bearing in mind he had to admit there was some $50-odd million in flight oversight regulations that he put in the budget that didn’t materialize last year; plus the sale of Bahamas Telecommunications Company which did not materialize shows that there has been some reckless budgeting, and it’s continued in this budget.”

Leader of the Official Opposition Alvin Smith added, “Rhetoric and talk have become the trademark of the Progressive Liberal Party government.”

Mr. Smith said he is disappointed that the help and hope that the PLP administration promised back in 2002 has not yet been delivered to the Bahamian people.

He added that he expected the Ministry of Social Services’ budget to increase by a greater amount, since there are quite a number of persons on the Family Islands who need the government’s assistance.

“I expected more reductions in taxes, or elimination in taxes as it relates to duties or stamp taxes on some more basic items,” Mr. Smith added.  “There are only three items on the list, ink for computers, musical items, and customs duty and stamp tax for building materials, but only for private schools.

“I thought the government would have looked into some other areas.  I particularly thought that this year the government would have reinstated that programme we had when we eliminated taxes on building materials for most of the Family Islands.  There are too many unrealistic promises.”

Independent Bamboo Town MP Tennyson Wells said the prime minister seems overly optimistic and suggested that he should have been more cautious.

Saying no new taxes and no increase in taxes is simply a play on words, he said.

But Mr. Wells indicated that he was generally pleased with the spending plan the prime minister presented.

Another independent Member of the Parliament, meanwhile, praised the budget.

MP for St. Margaret Pierre Dupuch said that although he did not have enough time to study the budget communication, he thought the it was quite “innovative.”

“I was very impressed with several things,” Mr. Dupuch said.  “The first was that he was not increasing taxes and that plans were underway to increase revenue by increasing the efficiency of the government and the tax agencies.  I think that’s very important.

“He said that they were going to start an intensive training programme to prepare Bahamians to face the various challenges that will be coming, and the various job opportunities that will be available.  That is one of the things that is very seriously needed in this country because we have lost track of a lot of training.” 

The Bahamian People and Businesses are Faced with a Limited Scope of Concessions in The Bahamas Government's 2004/2005 National Budget

The Bahamas Government Revenue Limits Concessions For The Bahamian People and Entities

PM Reveals New “Limited” Concessions For Bahamians

 

 

By Hadassah Hall

Nassau, The Bahamas

Journal Staff Writer

05/27/04

 

 

 

Until there is a recovery of recurrent revenues, the Bahamian people are faced with a limited scope of concessions in the 2004/2005 budget presented by Prime Minister Perry Christie on Wednesday.

These new concessions include adding bath soap to the breadbasket items and eliminating customs duties on ink and certain other materials required for computers as part of the ongoing programme to encourage computerization.

Mr. Christie also revealed that the government would remove customs duties and stamp duty on imports of building material for use by private schools so as to enable them to maintain standards. 

Mr. Christie said he is also eliminating customs duties on all musical instruments so as to assist professional musicians and many bands formed by young people.

On the other hand, the government is expected to effect a more “stringent penal regime” to discourage and punish tax evaders in relation to stamp duty collection.

Mr. Christie said the Stamp Act would be extensively amended to reduce the losses resulting from the numerous schemes by tax cheats.   He said it is currently the trend in commercial transactions and in the sale of land.

According to the prime minister, the amendments to be laid before parliament in short order are projected to realize an additional $10 million for the treasury.

Mr. Christie added that the government must continue to modernize the existing revenue system.  He said this is why the major emphasis is on formulating and implementing measures to strengthen revenue administration.

In addition to strengthening the stamp duty collection system, a new Trade Information Management System is being installed in the Customs Department.

Using the latest information technology, Mr. Christie said, the system will enable customs authorities to identify and control areas where there is or potential for a serious risk of revenue leakage.

Mr. Christie emphasized how crucial it is that all taxpayers meet their obligations.

“It is incumbent on every responsible taxpayer to honour his or her tax obligations in a timely manner,” Mr. Christie urged.

Additionally, the prime minister said the government’s strategy to “deliberately avoid” increasing the burden of taxes on Bahamians is due to the country being on the threshold of achieving significant improvements in revenue collection and administration.

The prime minister is confident that the expanding economy will provide stability and growth to key sectors like tourism and financial services, therefore generating additional government revenues without the need to raise taxes.

Mr. Christie admitted that during the past two years since assuming office, the Progressive Liberal Party government observed with “great concern” the difficult revenue position that he said constrained the full implementation of its policies.

