Mr. Speaker, it is again my privilege to rise on behalf of the good people of Central and South Eleuthera to lend our support to the three Bills to amend the Excise Act, the Tariff Act and the Real Property Tax Act respectively; and a resolution enabling the Government to borrow up to $100 million.
In Eleuthera, there are numerous people who are unemployed, looking for work but unable to find a job. Indeed many persons, supporters of the Government and of the Opposition have asked me to assist them in finding a government job or a job in a government corporation. It has been challenging as a Representative to find jobs for the unemployed in our constituency. It has been difficult to enable the many economically challenged citizens to access assistance at the Department of Social Services. It would be a nice and pleasant thing, if we could wave a magic wand and miraculously change the economic landscape which we inherited on the 7th May, 2012. Unfortunately, reality is not so pleasant. Indeed it can be cruel to those whose dreams have been either crushed or deferred by the fiscal malaise wrought upon us the Bahamian people, by the fiscal indifference and outright economic profligacy of the Free National Movement’s last term in office.
We must never forget, Mr. Speaker, nor ought we to permit our supporters and fellow citizens to forget how the malaise which afflicts us was created. Just as Moses and the Jews carried the bones of Joseph in their forty year Exodus from Egypt to the Promised Land so that they would not forget, we must not forget!
We owe The Bahamas a duty to explain the economic situation and the reasons for its existence as well as the methodologies which are available to transform our present nightmare into a reality of help and hope, optimism and prosperity. To the FNM apologists, there may be discomfort, (for those of them with a conscience) even embarrassment by the catharsis which is necessary to purge our body politic of the scourge of self interest which corrupted public policy and resulted in the dire circumstance which now consumes us!
Our colleague, the Honourable Member for Golden Isles on the evening of the 4th March, 2013 gave numerical details and a financial explanation of the circumstances we met upon taking office. That explanation bears repeating over and over again. We must repeat it, if only to explain to the unemployed and those in need of financial assistance why it is such a challenge to provide job opportunities and other assistance over the period, May 2012 to March 2013. We must not allow time to dim the memory of the voting population in respect of the danger of contemplating a repeat catastrophe of the last five years of the last FNM administration.
The facts are what they are Mr. Speaker! No amount of protestation or remonstration or political posturing can obfuscate or otherwise hide the fact that the members opposite are responsible for the dire straights in which we now find our economy! But, we are not alone in the observation of the obvious: Standard and Poor, Moodys, the IMF, the IDB have all been objectively critical of fiscal policy between 2007 and 2012. The international institutions have no political axe to grind, nor have any of them condescended to support any political party. Almost in unison they have railed against the FNM’s fiscal irresponsibility and constant inability to change either the philosophy or mechanism of revenue generation while revenue collection remained consistently short of each annual projection from 2007 to 2010 and in 2011 and 2012. What is remarkable about the fiscal policy intransigence of the Free National Movement is that its arrogance extended the bounds of stupidity to the point of being sheer madness! Amidst the clarion warnings of international experts the FNM band played on in seeming indifference to the world around us. Indeed, Mr. Speaker, they were even oblivious to our communities and neighborhoods, to the hardship occasioned by their consistently poor decisions.
For instance, Moody’s report of November, 2012 is instructive. In 23 pages, Moody’s details critically the poor performance of the FNM’s policy decisions and executions thereof.
Mr. Speaker I beg leave to refer to a number of paragraphs in that report.
“The economy contracted at an average rate of 0.8% annually between 2007 and 2011 and Moody’s expect the post-crisis recovery to remain fragile. Tourism, offshore financial services, and construction sectors-the main drivers of economic activity – continues to face downside risks, exacerbated by an uncertain recovery in the US, The Bahamas’ main tourism market.
Our assessment of weak government financial strength incorporates a marked deterioration of the public sector financial balance over the past five years. Expenditure growth has continued following the election of a new government in May 2012, and the state plays an increasingly dominant role in the economy through elevated levels of capital spending on public works projects, social safety net transfers, public sector employment, and increased budgetary support to public sector corporations. This fiscal stimulus program is yet to yield growth dividends and unemployment remains close to 15%, depressing domestic demand.
