Rating agency urges taxes for 'revenue stability

Thu, May 17th 2012, 11:05 AM

The Bahamas must consider a value-added tax (VAT) or other measures to boost revenue and bring it more in line with other countries in the
region, according to an analyst at Moody's.
"What raises concerns for us is when government spending happens where they can't reign it in down the line and it's not matching it with new revenues," said Edward Al-Hussainy, assistant vice president and analyst at Moody's. "This is something the International Monetary Fund (IMF) has talked about for a while now. That would bring The Bahamas in line with a lot of other countries in the region that are doing it to increase revenue. I would see VAT as a positive for revenue stability."
Al-Hussainy is the author behind a recent report in the rating agency's Weekly Credit Outlook.

The new government's Mortgage Relief Plan, the report said, shows a "lack of commitment" to bringing down the national debt, and represents a "moral hazard" into the housing finance market.
The plan calls for government guarantees to cover five years of interest payments for borrowers in foreclosure, in return for interest rate caps on housing loans and write-offs of interest and fees by banks.
The Moody's analyst said The Bahamas now has an A3 negative outlook, meaning over the next 18 months or so the situation is not expected to improve.
"The debt has been piling on. It has increased markedly in the last three years. It hasn't really set off alarm bells overall because The Bahamas is in a relatively healthy position. I think there are many places that are worse off," he told Guardian Business.
Al-Hussainy praised recent efforts to boost the country's infrastructure, and The Bahamas is expected to grow 2.5 percent to 2.6 percent this year, an estimate often provided by the Free National Movement while they were still in power.
The question, however, is whether the country can account for all the spending in the long term.
While the hot topic of oil has been considered by some to be a possible silver bullet, Al-Hussainy, at this stage, called it a "pie in the sky". He said it could be a very good thing for the country, but too many variables exist to know whether it will provide any kind of salvation of the economy. He told Guardian Business that adding taxes would be a more practical approach.
Michael Halkitis, the state minister of finance, did not respond to requests for an interview. However, earlier this week, he told Guardian Business that Bahamians should not expect more taxes under a PLP administration.
In fact, he suggested that the government hopes to reduce taxes to stimulate the economy.
"The main thing we will have to do is get the economy going," Halkitis said. "We need to grow the economy and get people back to work so the economy can get moving at a faster pace, and by doing so, we can begin to address the issues of the deficit and the debt and unemployment."
The recent Moody's report said the growing financial deficit is at 4.7 percent of gross domestic product (GDP). Government debt has balloned to 53 percent of GDP, it stated, up from 31 percent at the time of the last general election in 2007.

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