He pointed out that in the two previous budgets, despite the weakness of the revenue position, the government deliberately avoided increasing taxation.

“I believed that the proper course was to concentrate on strengthening revenue administration rather than on increasing the burden of taxation on Bahamians,” Mr. Christie said.  “I am continuing with this patient strategy in this budget which contains no new revenue measures impacting directly on the Bahamian people.”

The prime minister said this also includes closing loopholes in the existing system that results in a substantial loss of revenue.

Mr. Christie added that the government at a later date proposes to review a wide range of fees and charges that in some cases have not been changed in decades.

In relation to revenue, Mr. Christie said the government expects a 5 percent increase in recurrent revenue over the 2003/2004 budget level.  He said this represents an increase of $132 million or 14 percent over the 2003/2004 projected out turn that was less than the budget estimates.

He also said that the government is making a small number of adjustments to existing sources of revenue to provide $27.3 million.  Mr. Christie disclosed that among them is the government’s intention to sell the Radisson Hotel for at a net profit of least $10 million.

The Bahamas Prime Minister, Perry Christie Announced His Government's Social Agenda

Prime Minister Perry Christie said that it is a priority of his government to continue what he called an innovative approach to social policy formation...

PM Unveils New Social Agenda

 

By Candia Dames

Nassau, The Bahamas

Journal Staff Writer

05/27/04

 

The Government of The Bahamas will in the coming fiscal year create an Urban Renewal Authority to continue a social programme of which the prime minister is becoming increasingly passionate about.

Prime Minister Perry Christie made the announcement Wednesday while making his budget communication in the House of Assembly.

“The Authority will be provided with its own budgetary resources to pursue the process of urban renewal on an expanded basis with the greatest possible vigour,” he said.

Mr. Christie said that it is a priority of his government to continue what he called an innovative approach to social policy formation so that better housing, health and youth development services are provided as budgetary resources become increasingly available for allocation to these services.

He labelled the Urban Renewal Programme – an offspring of his Farm Road Project – a closely coordinated, multi-faceted and comprehensive strategy aimed at transforming the country’s inner-city communities into vibrant, dynamic and healthy centres of human habitation.

“At the same time, individual lives will be transformed positively,” Mr. Christie said.

He announced that 128 additional lots have been earmarked for low-cost housing and community parks as part of the programme.  Mr. Christie also pointed out that in the last two years, his government has constructed 558 new houses.

Pointing to a “crucial” feature of the programme, the prime minister said it involves the private sector making a contribution, including computers and musical instruments for youth development initiatives.

The social programme contains a component supported by the Inter-American Development Bank for skills training and other activities to assist in the formation and execution of strategies for youth development, he announced.

“Since the Urban Renewal Programme is intended to draw on increasing resources and participation from our partners in the private sector, the budgetary component derived from the Public Treasury and from the Inter-American Development Bank constitute a part of the overall financial mass which is being dedicated to the programme,” Mr. Christie said.

He also announced that the Inter-American Development Bank has accepted the extended invitation of The Bahamas to host the 2006 annual meeting of the Bank in Nassau.

“This reflects the excellent relations between the Bank and the Government of The Bahamas,” Mr. Christie said.  “The meeting will be a major international event at which The Bahamas will be positioned centre-stage.”

The Bahamas Telecommunications Company - BTC would be "eaten alive" if it is not privatised

Without Privatization, BTC Would Be "Eaten Alive", Minister Says

 

By Candia Dames

candiadames@hotmail.com

Nassau, Bahamas

May/24/04

 

 

 

The Bahamas Telecommunications Company would be "eaten alive" if it is not privatised, Minister of State for Finance James Smith said Sunday, while on the Love 97 Programme "Jones and Company."

 

"That's why the whole idea was to prepare it for privatisation", he said.

 

Minister Smith pointed out that the reason why BTC has continued to earn profits over the years is because it is a monopoly.

 

"They are fooling themselves if they think you could remove the monopoly and leave it open to competition", said the Minister, who was referring to critics who say BTC can become more efficient and survive without privatisation.

 

He added that BTC has the technical skills, "but they seem to lack the client concern that motivates big companies...these guys have been a monopoly for so long, they say 'You wait for me'."

 

Minister Smith reiterated that privatisation of BTC "is still on the table."

 

The original process that was started about five years ago has to be brought to a successful, legal ending, he noted.