We see limited prospects for the fiscal consolidation necessary strengthen the government’s balance sheer and stabilized debt levels. The Bahamas has a limited revenue base and government relies disproportionately on volatile trade-related tax revenue and property taxes. A one-time revenue windfall from the divestment of The Bahamas Telecommunications Company eased financing needs in 2011 and stamp duties on several large tourism projects financed by foreign investment compensated for a decline in recurrent revenue in 2011, but these developments will nor be credit supportive going forward.
As a result of expanding financing needs, the central government’s debt level rose to 53% of GDP in 2012 from 31.7% in 2007 and debt sustainability metrics have deteriorated relative to peers. The combination of historically high debt levels and large fiscal deficits has left the government with limited fiscal buffers to effect further stimulus or respond to external shocks.
Revenue-side reforms will be a key ingredient to improving the rating outlook. Enhancements to public infrastructure, in combination with a number of new tourism developments expected to significantly expand capacity in next 12-24 months, will be credit positive if they translate into an improvement in the growth outlook.
While the high degree of political consensus that has historically characterized the country remains one of its most significant credit strengths, Moody’s believes that tax increases could nevertheless become politically contentious and difficult to implement.
Finally, a continued recovery in the US will be critical to support the rating.
Revenue-side reforms will be a key ingredient to stabilizing the rating outlook. Enhancements to public infrastructure, in combination with a number of new tourism developments expected to significantly expand capacity in next 12-24 months, will be credit positive if they translate into an improvement in the growth outlook. Finally, a continued recovery in the US will be critical to support the rating.
We expect the government to find it difficult to rationalize spending and achieve the fiscal consolidation necessary to stabilize the debt and place it on a sustainable trajectory in the near term. While the pace of increase in government debt ratios is likely to slow in the coming years, a failure to reverse the recent trend of rising debt will place downward pressure on the Bahamas’ rating. In addition, the crystallization of contingent liabilities from debt held by public sector corporations such as the loss-making Bahamas Electricity Corporation could adversely affect the rating. A further deterioration of the public sector balance sheet due to external shocks in the form of weather-driven events like hurricanes will also be credit negative.
Growth post-crisis in The Bahamas has been primarily driven by investment (Figure 5) – a combination of foreign direct investment in tourism-related projects and government capital expenditure on infrastructure.
After GDP contracted 2.3% in 2008 and 4.9% in 2009, the economy emerged from recession in 2010 but growth prospects remain fragile. We are forecasting growth rates of 2% and 2.5% for 2012 and 2013 respectively on the back of higher investment and construction activity, as well as modest recovery in tourism. The government’s stimulus spending is yet to yield a growth dividend and unemployment remains close to 15%, dampening domestic demand (high unemployment and underemployment also reflect efficiency gains in the tourism sector that had to downscale significantly during the recession).
In contrast to the public works program and several externally-funded tourism developments, construction activity in the residential/commercial sectors – a major source of growth and employment – has continued to decline due to anaemic demand and tighter credit (underwriting standards in the mortgage sector have become more stringent in response to higher NPLs). We expect construction to continue to be a drag on growth while banks deal with an elevated level of non-performing and delinquent loans.
The “low” score on The Bahamas’ government financial strength reflects weak fiscal metrics relative to Baa1-rated peers, as well as our expectation that these metrics will deteriorate further, challenged by the fragile recovery, a relatively low revenue base, and the government’s capital-intensive stimulus spending. Government spending is critical to generate employment and maintain significant social entitlement programs. Public sector capital expenditure is focused on a public works program to upgrade road infrastructure and will remain elevated for the next two years to complement a number of private sector investments in the tourism sector.
The Bahamas’ government debt has doubled over the past decade to nearly 54% of GDP, and with government guaranteed debt this figure rises even further. The accumulation of debt has been driven by a deteriorating financial balance. Fiscal deficits widened from 1.6% of GDP in 2008 to 6>3% in 2012 and we expect the deterioration to continue through 2015/16. Although the government envisions tighter spending and healthier revenues to balance the budget by the 2016 fiscal year, in our opinion this is an overly ambitious target given the country’s weak growth prospects, structural spending rigidities, and rising debt servicing costs.
