Many people have been calling for government to reduce spending and collect taxes that are past due and collectable under existing laws, but so far the response has been typical of a political class that seems bereft of reasonable ideas to get the country's fiscal house in order. They tell us that to lay off people is not the answer.
Well if they were paying attention that was never the suggestion.
To reduce spending does not necessarily equate to terminating employees.
However, the recent report by Mr. David Godsell, commissioned by the Nassau Institute shows that tax increases have a deleterious impact on economic growth. And with lower GDP growth government revenue declines further and deficits widen even more.
This inevitably leads to additional forms of, and higher taxation.
Mr. Godsell writes;
"In February 2013 the Bahamian government declared a commitment to reduce public spending by 10%. In light of the related declaration of VAT adoption, we contrast these two forms of deficit reduction. Fiscal consolidations based exclusively upon spending cuts and absent tax increases are much more likely to succeed in reducing and eliminating the deficit without an arresting effect on GDP growth. The IMF reviewed 170 cases of austerity in fifteen countries over the last three decades and provides evidence that spending reductions do not carry the negative GDP effects associated with tax increases. Specifically, they find that a 1% cut has no effect on GDP growth, while a similarly sized tax increase reduces GDP by 1.3%." David Godsell, page 31, The Economic Consequences of the Value-Added Tax for The Bahamas (pdf).
The Government is obviously aware of this with their recent decision to rescind the announcement that Business Licence taxes would drop to $100 per annum.
So it seems as if they've decided to reverse this decision to support an anticipated drop in revenue when VAT comes into effect.
Mr. Gowon Bowe, partner in the accounting firm, PricewaterhouseCoopers (PwC) noted;
“If you are treating Business Licences as a contingency plan for VAT, it only begs the question: ‘What are the concerns with VAT that give you reservations, and should be addressing those reservations rather than having contingencies in place?”
Read more here in The Tribune…
So if higher taxes lead to lower economic growth, and Government thinks it needs an ace in its pocket in the form of busienss license taxes to prevent a shortfall, VAT must be a mistake in more ways than one?
Higher taxes only leads to higher government spending.. VAT in theory is supposed to raise revenues, but in practice just the opposite happens as it restrains investment having a marked negative impact on real growth and employment.. When this happens revenues become reduced as recession usually follows as an outcome..
VAT is nothing more than Demand Side Keynesian fiscal policies.. VAT is designed to raise hoped for or anticipated revenue so government spending can stimulate economic growth, but as history demonstrates just the opposite happens.. It is a tool of Keynesian aggregate demand stimulation which has failed time and again when governments, often in a state of economic panic, foolishly implement such policies..
On the other side of the equilibrium equation, Supply Side policies have always facilitated economic recovery followed by real economic growth.. Four times in the 20th Century Supply Side policies have been successful in overcoming recessionary economic conditions while Demand Side has only a record of continuous failure.. With the odds of four to zero, one has to question why any sensible government would pursue a Demand Side VAT policy that really has never worked..
Don’t believe me, check out Presidents Coolidge, Eisenhower, Kennedy and Reagan who utilized Supply Side policies to get the United States out of deepen recessions when they were in Office.. Massive government spending to stimulate aggregate demand by President Roosevelt and now Obama did little to bring about meaningful economic recovery.. The lessons of economic experience seems to be lost to both of these Presidents who took the wrong route at the fork in the road.. Lets us hope that the current political leadership in our Bahamas learn the lessons of contemporary economic history to avoid the pending economic crisis that the Bahamas is now confronting.. VAT will not be an answer.. So wiser vision must prevail..
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All I can say is YES IT IS A BIG MISTAKE.Here is an old joke that seems to be so true today.
Five surgeons from big cities are discussing who makes the Best
Patients to operate on.
The first surgeon, from New York , says, ‘I like to see accountants
On my operating table because when you open them up, everything
Inside is numbered.’
The second, from Chicago , responds, ‘Yeah, but you should try
Electricians! Everything inside them is color coded.’
The third surgeon, from Dallas , says, ‘No, I really think librarians
Are the best, everything inside them is in alphabetical order.’
The fourth surgeon, from Los Angeles chimes in: ‘You know, I like
Construction workers…Those guys always understand when you have
A few parts left over.’
But the fifth surgeon, from Washington , DC shut them all up when
He observed: ‘You’re all wrong. Politicians are the easiest to operate on.
There’s no guts, no heart, no balls, no brains, and no spine..
Plus, the head and the ass are interchangeable.’
I am amazed that while touting increased revenues via VAT, while claiming no increased burden on the taxes,
(Tax Neutrality)
we are still being promised free health care!
Cutting expenditures seems to be equated in the mindlessness of Government to not governing.
Is that all there is to good Governance?
Wanton spending?
There are some very basic principals apparently lacking in the elected,
starting with an understanding of conflict of interests.
Padded bids and kickbacks.
Crony employment.
nepotism.
Fiscal waste and largess.
No contrition, guilt, responsibility, liability personal or otherwise,
shameful and completely without merit!