 

"By that I mean we had put in place certain rules and regulations for privatisation and we went through with that and the very last thing now is to have a public announcement and to amend the public policy statement which we put in accordance with the Act", Minister Smith said.

 

He added, "This exercise has come to a close, but we will continue to talk to people until we can get what we want which would be a good price, a commitment to capital development, a commitment to training Bahamians and a commitment to upgrading the technology to first world standards."

 

While on the same programme several weeks ago, Lindbergh Smith, president of Blue Telecommunications, indicated that his company was willing to pay as much as $300 million for 49 percent of the shares in BTC.

 

Blue was the last bidder to be kicked out of the race to purchase minority ownership in the company late last year.

 

Asked if the government would be willing to accept that offer, Minister Smith said he didn't want to comment specifically on any one group.

 

"I don't want to comment on what I believe might be sort of confidential things, but there could be offers for BTC&", he said. "But you have to look very closely at how it is going to be funded. BTC is still a very well off corporation...you can probably buy BTC using its own resources."

 

Minister Smith added, "There have been some very creative financing things that were not quite [acceptable]."

The Bahamas Government Declares Its Intention to Prepare a White Paper on Proposed Sweeping Reforms to the Nation’s Tax System

The existing tax regime can no longer serve the purpose of the expanding Bahamas 

Tax Review Nears Completion

 

By Candia Dames

Nassau, The Bahamas

May/24/04

 

 

 

The Government of The Bahamas intends to prepare a white paper on proposed sweeping reforms to the country’s tax system, according to Minister of State for Finance James Smith.

 

“The existing tax regime can no longer serve the purpose of the expanding Bahamas and I think it ought to be reformed to reflect the realities and one of those realities is that The Bahamas is essentially a service industry, yet we are getting most of our revenue from taxing goods,” said Minister Smith, who was a guest on the Love 97 programme “Jones and Company” Sunday.

He added, “We need a broader base tax for goods and services and this is something that I’ve been looking into, and will be looking into over the next two or three years if God spares my life - and if I am still in this position.”

Minister Smith said he is awaiting a report from a group of consultants, which is reviewing the tax structure and formulating recommendations for change.

The Value Added Tax (VAT) experts, from the U.K-based Crown Agents group, arrived in The Bahamas several weeks ago to carry out the review.

Minister Smith said VAT or GST (Goods and Services Tax) seems to be the logical form of taxation that the Bahamas should adopt.

In introducing a VAT, the government is likely to reduce some of the existing duty, he pointed out.

“So it would call for rate rebalancing because we have to recover [those funds] somewhere else,” Minister Smith said.  “So what we will do is broaden the tax base to include goods and services.  In that way, we can reduce the rate on goods and use a much smaller rate on services.  The Value Added Tax, if we go that way, also has provisions for tax credits.”

Everyone who is eligible to engage in this form of taxation would have to become registered taxpayers, he said.

Minister Smith explained that they would all have to have an independent tax number, probably tied to National Insurance, that identifies them straight across the board.

While noting that the government “is not re-inventing the wheel here”, Minister Smith also said “there is still a lot of work to be done.”

More than 100 countries use the Value Added Tax system.

Asked if there is a fear in raising taxes, Minister Smith said there is a belief among some people that the rate of taxes being imposed in The Bahamas are sufficiently high to do what the government has to do.

“However, the leakages are also so high that before we raise more rates or even enlarge the tax base, let’s make a really, really Herculean effort to see if we can plug those leakages and see exactly what is the maximum that we’re getting out of this.  Your first attack should try and stop as many leakages that you can.”

The 2003-2004 budget contained no new taxes, but a number of revenue enhancement measures, including a plan to plug leakages.

The budget also projected a deficit of $122 million, but Minister Smith has indicated that the deficit will be more than $30 million higher, given that the government paid out $24 million in unbudgeted salary increases for public servants.

A recent report from the Central Bank of The Bahamas indicated that the deficit at the end of this fiscal year is expected to be about $147 million.

But Minister Smith noted that in international terms, the country’s budget deficit is “not that huge.”

“The important thing about a deficit sometimes – more important than the size of it – is the direction of it,” Minister Smith explained.  “Are you doing anything to try and curb it because it means beyond a certain point you’d get in a sort of debt dynamics where it becomes even more difficult.

“It spins out of control and then you really have pressures to do some things that people don’t like – devaluations, cutbacks etc.  So, our deficit is manageable, but I think we need to continue to do things to stop it from growing.”

He also commented on the National Debt, which, according to the Central Bank stood at $2.369 billion at the end of 2003.

