Reforms Must Tackle 'Mind Boggling' Waste
By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
“Mind boggling” waste in the public sector must be tackled as part of a three-pronged solution to the Bahamas’ fiscal imbalances, a leading businessman asserting that Value-Added Tax (VAT) was not the solution by itself.
Franklyn
Wilson, the Arawak Homes and Sunshine Holdings chairman, told Tribune
Business he was recently informed of “nine-figure expenditure” by a
government-owned utility in the Family Islands that was “just waste”.
The
prominent businessman said that eliminating such waste and inefficiency
in government spending, together with a combination of revenue reforms
and economic growth, was the only solution to the Bahamas’ fiscal
predicament.
And,
while the Christie administration and private sector appeared to be far
apart over the proposed VAT, Mr Wilson said he was “optimistic” the
optimum solution could be reached.
He
based this on the joint statement issued recently by the Coalition for
Responsible Taxation (private sector) and Ministry of Finance,
describing it as “one of the most significant developments that have
taken place in governance in the country for the last several year”.
Mr
Wilson said both sides had agreed inaction on the Bahamas’ worsening
fiscal position was “not an option”, meaning there was broad-based
support for public finance reform - the only outstanding questions being
‘what’ and ‘how’.
And,
with the Opposition Free National Movement (FNM) having indicated a
willingness to work with the Government, Mr Wilson said the Bahamas now
had “the best foundation” for reaching an outcome satisfactory to all.
However,
Mr Wilson emphasised to Tribune Business that VAT was “not the only
answer” to a national debt hovering at $5.5 billion, fed by a fiscal
deficit projected to be $443 million for the 2013-2014 Budget year.
“VAT
alone will not solve the problem,” the Arawak Homes chairman said. “The
problem is too deep. We’ve waited too long and got to where we are too
deeply.
“We
need more government revenues, less government expenditure and more
economic growth. We need those three things. No one source can do it.”
The
Christie administration is seeking to increase government revenues by
$500 million per annum by 2016-2017, with $200 million or 40 per cent of
that sum coming from VAT.
The
proposed new tax, the centrepiece of its fiscal reform, is expected to
generate around $500 million in gross revenues, with roughly $300
million of that figure an ‘income substitution’, compensating for the
drop in Customs tariffs/fees.
Noting
that VAT was not going to close the Government’s $500 million ‘revenue
gap’ by itself, Mr Wilson added: “Those who advocate improved controls
on current collections, that’s an answer. That’s not an either/or; it
is something that has to be done.”
He
praised the Government’s efforts to improve the collection and
enforcement of existing taxes, singling out real property tax in
particular, despite the complaint from ‘current taxpayers’ about the
amnesty programme being overly-generous.
Mr Wilson also ran his eye over suggested alternatives to VAT, especially the sales tax.
“As
I understand it, the basic weakness of a sales tax, anyone who has been
in Florida and been in so many merchant shops, they say that if you pay
in cash they won’t charge you the tax,” he added.
“That tells you the problem with a sales tax: The enormous level of avoidance and evasion.”
Mr
Wilson contrasted this with VAT which, by the nature of its ‘input
credits’, created an audit ‘paper trail’ right the way through the
supply chain that could be checked to determine whether the full amount
of tax due was being paid.
Still, Mr Wilson agreed that all tax options had to be looked at for the Bahamas to make the correct decision on reform.
And he also urged the country to set aside ‘partisan politics’ in trying to combat wasteful government spending.
“I
could tell you that someone was telling me, pointing out recently, the
degree of waste at one government-utility corporation,” Mr Wilson told
Tribune Business. “It’s mind-boggling.
“I
don’t think anyone has consciously set out to do it. Someone could
identify for me nine-figure money spent in one Family Island that was
just waste.
“To
do something about this, government expenditure, in terms of reducing
waste, is something that will take a cultural change, mindset change,
and is nothing to do with partisan politics.
“Politicians must shine a light on this thing, and it has to become part of the programme.”
Economic
growth, fuelled by increased levels of foreign direct investment (FDI),
was the third strand of Mr Wilson’s solution to a fiscal situation
where the Bahamas’ debt-to-GDP ratio is steadily approaching the IMF’s
70 per cent ‘danger threshold’.
The
Arawak Homes chairman praised the high level of debate over VAT as
“unusual for the country”, and described it as both “wonderful” and
“constructive”.
“I
think the statement by the Coalition from the Chamber of Commerce and
Ministry of Finance was one of the most significant developments that
have taken place in governance in this country for the last several
years,” Mr Wilson said.
The
statement, apart from agreeing fiscal reform was needed, also
established dialogue between the private sector and the Government, and
“certain protocols” for information sharing.
And
with alternative reform options being presented in the public domain,
he added that the Ministry of Finance could now “respond intelligently”
by pointing out weaknesses in these.
“The great thing is there is consensus that something needs to happen, government finances need to be reset,” Mr Wilson said.
“Doing
nothing is not an option. That simple point is tremendous progress.
This is the future of the country. This is why it’s so important we get
this right.
“We
have the Opposition prepared to work with the Government. A broad-based
private sector group prepared to work with it. Surely that creates the
best foundation to give us the opportunity to arrive at the best
possible outcome.”
November 26, 2013
