Higher taxes for the business community may erode investor confidence says The Nassau Institute

'Taxes hitting investor confidence'
By INDERIA SAUNDERS
Guardian Business Reporter
inderia@nasguard.com:



The Nassau Institute is pressing government to accept investor confidence may be eroded because of recent changes to public policies that have resulted in higher taxes for the business community.

It's among the most recent commentaries put forth by the group that advocates a free market Bahamas.

While the institute agrees that the U.S. economic downturn has serious consequences for The Bahamas, it believes there are things that can be done to help inject some enthusiasm into the entrepreneurial class-and introducing new taxes is not one of them.

"A government should not be destabilizing the business community with excessive taxation nor blindsiding them with rule/regulation changes that do not seem to be well thought out,"said a statement from the group."Yet The Bahamas economy has certainly had an abundance of new taxation and regulation in recent months.

"The government, while finally realizing their profligate borrowing and spending must be brought under control. It should also accept that investor confidence is rattled when they are not sure what public policies to expect next. So there is a delicate balance between"reasonable"taxes and rules/regulations and over taxing and over burdensome rules/regulations."

According to the institute, the public sector is now beginning to experience the devastating effects of these very tough economic times that the private sector has been under for two years now, and there are no easy political answers. It points to a recent article written by Dr. Robert Higgs, an economist, who asserts genuine economic recovery requires a substantial reduction of government expenditure, taxes and regulations, along with a credible government commitment to stay this less burdensome course.

The columnist believes it would give private entrepreneurs the confidence and time to generate prosperity; however, he said that anemic private employment tempts politicians to intervene even more in the economy, which heightens the uncertainty and discouraging investors further in a vicious cycle.

It's something the Nassau Institute agrees with fully.

"Recovery depends on private sector growth,"it said,"and shrinking the size of a government(expenditure, borrowing, taxes, regulation)that is now beyond the capacity of the private sector to support."

8/16/2010

thenassauguardian

Bahamas Blog International

The Bahamas Government Ongoing Deficit Spending - Budget after Budget

The Bahamas Minister of State for Finance, James Smith on reducing the budget deficit: “What we must bear in mind in trying to reach deficit reduction targets is that it is not a one year exercise

Gov’t Facing Growing Deficit

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas

06/05/2004

As the fiscal year winds to a close, government officials are working feverishly to bring a new budget to parliament at the end of this month.

It is too soon to tell whether the government will meet its revenue projection of $1.005 billion, but collections are expected to exceed the more than the $900 million collected in the 2002-2003 fiscal year, according to Minister of State for Finance James Smith.

“The deficit is likely to be a little larger than expected,” he told the Journal recently.

The 2003-2004 budget projects an overall funding shortfall of $122 million, which would raise government debt by 2.2 percent to 38.7 percent of GDP.

But Minister Smith has indicated that more than $30 million in unexpected expenditure will increase the deficit, unless the projected revenue is dramatically surpassed.

“As usual and without fail, you have the unexpected events that tend to throw it out of whack,” he said.  “Sometimes it’s favorable, most times it isn’t.  So the challenge is always there.”

The Minister added though that, “What we must bear in mind in trying to reach deficit reduction targets is that it is not a one year exercise.

“We try to do that over several years – three or four years as the case may be – because you really don’t want to choke real development.  If we have a run over the year over the projections that means that in framing the budget for the upcoming year, we take that into account and we might have to introduce revenue measures or additional expenditure controls or a combination of both.”

Prime Minister Perry Christie said Sunday while on the Radio Love 97 Programme “Jones and Company” that the government is “severely challenged” by the increasing expenditure and revenue collections.

But he reported that there were signs of improvements.

“We are very happy that we have now seen the beginnings of the turnaround in revenue,” Mr. Christie said.  “The last three months would suggest that the turnaround is setting in and that is headed toward obviously a better situation.  But even with that, we are going to be severely challenged given the kinds of developments that are taking place on our islands.”

On Wednesday, Minister Smith was unable to reveal specifics regarding collections.

The government is into its final weeks of preparing a new budget, facing a traditional rigidity in expenditure.

Minister Smith has pointed to the difficulties in preparing a budget when such a large portion of expenditure is fixed.  It is a situation he said is not easy to restructure.

“I think it’s going to be very difficult because 55 percent or thereabouts are salaries and wages and it’s a very difficult political decision to reduce the size of the public service, so you almost take the wages and salaries as a given,” he noted.

“Added to that would be another fixture of the budget, debt servicing, and that’s about another 18 percent of your budget.  So already you’re talking about 75 percent of your budget that’s fixed.  No matter how hard you try, unless we were to have some dramatic structural change in the economy, I don’t see that happening.  I know of it happening in no economy in the world, really.”

One way of beginning the reversal of this trend is making conditions conducive to the growth of the private sector, he said.

“If you create the jobs in the private sector then there is likely to be a drain from the public sector into the private sector,” Minister Smith pointed out.