Further consideration needed on VAT

Mon, Jan 12th 2015, 11:41 PM

When politics are used to allocate resources, the resources all end up being allocated to politics.
- P.J. O'Rourke
I read with interest politicians' comments recently about certain repeals suggested with respect to VAT.
I will not at this time belabor the point of whether VAT is the best tax for The Bahamas. While VAT has its strengths and weaknesses, it is regressive as with our current system of taxation. I believe we had and still have better alternatives. The debate about the best tax for The Bahamas is a moot point, as we never had one. We have had several external decision makers and consultants decide for the Bahamian people, which is all well and fine, as we elected the officials who appointed those persons. What is disheartening, however, is it appears, yet again, we are making decisions without regard to what is in the best interest of The Bahamas of tomorrow.
Yes, the VAT train has left the station. However, it left poorly organized, with no manifest, no conductor, not enough staff, disgruntled, confused and befuddled passengers, no specific destination or alternative plans. It appears that we are comfortable to learn as we go. However, I would have liked to have seen accountability measures put in place for the efficient disposal of the new tax revenue and direct most of it to reducing our fiscal debt, given that this is the primary reason suggested for imposing VAT at this time. I would have liked to have seen automatic spending restraints ingrained into the system. It is not too late for the government to address this and I hope it does so sooner than later.
Yes, we need to raise taxes but this is so because of the poor management of our fiscal affairs over the years. We continue to support non-essential, non-performing government corporations and other "projects" with limited oversight, efficiency or accountability. We make decisions for today, for expediency. We continue to blame the ratings agencies about possible downgrades. We, as a country, need to chart our own course; the course that is in the best interest of The Bahamas and articulate our own vision to these agencies with specific times and goals. Doing so is no different from you visiting your friendly banker and seeking a facility for your business or project. There is no definitive number (debt/GDP) or detail that says if you violate it your country's rating will automatically be downgraded. I can give examples of many developed countries around the world with worse debt-to-GDP ratios and better ratings than The Bahamas.
To continue to make selfish political decisions and burden future generations with the delinquent management of the economy is unforgivable. To continue to raise funds and then increase the social payout as more citizens drift into poverty is a recipe for an increase in crime and social disorder.
I agree that certain provisions of the VAT Act should be repealed as articulated by Dr. Hubert Minnis. New Zealand (where our consultants on VAT came from) and The Bahamas are the only two countries which tax health care. (In the interest of fair disclosure I am associated with Colina Insurance). As we have adopted a rather comprehensive basket of goods and services to tax, following the New Zealand model, we should have also adopted some of the measures in New Zealand's legislation like the fiscal accountability, transparency and other measures to control government spending.
Just last week, the junior minister for investments articulated that we need to reduce the cost of doing business. I fully agree and support him. We can start by repealing the tax on electricity, which is a horrific burden, second only to rent and mortgage payments, for most businesses and consumers. We cannot have it both ways. We need to grow our economy if we truly wish to reduce our debt/GDP. Our educational system continues to be challenged yet we wish to tax it more. The budget for social services has increased several fold over the past couple of years, as the middle class declines and more people slip into poverty. Yet, we are taxing a number of essential services and items. So we take with the one hand only to give it back with the other.
There will be challenges as in the implementation of any new systems. We all wish for it to succeed and quite frankly as it relates to increased revenues, it will. Businesses will collect taxes on behalf of the government and submit it to the treasury. I fully expect to see improved government revenues over the next six months. I also expect to see some pertinent social issues addressed from the new increased tax. However, I am also hopeful that the government will direct some of this new found revenue to slowly and methodically addressing the ever-increasing budget deficit.
As Ronald Regan would say, "Government does not solve problems; it subsidizes them."

o Anthony Ferguson, CFA, MCSI, is the president of Colina Financial Advisors Limited (CFAL). The opinions expressed are his.

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