VAT increase will benefit country in long term
Central Bank Governor John Rolle said yesterday that while the increase in value-added tax (VAT) was a “painful measure”, it will benefit the country in the long term.
“What we have to always appreciate in The Bahamas is that, given some of the difficult states that exist, there are some painful measures and there are many more tough decisions from a policy point of view that might come up,” he said during his quarterly media address at the Central Bank.
“In all of those cases you will find that once you make a decision there may be a little bit of an adjustment upfront that gives you a mixed message, but one has to always keep the longer term view in terms of what you’re trying to do, and in this case, we’re trying to put the government’s finances in a healthier situation.”
His comments came after the government released its “Nine Months Consolidated Fiscal Snapshot and Report on Budgetary Performance”.
The snapshot, which was prepared by the Ministry of Finance, revealed that at the end of the third quarter, collections from VAT were only 55.6 percent of the budgeted amount for the year, with $470 million of projected VAT revenue still outstanding.
The government raised the VAT rate from 7.5 percent to 12 percent last July in a move that was met with public outrage.
Many expressed concern that the increase would slow economic growth and lead to decreased consumer spending.
“I’m not concerned so much about how the economy adjusts in the very near term when government makes adjustments in its policies,” Rolle said.
“What is more important is what the adjustments mean for the economy three, five and 10 years out.
“When you increase the taxes, by definition, there are going to be some adjustments in demand.
“But if it is being carried in the context where other forces and momentum are propelling the economy higher, those will dominate eventually.”
He added, “We expect that the sort of improved health in the public finances is going to have its own set of benefits and rewards.”