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Sunday, May 31, 2015

The 2015 Budget Communication. What's new?

The prime minister, and also the minister for finance, The Right Honourable Perry G. Christie, presented his 2015/2016 budget to the parliament on Wednesday, May 27th.

As expected, there were cheers for the budget, and of course also a few jeers. Some said that the persons responsible for bringing the Value Added Tax to being in January, 2015 should be Knighted. A little exuberant, but you can give them that if you wish.

Of course, some opposite asked if raising taxes was a pre-requisite for Knighthood these days? Of course the answer is no! Tax reform should be however, and we have had too little of that but a great deal more of just plain old taxes.

There are some good things to be really hopeful for if presented in truth in this year's communication, even though a great deal of it was said last year in almost the exact same manner.

The most hopeful thing in this budget was that they did raise, since January's implementation of VAT, an extra $150 million as a result of the measure.

Last year's recurrent revenue was $1.465 billion, and this year it is expected to reach $1.771 billion. A turn around of about $300 million, with VAT receipts amounting for $150 million of that total take. The total tax take from VAT was projected through a full fiscal year to be $300 million.

What's striking to note that while this would be the third consecutive year under the current administration that The Department of Customs has not completed their reformation exercise, with Customs being the top revenue agency, the government netted an extra $150 million in addition to the $150 million they added from VAT. But, if rings true, and of course the figures are subject to be revised, then it is a good achievement thus far and it is one thing we can feel comfortable on that something has been done.

Expenditure on the other hand is expected to increase on the backs of a few large initiatives proposed in the budget communication, inclusive of $60 million towards upgrading the hospital; $20 million for the Urban Renewal Programme; Increased welfare through Social Services; and a Bond issuance for the construction of 1,000 new homes.

Also, and this may affect the revenue side and the balance between revenue and expenditure in light of the additional taxes expected from VAT, tariffs on car imports in addition to exemptions for first time home owners are expected to be reduced. In addition, a ban will be placed on cars over 10 years old.

As some would know already, but just to state clearly, vehicles are thee main source of revenue through Customs. It is the largest, line item on the customs revenue side. The tariff rates are expected to be decreased from 65% to 45%. Coupled with the ban on cars over 10 years, the revenue side will look dramatically different even in light of the VAT efforts.

Nevertheless, VAT is set to offset these reductions. However, by how much will be the question. Just to give you a scenario: If all else remains the same, and less car imports are as a result, and VAT on car imports was $10 million. If car imports were to decrease by 20%, then the VAT take on car imports would also decrease. Get the drift? So, if one were to rationalize that based on the 65% rate that VAT receipts from car imports would be $10 million, if the rates are decreased, with the effect of lesser car imports, revenue enhancement measures may be thwarted.

This is also under the assumption that car imports would decrease, based on the relatively high rate of even 45% on car imports. This is also assuming that people have money to buy cars at the rate of which it is expected to receive a return from Customs and VAT receipts.

By and large, car imports may seem as a small issue compared to the overall economic trajectory of The Bahamas, even though it is important to the revenue side of our fiscal affairs.

More importantly, and in this author's estimation, efforts were missed with regard to pro-growth initiatives for the many. After the last budget communication, 2013/2014, up until the presentation of the mid-term budget in February, 2015, people have been advocating to more progressive forms of economic inducements.

Thus far the efforts for such have been limited. Notwithstanding the measure to reduce business license fees, which within itself does more for the bottom lines for individual companies during these still yet soft periods of economic activities, than it would boost growth in the main. But it is welcomed.

Issues such as trade, economic liberalisation for Bahamian citizens, the opening of services for smaller firms to participate with the government, other private sector tools to boost economic activity both locally and internationally, have been missed.

Of course, the saying is that the government does not create jobs, or spur economic activity. But it is the private sector that does that. However, when we speak in terms of regulations, allowances, contracts, corporate tools and business environment systems that the government can and has employed in the past to suit efforts, we can safely say that little to nothing has been done for the majority or in an encompassing manner that speaks to the nature of those below. Quite frankly, this is the most appalling part of the budget communication this year, and of previous years.

Particularly in light of the issues with the BahaMar Resort not being ready to open, management contracts to external firms, some of which were not articulated in last year's budget that they would be engaged, little or next to nothing is expected in the short term with regard to growth and opportunities.

We just can't all go the prime minister's office and wait for assistance, which seems to be the norm with some. We also all can't do the same thing. We certainly can't sit there and allow opportunities to slip by while those outside get the lion's share. It just won't cut it for the future.

As an aside, issues such as the ever present inflationary pressures, which can be classified as naked stagflation, coupled with financial transparency and accountability measures, we have to continue to push for a loftier goal for all and sundry. Forward, Upward, Onward, Together!

In total, with all things articulated in this submission, we must continue to push for better. We deserve it!
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