“Right now, The Bahamas is in an envious position in terms of its debt,” Minister Smith said.

He pointed out that about $1.7 billion of the debt is domestic – with a substantial portion of that being owed to government-related entities.

“So if [we] run into a difficulty and [we] have to reschedule, it would not be difficult to do because [we] would be dealing with local institutions,” he said. “We go further south in the Caribbean and we’d find countries where 80 percent of the debt is foreign and [they’re] really in trouble.”

Joblessness is A Pressing Concern for Bahamians in The Bahamas

STRAIGHT UP TALK

THURSDAY MAY 20^TH, 2004

By Zhivargo Laing

Nassau, The Bahamas

 

The Bahamas 2004/2005 BUDGET MUST DELIVER JOBS

Prime Minister Christie, who is also the Minister of Finance, is set to make his third budget communication since assuming office.  While he will undoubtedly have much to say on May 26^th during that communication, the one thing that thousands of Bahamians want to hear him say and provide evidence of is that they will find jobs within the next fiscal year.  Thousands graduated and graduating from high school and college, thousands of construction workers, thousands of unemployed or underemployed hotel workers and others have painfully endured over two years of joblessness.  They look to the upcoming budget for help and hope.

The Prime Minister will have a positive global economic outlook with which to work.  The world economy appears to be in full and sustained recovery.  The US economy is expected to grow at rate of 4.7%, with some 3.4% growth forecasted for the 30 richest economies that make up the Organization for Economic Cooperation and Development (OECD).  This robust growth is not expected to produce high inflation.  This is good news for The Bahamas, which according to IMF estimates will grow by some 2.5% in this year and 3% in 2005.  The question is: will this be jobless growth for The Bahamas, that is, will the economy grow but not produce much jobs in the process?

The economy of The Bahamas has grown positively for the last two years, in line with the economic recovery in the USA that began in November of 2001.  Despite this growth, however, unemployment over the period has grown, reaching about 10% according to the last published figures from the Department of Statistics.  The Household Labour Survey presently being conducted by the Department is likely to reveal that unemployment has remained unchanged or reduced only slightly.  It will certainly not reveal any strength in the labour market of The Bahamas.

This picture is likely to improve over the next twelve months but only slightly.  The best prospects for creating jobs over the next twelve months rest primarily with Kerzner International’s third phase and strong performance in the hotel sector.  Kerzner’s Phase III is the only approved foreign investment announced by the government that appears to have the ability to generate a significant number of jobs over the next fiscal period and these jobs will be primarily in the construction area.

According to its SEC filing dated May 4^th, 2004, Kerzner International expects to commence development of its 65,000 square feet Marian Village and the Expansion of its 200 2-bedroom Units in the Harborside at Atlantis between April and June of 2004 and complete it between October and November of 2005.  This will create a few hundred-construction jobs in the period.  The company gives no firm dates for other elements of its $1 billion Phase III but did reveal that it expects to complete the development in the Christmas of 2006.

The favourable global economic picture should translate into strong tourism performance for The Bahamas.  However, this performance is not likely to create many new jobs.  Rather, it is likely to secure the jobs of presently employed hotel workers over the next fiscal period and help hotel owners pay off arrears accruing from the horrible stagnation in the hotel industry for much of the last two years.  There is nothing to indicate any extraordinary growth in tourism within the next year that will create a large number of new jobs high school graduates, college graduates and large numbers of unemployed hotel workers.

What is particularly sad about the job prospects over the next twelve months is that they are extremely limited in much of the Family Islands.  The best prospects exist in Exuma, Abaco and Grand Bahama, and even these islands will at best experience only slight improvement in their employment pictures over the next year.  The other Family Islands will have to wait a little longer to see if any significant improvement will come to the economic situation.

Undoubtedly, the government will be tempted to generate jobs through its own hiring machinery.  While it claimed to have maintained a hiring freeze over the last two years, it would not be surprising to see the records show an increase in public sector employment over the period.  This stealth increase in employment in the government sector will continue over the next fiscal year and to some degree will be accelerated.  This notwithstanding, budget constraints will press the government to do less hiring than it would like.

The bottom line is that despite the positive economic forecast for the 2004/2005 fiscal period, joblessness will remain a pressing concern for Bahamians and for the Christie-administration.  If there is any significant relief to come, it will occur either two years out or by some miraculous development beyond the control of the government within the year.

