Devaluation fears influenced VAT hike
Financial Secretary Marlon Johnson added that the VAT increase, coupled with other revenue-generating measures, while “stark”, will lessen fiscal pressures and avert the need to shrink the civil service through mass firings.
Turnquest announced on Wednesday that VAT will increase from 7.5 percent to 12 percent, effective July 1, giving Bahamians one month to prepare for the 60 percent VAT hike.
Speaking at a press conference at the British Colonial Hilton today, Turnquest assured that there will be no further increases to the VAT rate for the foreseeable future.
“We’re fairly comfortable that this is the rate that is best for us that we should be able to work with well into the future,” he said.
Turnquest added the decision for the rate hike was not made arbitrarily.
“Ultimately, we decided on the 12 percent rate because it gives us the best opportunity to get through this period of consolidation as quickly as possible and begin to reduce the pain on the Bahamian people,” he continued.
“…This is what happens when you live beyond your means. At some point you gotta pay. Unfortunately for us, it falls on us. [There is] no joy in this. Trust me, I gotta pay the 12 percent too and I work for the government now so my salary is fixed. So there’s no joy in this.”
Scores of Bahamians took to social media yesterday and today protesting the VAT increase.
Asked about the pressures this increase will put on the most vulnerable in society, Turnquest said in addition to eliminating VAT on breadbasket items, the government is increasing the allocation to the Department of Social Services by almost $4 million in an effort to “pick up some of the slack for those who may find themselves still in a difficult and vulnerable position”.
The increase in VAT is expected to bring in an additional $400 million in revenue.
Pointing to a $637 million gap, Johnson said it was imperative for the government to make the tough decisions now. He explained that the Minnis administration had three choices: borrow $637 million, continue to “falsely” budget or to engage in a mass firing exercise.
“The reality is these are the stark choices that you have, or as we discussed, we could have sent almost 6,000 to 7,000 people,” Johnson said.
“Even if that was done… you take all of those salaries out of the economy, you put all of those people on social welfare and you take all of that consumption out and you end up slowing down the economy to negate whatever budget savings that you had.
“…These decisions aren’t taken lightly.”
The government yesterday brought a resolution to the House of Assembly to borrow $187 million to help cover the shortfall in the coming fiscal year.
Government debt is forecasted to increase from $7.1 billion to $7.3 billion.
The government borrowed $1.4 billion in 2017/2018.
VAT collection in 2017/2018 is projected to total $663 million. The government is forecasted to collect over $1 billion in VAT in the next fiscal year.