A leading accountant has thrown his support behind the implementation of a fiscal responsibility act (FRA) to restrain "unfettered" government expenditure, suggesting that his "major concern" ahead of what he predicts will be an 18-month "rough ride" for the economy is that the government is not serious about controlling spending.
Philip Galanis, managing partner of accounting firm HLB Galanis & Co., said that it is a lack of legal framework prohibiting additional spending and borrowing by the government that has left the Bahamian economy in a "very, very troubling" state, in which debt to GDP has increased from approximately 32 percent in 2007 to 59.0 percent in 2013.
"The absence of a fiscal responsibility act has landed us exactly where we are. Successive governments have done a deplorable job of managing the economy in terms of managing its public finances, and that's where we are, and that's why the national debt is so high, because there has been nothing to contain the government from borrowing.
"The Financial Administration and Audit Act only goes so far. More definitive fiscal responsibility needs to be placed on the government... We can't continue to do things in an unfettered way because that is going to be very, very difficult for us; not only for us, but for our children."
The implementation of a fiscal responsibility act has become a priority issue for the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), which has called for FRA to be implemented within the next 18 months to ensure that the government manages increased revenue expected to be obtained through VAT in a responsible manner.
This, it has suggested, would involve additional revenue obtained being put towards reducing the deficit/national debt, rather than engaging in additional spending.
The BCCEC has gone as far as to call the act a "non-negotiable" issue, suggesting it could withdraw support for VAT, planned for January 1, 2015, if the legislation is not passed.
Such a law was considered pivotal to the fiscal turnaround of New Zealand, which the government has pointed to as its model for the design of VAT following a visit from top NZ tax specialists. In that context, an FRA was passed some eight years after VAT.
Expressing concern that the country is facing an uncertain year and a half ahead, with a number of investments coming on-stream unlikely to have a significant impact on the economy within the "next 18 to 24 months", Galanis said it is also for this reason that the government must make greater commitments to restrain spending.
"We have got to be, and the government has got to be, extremely careful that it doesn't allow further slippage in the deficit or an increase in the national debt. This could lead to further downgrades and higher financing costs, which take money away from other programs."
Galanis said his "major concern" to date is that the government has not placed "sufficient attention" on its spending, in addition to raising revenue.
"Governments tend to spend more money when they get more money in, and the concern I have is whether they will continue to spend as freely as they have in the past once they see the additional revenue coming in," said Galanis.
He emphasized that he remains "hopeful" that VAT will ensure higher tax intake by the government, but this, too, is uncertain.

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