Protecting the shrinking middle class

Though we have seen encouraging tourism numbers and steady economic growth over the past year, inflation on consumer goods and the rising cost of fuel have made economic recovery a slower process for many coming out of the pandemic.

Many businesses did not survive and those that did have tried to make up lost ground by cutting costs and applying profits to debt incurred when the economy cratered.

While the current administration has done positive things to help some of the most vulnerable people impacted by the pandemic, its approach so far on those who contribute the most to the tax base – the middle class and the business class – does not appear to be undergirded by a sound strategy.

Lowering value-added tax (VAT) to 10 percent was welcomed by many, allowing businesses to save money on large industry purchases and those in the middle more flexibility to spend on purchasing goods and services and making investments that help bolster the economy.

Reducing the VAT on real estate purchases under $1 million was also a good move.

It lowered the barrier to entry for homeownership and the money saved was likely reinvested into the purchase of goods and professional services for those new homes.

More homeownership is a critical goal for any sensible government.

Not only does it provide stability and the financial capacity to access capital with which to build wealth, but it provides the government with real property taxes in most instances and spurs the economy as those homeowners spend to upkeep and improve their properties.

On the other hand, the government has strained the middle class and the business class with its mishandling of Bahamas Power and Light (BPL).

Energy costs are often second only to compensation costs for the vast majority of businesses.

Its approach to inflation has been nonsensical.

While it left those who purchase and sell gasoline and diesel to fend for themselves as prices skyrocketed, it forced grocery stores and pharmacies to enact ill-advised price control measures that had little discernible impact.

The government also increased the minimum wage while it increased fuel costs and tampered with the profit centers of many businesses.

The government has long acknowledged that many are in economic crisis.

It has also acknowledged that there is an ongoing health crisis.

Yet, its latest tussle with the business community, this time stakeholders in the insurance industry, will likely make healthcare more expensive for those who are fortunate enough to have private insurance.

The insurance industry appears to have incorrectly been using the VAT collected on health insurance premiums to offset VAT paid on claims for health services and remitting the difference to government.

The government wants all the VAT remitted to the government.

The insurance providers say doing what the government mandates will place the burden of VAT on health services squarely on the customer.

This will likely drive a significant number of people away from private insurance and place a greater burden on a public health sector that can bear no more.

Those who can afford more expensive health services – most likely those in the middle class – will be constrained from spending elsewhere when accessing health services.

The fortunes of the insurance companies are also likely to be affected.

Instead of removing VAT from medical services – as is the case in Barbados, Jamaica and the UK – the government appears to be oblivious to the fact that it is obscene to squeeze revenue out of people using legitimate private healthcare services.

Meantime, public healthcare is VAT exempt in The Bahamas.

Health crises can wipe out a family’s life savings in a matter of months. It is antithetical to good governance to even flirt with the idea of making healthcare more expensive.

The Davis administration is fond of beating the drum on helping the poor, knowing full well that the vast majority of people in this country are not poor, but still struggle to meet their financial commitments while being further burdened by the government.

Unless it is seeking to increase the ranks of the poor, the Davis administration should also concentrate on protecting the shrinking middle class as well as the business class which creates stable, well-paying jobs.

There is only so much middle income families can bear.

Not only the poor are in need of help in this Bahamas.

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