The deterioration of the government’s financial balance has been driven by a combination of higher spending and lower revenues (Figure 11; in 2011 there was a temporary improvement in the government’s financial balance due to a one-time revenue windfall from privatization proceeds, primarily used to pay down debt).
Two structural trends will continue to drive fiscal performance in the medium term (through 2015). First, the revenue base is small relative to peers (under 20% of GDP; Figure 13) and relies disproportionately on volatile trade-related customs duties. Due to significant tax concessions, tourism-related revenues account for only 11.2% of the total revenue intake. Revenues are further dampened through an implicit subsidy provided to Bahamas Electricity Company (BEC) in the form of waived import duties on fuel. Reforms necessary to increase revenue – most importantly focused on introducing a VAT, modernizing property taxes, and reducing tax concessions granted to foreign-owned tourism projects – will not be implemented before 2014/15. Until then, the government’s balance sheet will continue to deteriorate.
The government’s gross financing needs have escalated to 7.7% of GDP in 2011 from 3% in 2005, met primarily through long-term domestic instruments (mostly in local currency); the government has not tapped international markets since 2009 (Figure 15). Bahamas is also increasingly relying on bilateral and multilateral loans to cover capital expenditure. The banking system and the National Insurance Board (NIB) are very liquid and will continue to form a captive domestic investor base.
However, debt servicing costs are relatively high relative to Baa1 and F3=MEDIUN peers (interest payments account for over 14% of central government revenues, up from around 9.3% in 2007). This is primarily driven by the low revenue base since the effective interest rate on Bahamas debt has averaged 5.5% in 2005-2012, on par with the median for Baa1-rated peers (5.2%)”.
As elected leaders of this Commonwealth we are duty bound to heed the chorus of economic advice which strongly advocates philosophical and systemic changes in our approach to revenue collection and taxation generally. Seemingly, we have given away the shop in each major foreign investment that has been attracted to our shores. In contrast, the Government of Singapore has been able to stick to its guns and to extract from the direct foreign investor far more favorable terms than we have settled upon. The trouble for us is that these investments also require of us a level of financial investment in infrastructure that we are less able to afford by reason of the taxation concessions offered by us to the foreign investor.
Typically, we have not made provision for developing our agri business sector or mari business sectors. Our reliance on imports is further exacerbated by our failure during the entire term of the Free National Movement to enact any of the regulatory framework for setting up standards as was indicated by the Honorable Member for Elizabeth on the 4th March, 012.
There was, Mr. Speaker, a paucity of thought, or commitment to a vibrant agricultural sector or to food security issues while regionally scholars and public officialdom have been engaged in policy development. Mr. Godfrey Eneas has been a veritable voice in the wilderness preaching on this issue over the last 5 years. Thankfully, under this administration the wisdom of our region can be shared. In the shortest possible time we shall be introducing a large number of WTO related legislation which ought to be an encouragement to persons engaged in the production of food.
Our accession to the European Partnership Agreement and our imminent accession to the World Trade Organization involved both parties on either side of the aisle. Both agreements have huge implications to our taxation system. Yet, Mr. Speaker, members opposite have dragged their feet on engaging the public in a discussion on taxation reform. But, Mr. Speaker, taxation change must come. We are obligated under the EPA to make that change. Had the members opposite been responsible and proactive the discussion of VAT would have taken place far earlier. Barbados and St Lucia introduced
VAT in a matter of months! We are committed to complete the taxation reforms inclusive of VAT and a Central Tax Agency in the reasonable time frame of 12 to 14 months.
Mr. Speaker, the supreme irony of this debate is that it is even taking place. The FNM administration executed the EPA treaty. Surely, they should have examined, perused, read and studied the terms of the EPA prior to its execution!
