…without spending cuts and a reduction in the size of government.

Published Wednesday, November 16, 2011

By Neil Hartnell Tribune Business Editor

A prominent fiscal hawk yesterday warned that increasing tax revenues without "accountability" would merely result in more public spending and bigger government, together with "inherent and endemic" fiscal deficits.

Rick Lowe, an executive with the Nassau Institute think-tank, told Tribune Business that the debate over Bahamian fiscal policy, as framed by the International Monetary Fund (IMF) and international credit rating agencies, had focused almost exclusively on the revenue side, and the need for new and/or increased taxes.

Arguing that government expenditure was being almost totally ignored, Mr Lowe warned that economic activity would only be further depressed if the Bahamas implemented a 'consumption-based tax', as demanded by the IMF, on top of the existing import duty-based regime.

Describing the IMF's sales or Value Added Tax (VAT) prescription as "a mistake" if it was just intended to increase government revenues alone, Mr Lowe told Tribune Business: "I think it's very interesting that everyone is looking at our situation from a revenue standpoint, and no one is talking about spending and reducing it.

"As long as we continue on our merry way, and say: 'Oh, let's get a bit more revenue', it will not force us to take a hard look at what's going on."

Mr Lowe acknowledged that it was unclear whether the IMF wanted the Bahamas to introduce a sales/VAT tax to run alongside the existing tax system, or to replace it. He expressed concern that if it was brought in at the same time, it would further exacerbate the difficulties being experienced by Bahamian businesses and consumers.

"If it's going to be put on top of the present structure, I just think it's going to slow the economy even further," the Nassau Institute executive told Tribune Business.

"If they're going to implement a sales tax at 15 per cent, are they going to reduce import taxes across the board by 15 per cent? They would have a net gain if the projections are right."

Mr Lowe called on the Bahamas to determine the main objectives of tax reform, querying whether it should be done simply to get more revenue, or if the primary goal should be to enhance efficiency and strengthen the system.

Arguing that government spending, especially on its recurrent (fixed) costs, should be cut in line with revenue increases, Mr Lowe added: "Once we determine what the objective is, we'll know how to approach it.

"If it's just a measure to get more revenue to balance things, that's a mistake. I don't think the Government ministries and departments will be accountable for the revenue they get. They'll just increase their spending."

The Nassau Institute executive returned to a theme he has raised previously, how during the supposed 'boom' years of the 2002-2007 Christie-led PLP administration the Government was still unable to run a balanced budget, let alone a surplus.

In a presentation made at a College of the Bahamas (COB) debate last month, Mr Lowe said that in 2003 the Government received $900.876 million in revenues, but spent $1.109 billion, creating a $208.623 million deficit. This pattern was repeated during every year in the 2003-2008 period.

"In the boom years of 2002-2007, we should have been cutting back and saving for those rainy days. Instead, we didn't," Mr Lowe told Tribune Business.

"During 2002-2007, if you look at the growth in GDP, it is rapid and crazy. This economy was on fire, but the Government did not stop spending. They still had deficits.

"If you keep on raising more revenue, the growth in government continues, and then deficits are inherent and endemic. Until people realise it's the size of government that's the issue, that creates the spending……. We as a society expect government to do too much."