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From:TheBahamasWeekly.com Columns
The
spending spree embarked upon by the government could erroneously suggest
that the Bahamas government has been issued a blank cheque or a credit
card that has no limit. The reality remains however, that these
loans will have to be serviced in the interim and ultimately repaid
by current and successive generations of Bahamians with the debt to
GDP expected to climb to an estimated 70% by 2016.
Despite this
massive borrowing, the real unemployment rate (including discouraged
individuals) remains at more than 18% and no new industries have been
created or expanded by the government. An economic recovery in which
the working class can return to work with a legitimate chance of entering
the middle class and the middle class is restored is desperately needed.
The hope of realising the Bahamian dream of receiving quality education,
a good paying job, owning a home and savings toward retirement must
be rekindled within our nation.
With the current
state of affairs, it is clear that the successful political party at
the polls this year will have to take a hard-lined approach toward fiscal
policy and make tough decisions which may include self-imposed austerity
measures to curb the current rising debt and set the economy back on
the right path. Currently, all eyes are on Europe and the Eurozone,
which is experiencing what has been termed as the euro-debt crisis.
The European Commission has given strict orders to members of the European
Union to carry out austerity measures to reduce their growing debts
and deficits. The ultimate reason for such a hard-line approach
is to sustain the Eurozone and save the Euro, failure of which will
spell a major disaster for the world economy and impede the ability
of the global economy to climb out of this economic crisis in the near
future. British Prime Minister David Cameron has failed to fall
to pressures to cut back on austerity measures and has gone as far as
declaring that “We are living in the age of Austerity”. Even
more profound is PM Cameron’s articulation that he was prepared to
be a one term Prime Minister who did the right thing as opposed to a
two-term Prime Minister who did the wrong thing. He asserted that
this was the right route to create jobs and an environment for economic
growth. The Prime Minister of Spain in the same vein recently
announced further austerity measures to the tune of $11billion and has
committed to reducing his country’s deficit to 4.4% using measures
such as a freeze on public wages and tax hikes on the wealthiest Spaniards.
Greece has also taken measures to carry out deep pay and pension cuts,
tax increases and has committed to carry out changes to collective bargaining
agreements. France will increase its Value Added Tax (VAT) from
5.5% to 7% on many consumer goods except goods like produce, non-alcoholic
beverages and water. Meanwhile in the US, President Obama has
already signed $11trillion in spending cuts into law and proposes more
cuts. He has also committed to reforms on the cost of Medicare
and Medicaid.
It would be unreasonable
for The Bahamas to sit back and do nothing to help our own economy while
the US, the EU and countries around the world are carrying out radical
reforms to curb spending and revive their economies. Countries
that have been inclined to borrow from International Financial Institutions
(IFI) like the International Monetary Fund and World Bank have been
faced with conditionalities in the form of austerity measures to reform
their economic policy to reduce their dependency on borrowing. We must
be proactive and do something before we are told to. It is time to face
the music, stop the rhetoric and make diversification of our economy
a reality.
The government of the day will have to become innovative
and strategic to attract Foreign Direct Investments (FDI)
and create opportunities and jobs for Bahamians outside of the unstable
and vulnerable industries of tourism and financial services. Understanding
that FDI inflows are currently constrained due to the current state
of the global financial markets, it must find new ways of creating revenue
to service the national debt and fund essential social programs like
education and healthcare.
In the short-term, reforms must be made
to the public service to achieve efficiency gains. This may mean job
cuts where necessary, revisiting the statutory retirement age and improving
tax collection. The continuous excessive subsidies allocated to government-owned
enterprises must be reduced and eventually eliminated with privatisation
of these enterprises being looked at more seriously. With the
reality of wage expense approaching 50% of government revenue, job and
pay freezes may have to be initiated by the government with job freezes
on essential services like education, healthcare and national security
being exceptions.
The government will also have to consider welfare
reform and a reform of its pension policies in a manner similar to that
of the private sector. In the medium to long term, the reform of the
existing tax code is inevitable; a progressive form of taxation must
be implemented and the feasibility of a Value Added Tax (VAT) regime
should be explored. The next government must commence the process for
revamping the existing tax code in the best interest of the country
and of generations yet unborn.
No one will argue that the current tax
code which combines indirect and direct taxation is regressive and disproportionate
to say the least. The tax structure in The Bahamas does not factor in
the disparity in purchasing powers of individuals and corporate entities.
While it may be argued that in the case of individuals, it boils down
to better paying jobs and/or qualifications, the reality remains that
the absence of a progressive form of income tax guarantees that the
less privileged will always pay more and have less at their disposal.
It goes without saying therefore, that the gap between the rich and
the poor will continue to widen unless the tax code among other things
is addressed.
The above recommendations
may be a hard pill to swallow for many not least the government and
‘special interests’ who form part of the ruling economic class that
have for decades failed to pay their fair share of taxes. It is
imperative to state that the positive affect of such a bold stance toward
the fiscal prudence and the financial position of this country will
not produce positive results right away, but if carried out with due
care and diligence, they will produce positive results in due time.
The socialist former PM in Canada, Chretien was faced with a similar challenge when his government was forced to carry out self-imposed austerity measures due to the rising debt in Canada. His government cut government spending across departments drastically and increased taxes on the rich. Cabinet Ministers were given marching orders to reduce spending. The government witnessed a reduction in the debt to GDP ratio from 67 % in 93-94 to 34% in 1997. More importantly, the resilience of Canada during the recent financial crisis was attributed to his tough actions several years ago. The next government can take a page out of Canada’s book which has proved to be successful and must make tough decisions for our country’s sake. The state of our economy, multiple downgrades of The Bahamas by credit rating agencies, shrinking revenues, growing debt levels and deficits are clear handwritings on the wall. Will the next government have the will, fortitude and courage to rescue us from this downhill motion? Will they put country over self and party politics? The Bahamas is crying out for and earnestly awaits the emergence of statesmen and stateswomen in place of politicians. Arinthia S. Komolafe is an Attorney-at-law. Comments can be directed at arinthia.komolafe@komolafelaw.
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As we enter into
another election season and the next general elections of our beloved
nation approaches, one of the greatest uncertainty that dominates the
thoughts and minds of the average Bahamian is the current crippled state
of our economy. Our national debt has increased during this economic
crisis to more than $4 billion today with no end in sight to this spate
of government borrowing that is being invested on infrastructure as
opposed to people. In the last 2-3 months alone, the government has
borrowed more than $200 million for the Water & Sewerage Corporation,
road-works in Andros and construction of bridges in Abaco.