Before introducing a 7.5 percent VAT (value-added tax) for the first time in Bahamian history, the last government was advised to first raise the minimum wage, which it did. This both softened the effect of the resulting price inflation on the public and boosted revenue yields from the new tax.
Recently, the FNM (having already nearly doubled VAT, without revisiting the minimum wage) decided that, before it next raises the minimum wage, it will need to see evidence of increases in productivity. This is odd reasoning, at the very best.
Firstly, the present minimum wage in The Bahamas has little to do with productivity. It is far below the average wage and the majority of large employers admit they would not be affected by a sensible rise. It would, however, provide some modest wage growth in line with increases in the consumer price index, most notably the result of the VAT increase.
Secondly, wages do not exist in a vacuum alongside productivity. Astronomical electricity costs, expensive food, fuel and retail items and high property prices all adversely affect productivity in The Bahamas. To single out labor among these factors is not only futile, but it erodes the relative spending power of the consumer, dampening demand. The obvious evidence of this is in the government’s own admission last week that revenue increases were not in line with their expectations, even after the rise in VAT.
– Andrew Allen