LET’S BE WISER IN THIS ECONOMIC EXPANSION

There is no telling how long this global economic expansion will last, though positive growth is estimated into 2005.  There remain some significant uncertainties that could put a damper on this positive financial picture, most of all, the war on terrorism and the situation in the Gulf.  Another significant terrorist attack in one of the major economies, especially the US, or a bad turn in Iraq will have serious negative consequences for the world’s economy.

With this in mind, it is important for us to be wiser and more prudent that we were in previous periods of economic expansions.  Private businesses must not consume themselves with making profits in the short term.  They must focus on the long term-picture, focusing on productivity, human resource training, reinvestment, global alliances and readiness for trade liberalization.

The government must focus on fiscal discipline, public sector reform, privatization and investment in education and training, among other things.  The government should have a strategic approach to inward foreign direct investment, attracting investments that are tied to long-term development and sustained economic opportunities.

SOME PEOPLE JUST CAN’T HANDLE THE TRUTH

Readers will recall that during the 2002 general election, the PLP had a little boy on a campaign ad thanking the PLP for all it had done for The Bahamas.  Frankly, it was a cute ad.  “Thank you PLP for Independence,” the little boy enthusiastically and smartly said.  “Thank you PLP for National Insurance,” he continued on and on.  The PLP’s reference to history then during that political season did not seem to bother certain people.  Today when one reminds Bahamians in a non-political season that Sol Kerzner had a five-phase development approved by the FNM administration, of which, the current third phase was one, those same people suggest that there is something wrong.  Well too bad too sad for them!  History is history, facts are facts and the truth is the truth!  Those who want to live in the “Never Never Land” can do so.  We live in the real world where reality is as stubborn as a mule.

This column reminded Bahamians that Kerzner International’s third phase was approved prior to the PLP coming to office not to lay claim to it for the FNM but to point out that the PLP was being disingenuous in its politically-timed re-announcement of it and that it had an about face on the question of Kerzner International that bordered on hypocrisy.  One doesn’t get over the truth; one embraces it.  One does, however, get over multiple and sizable chips that jaundice one’s view of the world.  It seems that some people’s near-hatred of the FNM makes them feel that the Party should never remind the public of its accomplishments though they try to conjure up some for the PLP.  We leave them to their ill-fated path. 

 

THOUGHT FOR THE WEEK

 

“Truth is as impossible to be soiled by any outward touch as the sunbeam.”  John Milton

Standard & Poor’s (S&P) Has Placed Kerzner’s Atlantis Paradise Island Resort on a Credit Watch List with Negative Implications

If Kerzner was to sell additional debt, it could face higher interest rates

Kerzner On Credit Watch List

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas   

07/05/2004

Kerzner’s plans to carry out a $1 billion expansion of its Atlantis Paradise Island Resort has prompted the international credit rating agency, Standard & Poor’s, to place the company on a watch list that could mean a downgrade.

S & P said in a release Thursday that it placed its ratings on Kerzner, including its BB corporate credit rating, on CreditWatch with negative implications.

One analyst explained to the Journal Thursday from New York that if Kerzner were to sell additional debt, it could face higher interest rates.

Several weeks ago, Kerzner announced that it was selling off some of its debt to raise millions of dollars to help fund its Atlantis expansion.

Peggy Hwan, another S & P analyst quoted in the release said, “The rating action follows the company’s announcement that it has further increased spending associated with its Phase III expansion project for Atlantis on Paradise Island, Bahamas.

“Given the greater spending, in addition to the company’s previously announced growth initiatives, debt leverage is now likely to increase beyond Standard & Poor’s expectations.”

In resolving the CreditWatch listing, Standard & Poor’s will meet with management to further discuss its spending plans, operating performance, and long-term growth and financing strategies.

Standard & Poor’s said it has determined that if a downgrade were to occur, it would be limited to one notch, to a BB-.

When the company first came to The Bahamas a decade ago, it faced difficulties in raising the $80 million to fund its initial phase of Atlantis, according to CEO Butch Kerzner, who spoke at the 10th anniversary celebrations Wednesday night.

But a lot has changed since then, Mr. Kerzner indicated.

“I was having a discussion with our bankers…and it was amazing to me the transition from when we started 10 years ago when we were really scratching around for the $80 million to build the first phase,” he said.  “It ended up being $140 million…today, literally on telephone calls we can raise $500 million for this next phase through our banks and we’re talking about the biggest banks in the world.

He added, “We don’t even address the question about The Bahamas or Bahamian risks.  Those issues are gone and that’s a big deal.”