Extraordinary times require extraordinary measures

Thu, May 31st 2012, 11:16 AM

We urge the government to exercise fiscal prudence and resist the temptation to over-spend, as tends to be the case in a post-election environment.
Acknowledging that the government had very little time to roll-out the new budget, there clearly needs to be some restructuring to allow more flexibility in future budgets. These continue to be extra-ordinary economic times that require bold, creative and extra-ordinary solutions.
Successive governments have in effect "borrowed to pay the light bills" and this does not bode well for future of the economy. In these uncertain economic times, the government must lead by example and do a better job of living within its means.
The budgeting process is undoubtedly fraught with complexity, given commitments from prior periods as well as servicing of existing debt commitments. However, the Ministry of Finance must employ more "ground-up" creative private sector style thinking to increase revenues, slash expenses, eliminate waste and create greater administrative efficiencies. In simplistic terms, with a total expenditure of $1.8 billion, a reduction by a mere 7.5 percent, would free up in excess of $135 million to allocate to debt reduction, or to build schools, hospitals and support the development of businesses.
We should remain cognizant of the recent downgrades of The Bahamas sovereign rating by international agencies. Any further slide will make it more difficult and more expensive for the Bahamas to borrow and potentially make us a less attractive jurisdiction to do business from an international perspective.
With respect to increases in revenues, I commend the government on its initiatives designed to stimulate the economy, namely the reduction in stamp tax, the cap on real property tax, the Grand Bahama tax cuts and other incentives designed to create activity. The new Ministry of Financial Services is a step in the right direction and holds significant implications for the further development of The Bahamas as an offshore center whilst also deepening local participation. Of potentially greater impact, is the new Minister of State for Investments portfolio.
Hopefully this will create some traction in attracting new business and new industries to the Bahamas to mitigate the over-reliance on our two main industries, being tourism & financial services, and reduce the vulnerability of the economy. I look forward to a review of the finer details where hopefully we will see more opportunities for job creation, specifically allocations for SME development.
Further, as an Exumian, I am particularly pleased with respect to the duty exemptions that are being re-initiated for the island of Exuma. We saw how this initiative helped to drive the construction sector and the development of the island in the past. This is a good start to what must morph into a comprehensive plan for family island development.
We welcome the new proposed pension legislation, which is long over-due. Whilst we welcome it as an initiative to administer and regulate pensions for the protection of employees, I would be concerned about any provision that would allow early access to pension savings. In a climate where less than 25 percent of workers have private pension schemes and savings and with a citizenry with poor savings habits, dialogue on mandatory pension savings would be welcomed for the enhancement of standard of living for individuals and a much needed boost to the capital markets of the Bahamas.
Expansion of the economy is key to increasing overall revenues. However, when it comes to the fundamentals of revenue collection, we cannot expect different results by consistently tinkering here and there with customs duties and real property taxes. We are supportive of the government's intention to move to a more progressive alternative form of taxation like VAT that improves the efficiency of collection, reduces leakages, and broadens the tax base to include services that are now exempt.
Interestingly, the challenge today is similar to that faced by the Christie administration in 2002 in a post 9/11 environment.

What was different, however, was a robust international financial market where Foreign Direct Investments (FDI) could thrive, thereby expanding the economy. Whilst we must aggressively attract FDI we cannot rely on it to bail us out. This is a different world today with a global recession, anemic credit markets in the USA, and the European Sovereign Debt crisis limiting the potential for credit for FDI's and economic expansion generally. We must, therefore, continue to execute well-considered, proactive and disciplined fiscal measures with a view to maintaining and ultimately reducing deficit levels.

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