Indeed, Mr. Speaker, the absence of thought by members opposite during their last administration is only equaled by the intellect of the Queen Conch. Having committed to taxation reform in the EPA, the FNM in response to the OECD routinely entered into Tax Information Exchange Agreements with numerous countries including our major trading partners: USA and Canada. Seemingly, the double taxation nature of the agreements went unappreciated. Had there been public debate about tax reform, we could have discussed the introduction of corporate and income taxes in the context of these double taxation treaties. Without changing the actual tax liability of American or Canadian companies we could have benefitted from collecting the taxes which otherwise were payable in the USA or Canada. Instead, with respect to Canada, we negotiated a windfall for foreign companies operating in the Bahamas. Before they paid Canadian taxes if domiciled there upon repatriation of their profits. Now they pay nothing at all. All we got out of the deal was being excluded from an OECD black list. We could have turned a very dark cloud into a silver lining.
Mr. Speaker, central to our fiscal performance and our international reputation is the nature of our response to taxation issues. These issues are difficult issues to grapple with at the best of times- worst yet in the throws of bad economic times. The debate however must proceed. Its time has been accelerated by the international commitment we made when the members opposite signed the EPA. Hong Kong, Singapore, Barbados, Trinidad and Tobago have corporate taxation, income taxation, and Value Added Tax. They each have well developed financial service industries. Barbados and Trinidad managed to attract FCIB and Royal Bank of Canada to their jurisdictions and have benefitted from double taxation treaties entered into with states such as USA and Canada. Change is inevitable. Our continued prosperity and economic survival depends on our grasping that change adapting to it and prospering from it.
At present, the Bills under debate are a first in a series of responses to the questions posed by Moody’s about our commitment to fiscal discipline and growing government revenues to the regional norm of 20% of GDP. In the context of international skepticism based on the previous Administration’s lack of commitment to fiscal discipline these Bills promote confidence that we are serious about revenue collection, the closure of seepage through the failure to collect taxes and most importantly to grow the economy.
Mr. Speaker, we are optimistic about the future. Our optimism is not the fool’s gold of Micawbarism. It is a confidence built of team work, of collaborative thought and cooperative effort. We are the government of the Progressive Liberal Party, we are the sons and daughters of parents who shared a universal struggle against the odds. With Jesus at the helm, our faith is insurmountable and our efforts invincible! We recall our history: the first hurricane which wrecked the first vessel of the Eleutheran adventurers; the march to freedom of Charles Henry Bain brought to Royal Island as a slave and who was able to buy his freedom, that of his parents and his brother. Indeed at his death e was the largest creditor of the Bahamian Government. Mr. Speaker, there is no force comparable to the will of the Bahamian people. It is that will which inspires us! It is that will which ultimately binds the Right Honorable Member to stay the course. We will not flinch, we will not falter, we will save the Bahamian economy!
In Eleuthera we met a faltering investment at the Cove. We opened our arms to the investor and rolled out a red carpet. Openly, that investor has credited this Administration with the successful commencement of his touristic venture. He has immediate plans for future investment at the Cove and increased employment in Central Eleuthera. $15 million invested- hope restored, help realized and confidence assured. Likewise, Mr. Speaker, we set our sights on the Coco De Mama project just south of Governors Harbour airport and the French Leave project in Governors Harbour. Mr. Speaker, the economic revival of Eleuthera is gaining steam and momentum. Tourism arrivals to Eleuthera are up and the source of hope evident even to the blind.
The despair fostered out of neglect and a callous disregard for the fortunes of those who reside in Eleuthera is being broken and substituted with health and hope! We shall shortly commence the construction of a new hospital in Palmetto Point and a poly clinic in Rock Sound. We will boost the standard of available healthcare on the mainland of Eleuthera while promoting the resurgence of luxury second homes. Also in the pipeline is an ultra modern Administration Building in Governors Harbour. Our patience and resolve are bearing fruit. The economy of Eleuthera is on the move, poised for sustainable development.
Central and South Eleuthera supports the three Bills and the Resolution. Emphatically, we support the Administration of the Right Honourable Member
for Centerville.
