"...Through my government's dedicated and responsible
approach to governance, the future looks very bright indeed."
- Perry G. Christie
The last Wednesday in May is one that most politicians and many citizens look forward to because, for the past two decades, it has been the date that the minister of finance delivers his budget communication to Parliament and tables the government's budget for the ensuing fiscal year, which runs from July 1 to June 30 of the following year.
On Wednesday past, the prime minister, who is also the minister of finance, tabled the budget for the fiscal year 2014/2015. The budget was met with varying views, some skeptical, others incredulous and still others impressed.
This week, we would like to Consider this...What can Bahamians make of the recently announced national budget for the ensuing fiscal year?
In answering this question, the most important consideration is whether the government has demonstrated any significant improvement in the country's fiscal management. Let's examine the country's fiscal baseline in 2012.
When the Christie administration assumed office in 2012, it found in place an appalling fiscal pathology. In just five short years, from 2007 to 2012, the Ingraham administration had racked up unprecedented fiscal deficits, expanded the national debt to an all-time high, disposed of the country's most valuable national asset at a bargain basement price to a foreign purchaser under terms that were ill-advised and poorly considered and incurred cost overruns in several key national infrastructural projects.
It was against this backdrop that Christie realized that something radical had to be done to arrest the actions of successive administrations and reverse what was clearly a potentially precipitous plunge of the Bahamian economy.
Faced with systematic deficits on the recurrent account and very little room to maneuver as well as an increasing allocation of the budget to service the debt, and notwithstanding the plethora of naysayers, Christie took the very difficult but urgently needed decision to implement tax reform, which was the cornerstone of his multi-year fiscal consolidation plan.
That plan called for the implementation of certain policy initiatives that included holding the line on recurrent and capital expenditures, while simultaneously improving revenue collection. While attempting to do this, the prime minister's primary motivation was to strengthen the foundations of the economy by attracting foreign direct investment which would secure steady growth through employment and empowerment of the private sector. What has the prime minister achieved?
Foreign direct investment
We believe that the underlying principles espoused in the budget communication represent several positive steps in the right direction. The prime minister has laid the framework and road map to catapult us out of the financial doldrums into which we have sunk and in which we have continued to flounder for the past six years.
It is clear that, while we might not yet see the manifestations of his labors, the prime minister and some members of his team have been hard at work in New Providence and the Family Islands to spur economic activity. If his government is able to realize a fraction of the projects he delineated during his budget communication for the islands of Bimini, Abaco, Andros, Eleuthera, Exuma, Grand Bahama, Salvador and Rum Cay, the country will receive a collective shot in the arm that should augur well for the overall health of the nation.
While it remains to be seen precisely which of the announced plans will actually materialize, the Christie administration deserves high marks on the foreign direct investment front.
Expenditure reduction
Many of the government's critics have correctly concluded that revenue enhancement without expenditure reduction is a formula for fiscal failure. We agree with that thesis. It is therefore very encouraging to observe that the 2014/15 budget has addressed this concern. The government's budget calls for an overall reduction in spending by the government, when such spending is taken as a percentage of GDP.
Recalibration of revenue
At the cornerstone of this year's budget is the government's announcement that it will introduce value-added tax (VAT) on January 1, 2015 at a rate of 7.5%. For some persons this is a double-edged development. On the one hand, most persons are relieved that the VAT rate will be one-half of the 15% that was initially suggested, but at the same time they believe that establishing VAT without a commensurate reduction in customs duty will be inflationary.
The issue that some persons have with the announcement regarding VAT is that the prime minister indicated that there would be no commensurate decrease in customs duties at this time. For those who don't understand 'political speak', the operative words are "at this time".
It would be imprudent for the government to announce a reduction today for an event that will not take effect for another six months, especially when the revenue from the new tax source, VAT, will not come into effect for at least another six months. To do so would significantly reduce the revenue, which would be counter-productive.
However, the very next sentence in the communication regarding VAT is a bit more worrisome.
"Based on the revenue performance of VAT early next year, the government may be in a position to consider tariff and excise reductions at the time of the 2015/16 budget."
It would be as imprudent - and heartless - for this government to expect already financially struggling and economically besieged Bahamians to bear what would be an onerous burden of the 7.5% VAT on top of existing tariffs and excise taxes for the entire six months from January 1, 2015 to July 1, 2015. It is imperative that the government convey to the people its understanding and awareness of the hard times they are going through.
It should immediately rethink this announced non-reduction of duties in the January to July 2015 period - and perhaps beyond - and allow for a decrease of some duties when VAT is rolled out in January 2015.
Conclusion
In short, the budget is both instructive and impressive. It is instructive because it lays out a framework for re-engineering the public finances in a coherent, methodical manner and provides a definitive approach as to how the government proposes to grow and diversify the economy, create jobs and empower more Bahamians.
It is impressive because the end-game was formulated as a result of a consensus-building exercise, which included many of the stakeholders who will be directly affected by the implementation of the tax reform initiatives. It is also impressive that the government has been extremely transparent and has announced that the private studies that were conducted by those with whom the government consulted will be posted on the government's website.
Throughout the entire budget communication, the prime minister reiterated the theme of hope for a better future for all Bahamians in light of the proposed new taxes, the approach to collecting them and returning to a more disciplined approach to our public finances after two decades of behaving in a pre-programmed manner while expecting different outcomes.
For the first time in a very long time Bahamians can sense a glimmer of hope in the flickering light in the tunnel and not be overly concerned that it is an oncoming train.
While we are not completely out of the woods just yet, we can breathe a collective sigh of relief and take comfort in the reasonable expectation that finally, we are solidly on the path to recovery.
o Philip C. Galanis is the managing partner of HLB Galanis and Co., Chartered Accountants, Forensic and Litigation Support Services. He served 15 years in Parliament. Please send your comments to pgalanis@gmail.com.

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