The Bahamas mid-year budget: Let's give it justice

Fri, Feb 20th 2015, 09:49 PM

On February 11, the prime minister of The Bahamas, Perry G. Christie, who also serves as the substantive minister of finance, gave what we call a "mid-year budget" to advise the public and the Parliament of the performance of the government on their fiscal management and their economic planning.

The provision of a mid-year budget isn't a new practice, and neither is it a very old practice. It is not constitutionally mandated, but the appreciation by the political directorate, for the last ten years or so, towards giving the parliament and the public at large the respect and decency it deserves with regard to telling them how their money was being spent was and will always be welcomed. Outside of a freedom of information act, or a transparency in government finances act, this is the best we can do and expect at this time. However, and before we all break out into paroxysmal euphoria, let's run a little bit of the issues back just so we can appreciate what's really important here.

For starters, the mid-year budget, while it's not a legal or constitutional mandate, should and could be done a little earlier than the first or second week in February. Not because I feel it is just made up out of the air and easy to do, but because the information should be right at hand since we are dealing with such serious times and it would give more confidence that persons are on the ball. In light of this, the performance as reported could have been a little better, but it is what we expected based on two factors: the preparation for the value-added tax (VAT) in terms of revenue collection enhancement in the Customs Department and subsequently all other revenue generating departments prior to the VAT being introduced, could have given the government a better boost.

Second, The Bahamas' economy shrunk by nearly $230 million dollars as stated by the prime minister between 2007 to 2012. These two issues are very important. With the first point, let's take for example what theoretically should have happened before January 1 of his year. Not only was there supposed to be the preparation for the VAT, but also all other revenue generating agencies were supposed to be upgraded to buttress and support the introduction of VAT as part of a package to make the transition and additional taxation easier for businesses and consumers. This has not been the case for the most part.

The Customs Department's reformation has been not as stellar as it was promised. With a loan financed by the Inter-American Development Bank, the project has not shown to have delivered the goods pre-VAT introduction and one can only hope that it would be corrected. As it stands now, the Customs Department collects less than 50 percent of all duties. No VAT could truly fix that if the main leakage in your main revenue generating department is not even collecting half of its expected revenue.

This, of course, was acknowledged by the prime minister, who stoutly stated, as well he should, that they are working on enhancing these revenue generating areas and it is something his administration is aware of. Which is a great first step in actually moving forward with the overall reformation process, which is expected to take years to complete fully, if ever. What should be expected now, and requested equally, is an overall progress report of the money spent with these reformation programs, the methods used to arrest the problem and measurements provided on the efficacy of these programs, how the problems can be corrected and prove to be successful in the current term and long term.

While VAT for a large part will run simultaneously and with the Customs Department at the border, if the same "challenges" are put in with the same system, or wrought with the same systematic challenges, then revenue collection will be weak and will not be optimal where Bahamians would see the benefits of the money they spend.

The second point with regard to the shrinkage of the economic pie in The Bahamas is critical. While the IMF forecasts growth over the next two to three years for The Bahamas at a modest two percent, the fact of the matter is we are nowhere near out of the woods in terms of a new path for economic progress. What has happened, and rightfully so, the government has tried to spend its way back into growth and prosperity. The GFS deficit during the first half of this fiscal year, 2013/2014 amounted to $238 million, down from the $295 million during the 2012/2013 year.

The decrease in the deficit from the 2012/2013 year into the 2013/2014 fiscal year could be accounted for with regard to a new government, projects from the previous administration being slashed or just scrapped, as per the norm. However, for this mid-year budget report, the deficit increased to $273 million from the last year's $238 million.

However, while we see the spending increase, and we see modest gains with regard to overall GDP growth rate indicators, and projected to grow more slightly over the next two to three years by the IMF, we still have staggering unemployment that is stubbornly slated at over 15 percent in addition to overall business failure.

While this lends to the notion that while the government has committed itself to stimulating the economy through spending, the evidence indicates that they are not spending the money in pro-growth areas and spending the money on things that would substantially bolster the economy, boost growth, create jobs and increase the overall trajectory of The Bahamas in a more positive direction. This too was also highlighted in the mid-year budget communication, and the prime minister flatly acknowledged that our models and methods of economic growth stimulation, economic management and interventions are outdated and in many cases, antiquated and ill suited for us to get our country back on the path to prosperity.

This is heartening to hear. One can only take the prime minister at his word that changes in the way we do business are forthcoming and that new tools and measures would be added to the basket, and in some instances, stripped away, if we want to talk about real economic empowerment for the rest of us.

As we acknowledge this along with the prime minister, one item glaringly missed in the mid-year budget communication was the overall support for small businesses and entrepreneurs. What has not happened is an embrace for entrepreneurs in this new world and new world economic order through the pronouncements of this mid-year budget.

While the introduction of a new method for obtaining government contracts has been set into effect, the public private partnership model, the fact of the matter is that there is more that can be done with regard to increasing the overall business environment, the granting of licences, government support and hand-to-hand negotiations and support for entrepreneurs, particularly those geared for trade and export or new technological advancements, better support for professional services and professional services providers, in addition to the government relieving itself of most of the services it produces to the private sector and small and medium sized entrepreneurs, without special favour or harm. These are indeed high and lofty goals.

Considering the size of our government in terms of its legal and regulatory intrusion, and not at all with regard to its human resources, the task for doing such is daunting considering also the fact that the government operates heavy handedly and, in some instances, in clandestine manner at times in relation to how it works with and deals with persons in the private sector. But a start must be made. Because, we can't see growth and be better in all overall performance, regardless of the tax regime and regardless of the deficit spending for growth, if Bahamians aren't given a fair shake off of the rip and the inconsistency of our regulators and their administration of these antiquated regulations are a part of the big government problem. Big government equals small private sector.

All in all, we see signs of slight improvement. Even if only through blatant acknowledgement by the minister of finance and prime minister of the understanding of the new world order we live in, one can only look forward with optimism as we work together for a better and more progressive budget year and economy.

o Youri Kemp is president and CEO of Kemp Global, a management consultancy firm, based in The Bahamas, which serves all markets. Email: globalviewtoday@gmail.com

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