Monday, Sep 24, 2018

BLINDSIDED

No obligation to consult, but consultation should have some role ahead of tax policy changes
Peter Turnquest.

The government’s rollout of its budget for 2018/2019 has created a round of controversy unlike any in recent memory after a new spending plan was made public.

No doubt, the Minnis administration anticipated that its decision to increase value-added tax (VAT) from 7.5 percent to 12 percent on July 1, 2018 would spark outrage and complete rejection in some sectors.

But we wonder whether it expected the current level of pushback.

The government continues to be roundly criticized for failing to consult ahead of its decision to increase VAT, which will raise the cost of living in The Bahamas.

The argument put forth by Minister of Finance Peter Turnquest is that the burgeoning government debt – now exceeding $7 billion – must be brought under control.

Th government has said it can no longer kick the can down the road. It says increasing VAT will raise an additional $400 million and in three years it will balance the budget and safeguard our economic and fiscal position for future generations of Bahamians.

The decision will no doubt be painful for many.

But the government has rolled the dice with the expectation that in a few years – ahead of the next election – the public will find that it made the right decision for the country.

It is not unusual, of course, for various sectors and ordinary taxpayers to learn about planned tax increases for the first time in a finance minister’s budget communication.

While the minister of finance is under no obligation to consult ahead of such an announcement, the dramatic nature of the decision regarding VAT could provide a case for consultation, former Minister of Finance Sir William Allen noted when he spoke with us last week.

Many in the business community and in other sectors concluded that some level of consultation, and preparation for the tax rise ahead of the new budget were warranted.

The finance ministry would no doubt argue that sending signals of pending tax increases in advance would have been disruptive for businesses and economic activity and have other negative effects on what the government is seeking to achieve with its revenue position.

Advanced signals could lead to some sectors making business decisions based on prior knowledge of the government’s actions with respect to changes in tax rates.

The Christie administration consulted ahead of the implementation of VAT in 2015 as it was a new tax that required public education and structural changes for finance operations at various businesses.

Still, Free National Movement Leader Dr. Hubert Minnis thought the former administration was “shoving VAT down our throats”.

 

Legitimate expectation

The difficulty the Minnis administration has in arguing in support of its failure to consult ahead of its May 30, 2018 announcement in respect of the planned VAT rise, is that upon coming to office, it set expectations high that it will be a government that consults, and is transparent.

The expectation that many people had was that, that would extend to all important matters of governance.

After the budget communication, the Bahamas Chamber of Commerce and Employers Confederation wrote Turnquest, indicating that it cannot support any tax proposal which is not founded on comprehensive economic analysis and has not received the chamber’s and the private sector’s review and feedback.

It wrote, “At a time that the Bahamian economy is beginning to show some signs of recovery, we have serious concerns that the proposed increase in VAT will negatively impact investor confidence, reduce consumers’ disposable income and further challenge a shrinking middle class.”

The attorney for gaming house operators, Alfred Sears, QC, also wrote Turnquest after the budget communication stating that where the government’s policy will have a major disruptive impact on the life and affairs of the Bahamian citizenry, there is a legitimate expectation that the government will consult with citizens likely to be affected by such policy decisions.

President of the Bahamas Institute of Chartered Accountants (BICA) Gowon Bowe said recently that governments have been presented with VAT alternatives many times and have ignored that advice.

“We must support our leaders, but this does not mean disagreement is lack of support,” he said.

“We want our leaders to respect that the wealth of experience and expertise outside of the government is far greater than in the government, simply by the law of numbers, therefore collaboration is the best approach.”

The government has committed through the Fiscal Responsibility Bill to consultation moving forward-though those consultations will be non-committal.

The business community and gaming operators aren’t the only ones who have expressed disappointment at the government’s lack of consultation over its tax increase plans.

Some within the FNM’s parliamentary caucus have also raised the issue.

When he contributed to the budget debate in the House of Assembly recently, Centreville MP Reece Chipman indicated that he does not support the plan to increase VAT to 12 percent.

“We must be seen to be using Bahamian talent,” he said on the point about consultation.

“A photo op or a text looking like we are working together won’t cut it anymore.

“Too much is at stake. Too much is at stake to let anyone get away with it. The proof must now be in the pudding.

“It is not about whether you took my idea or not. It is about the protocols of communication.

“That undoubtedly will have a positive impact on the wider Bahamas.

“There is a whole chamber, a whole institution of chartered accountants, just requesting a position paper.

“I cannot give something I do not have and I cannot sell a story I do not know.

“What I do know is that the people of Centreville expect me – yes, CPA, me; 20 years of business management, me; 20 years of training professional Bahamians in financial services, me; East Street, me; Centreville, me – to be able to help them understand this government’s agenda.”

The question of consultation was also asked in a poll conducted by the Bahamian firm Public Domain in the days after the controversial budget communication.

Eighty-six percent of respondents believe the government should have engaged in public consultation prior to proposing this new budget.

“We’re operating in a world that is different even from 10 years ago,” said Public Domain President Mwale Rahming.

“Millennials are affecting the way that we conduct our government business. Millennials care much less about other people than they care about themselves. And that’s sort of grown to our society.

“We feel that you should have consulted us. You don’t have a need to, but what’s the downside to consulting us? Like, why am I not involved in your process?

“Some people don’t understand why they should not be involved in the process of you coming up with the budget if you’re going to spend my money.”

We believe that the traditional concerns finance ministers have had about revealing any details of planned changes to tax rates well in advance of their budget communications are warranted.

However, we do not accept that consultation on these matters have no place in today’s Bahamas.

Perhaps if the government had set the right tone for what it was about to do, it could have avoided the intensity of the blowback it is receiving over its new budget.

 

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