Continuing budget deficits and the national debt... Bahamas

The mid-term budget
thenassauguardian editorial




The prime minister and minister of finance has presented to Parliament a statement on the fiscal affairs of the country for the six month period ending 31st December, 2010. It seems clear that the country is still being severely challenged on the fiscal front and the economy has yet to emerge from the depths of the global recession.

The most important budgetary item, total revenue, is trailing estimates by $50 million despite the tax hikes and the improved revenue administration announced at the start of this current budgetary cycle.

That outcome is not surprising when one considers that in our economy, our major source of government revenue is customs duties, which are determined by the level of imports, which in turn is determined by employment levels and tourists arrivals.

Unemployment is in the mid-teens, according to the latest available figures which have not been released since 2009, and air-arrivals — the most important tourist category — is seemingly stagnant at 1.3 million; a figure that has hardly changed in two decades.

From a policy perspective, it seems clear that efforts to boost tourist arrivals (by air) and at the same time expand employment opportunities are of critical importance going forward.

Although the budget statement gave a hint of cautious optimism regarding the outlook for economic growth and development over the short term, it is difficult to overlook the ominous threat to that growth also contained in the statement in reference to the almost 24 percent increase in gas prices at the pump and the 37 percent increase in the surcharge applied by B.E.C. to our electricity bills.

It would appear that the consumer, who continues to buckle under the more than $1 billion in loan arrears at the bank (mostly in mortgages), will continue to face serious financial challenges for the rest of the year.

The mid-term budget permits, among other things, for Parliament to approve by way of a supplementary expenditure Bill any additional funding that is needed for specific line items in the original budget. In this exercise, an additional $10 million was needed for the e-government initiative; $18 million is earmarked for payment to the utility companies; nearly $4 million for the police; and another $4 million for medicine.

On the Capital Budget side, $5 million went to Broadcasting Corporation and some $8.8 million to the Water and Sewerage Corporation. These cost-over runs are partially offset by under-spending on other items.

What is somewhat surprising about the listing, however, is the absence of any additional funding for Bahamasair, which is usually at the head of the line when it comes to government hand-outs. The expenditure items, both recurrent and capital, are largely within the estimates which were earlier approved by Parliament and given the fixed nature of the major items, Personnel Emoluments (wages, salaries, gratuities and pensions) that is not surprising but it is cause for concern in the face of sluggish revenue performance and the historical stance taken by successive governments not to make any major adjustments to staff levels in the public services sector.

The combination of sluggish revenue performance and rigid expenditure levels, which have become hallmarks of government’s budgets, could only lead to continuing deficits; deficits which are invariably financed by further additions to the national debt, which at an unprecedented 56% of GDP, is approaching a threshold that should be of paramount concern to all of us, especially the younger generation who no doubt would have to pay it off sometime in the future.

2/24/2011

thenassauguardian editorial

Bahamas Blog International

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.

A Move to Overhaul The Bahamas Tax Structure

The Bahamas Government has engaged the services of two of the foremost Value Added Tax (VAT) experts of the Crown Agents group

Bahamas Tax System Under Review

By Candia Dames

Nassau, The Bahamas

26/04/2004

In its most tangible move yet to begin the process of overhauling the country's tax structure, the government has hired a U.K-based consultancy firm to review the present system and make recommendations for change.

"We've [made] good progress," Minister of State for Finance James Smith told the Journal.

He said the government has engaged the services of two of the foremost Value Added Tax (VAT) experts who are a part of the Crown Agents group.

Minister Smith said that once this study is completed, the government will make a determination on the way forward.

"The whole idea is to look at this new tax regime [to determine] if it's something we really want to do," he added.  "If we were to change from one to the other, do we do so immediately?  Do we do so over time?"

VAT is a form of indirect tax applied to goods and services that increases the prices of those goods and services.

Minister Smith noted that, "We can have an efficient tax regime which would benefit the government from the point of view of increased revenues, the public from lower prices and the businesses by releasing them from tying up funds in inventory."

For quite some time, government officials, economists and others in the private sector have been pointing to the need to overhaul the system of taxation in The Bahamas, given that various pending international trade agreements require discriminatory border taxes to be abolished.

The need exists for The Bahamas to depend less on customs duties, Minister Smith has said repeatedly, while pointing to the enormous challenges involved in instituting a new system.

"We are engaging the international trade, the [Free Trade Area of The Americas], the [World Trade Organization] and even looking at the [Caribbean Single Market and Economy] and for all international trade agreements, they start off with asking you to roll back tariff rates because tariffs are generally regarded as restraints to trade," Minister Smith said.

"But for us more importantly the bulk of our revenue comes from import duties and they are very distortionary in the sense that they are what the economists would call regressive.  They're applied in such a way that the lower income households bare the brunt of the tax because it's essentially a consumption tax."

He said the government is working on tax overhaul "quite earnestly."

"If we decide to go forward, clearly I would have to get the green light from the government and I would have to discuss with the wider community the way forward," he said.  "We've still got some things to do. Suffice it to say, it is in the pipeline."