The main financial problem we are faced with as a nation and which we must address without delay can be easily explained, albeit the road to correcting the issues will not be an easy or smooth one. At the root of this dilemma is the harmful pattern of spending more than we earn which has been sustained for years. In speaking to this matter in last week's column, it was noted that the habit of living beyond our means has been a problem at the national and individual levels.
Against this backdrop, we know that for the most part the government via successive administrations has run fiscal deficits from year to year. In essence, the government's expenditure has generally exceeded its revenue. It would be logical and simplistic to state that there are three main ways to correct the fiscal imbalance created by the referenced behavior. The options are to reduce expenditure below the level of revenue brought in or to the same level, increase revenue intake to exceed or equal expenditure, or implement a hybrid; that is, reduce expenditure and increase revenue to achieve the same objective. In this article we take a look at the government's strategy to get The Bahamas out of this perilous financial situation.
The roadmap for fixing public finances
The minister of state for finance had articulated actions the government intends to take over the coming years to address the existing fiscal challenges and return our public finances to a better condition. In summary, the action plan involves restraint on the expenditure or government spending side, enhancement of revenue administration within the country, creation and addition of new sources of revenue for the government and creating an environment for stronger economic growth.
It has been stated and echoed for some time now that it is important that The Bahamas puts its fiscal house in order before we are forced to do so. Indeed we must not forget that we lose control in relation to the severity and timing of reforms if we are coerced into such an exercise by international agencies and other external factors. It is noteworthy to state that in an earlier article titled "Self-Imposed Austerity Measures Advisable for Next Government" published in The Nassau Guardian on January 12, 2012, the need for fiscal reform and recommendations in this regard was explored. This piece ended with questions on whether the incoming government will have the will, fortitude and courage to do what is necessary to address the country's fiscal dilemma.
The expenditure side of the plan
The plan communicated by the government requires the exercise of prudence and control over public spending and financial management. The effectiveness and efficiency of operations of public sector corporations comes under scrutiny in the plan with the objective of enhancing the oversight of these entities and encouraging restructuring where appropriate in the interest of the populace and public purse. In this regard, subventions to these corporations which have placed a financial burden on the government will be subject to continuous review so as to systematically reduce allocations. In simple terms, the goal is to reduce or eliminate wastage and deliver more efficient operations.
In curbing government expenditure in The Bahamas, the proverbial elephant in the room, besides the streamlining of operations in the public sector, is the reform of the public sector pension system. It has been proposed that the long-run liability position of this pension system be assessed to secure its financial viability. There is no doubt that the government will have to address this issue with the knowledge that this bold step will evoke some emotion and may meet some resistance. However, we must face the reality that the public sector pension system is simply too costly for the government and is not sustainable in the long run.
Improving revenue administration
The establishment of the Central Revenue Agency (CRA) is a vital part of the plan to consolidate the administration and collection of taxes by the government. According to the Ministry of Finance, there are currently over 30 departments and agencies collecting different taxes and fees on behalf of the government. This could very well explain the reason for the tax compliance rate and high revenue leakage that we currently face.
It is expected that the CRA will ensure compliance with relevant tax laws and will be empowered to carry out enforcement actions against violators of tax legislation. There is no doubt that if the CRA is to achieve its objectives and improve the status quo, the agency must be properly staffed with qualified professionals that possess the requisite integrity, skill set and expertise. Additionally, the CRA must be properly equipped with state-of-the-art information technology and its operations standardized and efficient.
Other aspects of the plan focus on the modernization of the real property tax regime and transformation of the Customs Department. The government anticipates a doubling of property tax revenues and improved efficiency of the Customs Department resulting in a significant increase in overall government revenue over the next five years. The increase in government revenues may not be unrelated to the expected efficiency gains that will result from over 90 percent of all taxes, fees and service charges being collected by the Customs Department and CRA.
New revenue and economic growth
The cornerstone of the government's initiative to add new sources of revenue is the proposed value-added tax (VAT) system, which will be discussed in more detail next week. While VAT is expected to replace revenue loss from reduced tariffs in anticipation of our accession to the World Trade Organization, the revenue from VAT levied on services is expected to increase total government revenue.
The correlation between high economic growth, success of businesses, expansion of the private sector and the creation of entrepreneurship or job opportunities is apparent. It is therefore not surprising that the government's plan includes the attraction of foreign direct investments and fostering strong economic growth in the country. The importance of empowering Bahamians and local entrepreneurs in this process should also be an objective for the government in this exercise.
Commentaries on the plan
The government's plan has attracted different reactions from various stakeholders and interest groups. It seems fair to state that the general consensus is that the plan is generally a good one with proposals and features that could be expected in a country facing the realities that we do. However, there have also been questions raised regarding the aggressive nature of the reforms with other commentators arguing that it is not only ambitious but also drastic in certain aspects with some proposed spending cuts described as draconian.
The government has maintained that the plan is a responsible one which is not only realistic but also achievable. When considered with the statements and warnings issued by international agencies, it is apparent that desperate times call for desperate measures. The urgency of now does not provide for changes that will have little or no effect on returning our public finances to a more healthy and sustainable condition.
Conclusion
It is often said that he who fails to plan, plans to fail. Our dire financial circumstances require an approach that is effective but balanced; hence, we must have a plan to get out of this predicament. The measures taken by the government must address expenditure patterns and revenue levels without disrupting the economy. We must remain mindful that we did not get to this point overnight and we will not emerge from the same instantaneously.
In the final analysis, the government has articulated a plan which seems comprehensive, viable and impressive. However, as is often stated, a plan is only as good as its implementation or execution. It is not good enough to devise a good plan; it is important that this plan is properly implemented and the necessary resources allocated to ensure that all aspects of the strategy are carried out on time and on budget.
o Arinthia S. Komolafe is an attorney-at-law. Comments on this article can be directed to a.s.komolafe510@gmail.com.

Click here to read more at The Nassau Guardian