By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A prominent banker yesterday asserted it was no accident that the Government released its corporate income tax 'green paper' just days before the Budget, adding: "It needs to increase its revenue base."
Gowon Bowe, the Fidelity Bank (Bahamas) chief executive, told Tribune Business that the launch of tax reform consultation was likely "setting the foundation" to increase the Government's tax base - albeit in a more equitable fashion - as it heads into today's 2023-2024 Budget unveiling.
Disclosing that he "doesn't hope for things coming out of the Budget", describing the communication as the "selling of euphoria" and the subsequent debate as "political theatre", he argued that The Bahamas had reached the stage where it cannot afford "to keep the party going" and instead requires tough decisions to ensure the country is viable and sustainable for future generations.
Asserting that today's Budget should not be drastically different from what has been projected over the past two years if The Bahamas is to maintain its credibility with rating agencies, creditors and investors, both at home and abroad, Mr Bowe told this newspaper: "The exercise I do is to analyse what key priorities are being addressed or not.
"I start by saying that the Budget is projected two years forward and, under my professional view, there should be no material change from last year because you are then able to demonstrate you are not managing the country on a year-by-year basis but managing over a particular cycle, which is a minimum of three to five years."
The Davis administration, over the past 12 months, has consistently predicted it will slash next year's fiscal deficit for the period to end-June 2024 to $125.3m - representing a more than 78 percent cut compared to the $575.4m worth of 'red ink' forecast for this fiscal year. The latter figure was revised upwards slightly by some $11.4m, but that does not represent a material change.
Observers will be watching keenly this morning to determine if there is any major revision to the forecast 2022-2023 outturn, with the period still having a full month to run, and if the Government sticks to the projected $450m year-over-year reduction in the deficit for 2023-2024. The upcoming fiscal year is a precursor to achieving a rare, almost unheard of fiscal surplus of $278.8m in 2024-2025.
Mr Bowe, though, warned that Budget communications were often divorced from the much tougher reality. He added that they frequently focused on how the Government is "going to address all the hardship people are experiencing, and going to attempt to bring relief.
"The reality is that it's setting people up for false expectations," he warned. "I think we now need to have a direct communication that the country's fiscal circumstances require taking very deliberate action that is not going to be popular but we need to make these decisions to ensure the future is brighter.
"I think is is still unfortunate that we are pandering to the political whims, when there are many structural issues the outside world is watching, to think we can make significant changes other than increase revenue and get expenditure under control."
Asked whether he anticipated any new and/or increased taxes in today's Budget, Mr Bowe replied: "My expectation is that the Government needs to increase its revenue base. They said there will be no new taxes, but I find, again, it's more political sentiment than realistic.
"I don't think it was coincidental that the corporate income tax 'green paper' was produced in advance of the Budget because it's setting out the foundation for an increased tax base but to do so on a fairer and more equitable footing." The Government's financial goals have effectively been set out in its latest Fiscal Strategy Report, as well as a prior document detailing its ambition to achieve a 25 percent revenue-to-GDP ratio by 2025-2026.
It is aiming to grow revenues by almost $1.2bn to over $4bn by the 2026-2027 fiscal year when compared to the current 2022-2023 period that ends at June 30. It is also aiming to expand the Bahamian economy from a $13.236bn to a near-$16bn enterprise over the same period.
Acknowledging calls for the Government to collect all past due tax arrears, and reduce its spending, before eyeing new and/or increased taxes, Mr Bowe said a large portion of expenditure is already fixed due to debt servicing costs, civil service payroll and emoluments, and rents and other costs.
Targeting cuts elsewhere could impact essential public services such as national security, health and education and, while many felt "the Government has gristle on the meat that they would like to see reduced, at times it's exaggerated how much fat is there".
Mr Bowe predicted that, even if this "gristle" was eliminated completely, it was unlikely to alter the fiscal position by itself and The Bahamas will still be facing large annual deficits. "It's important that we have that frank conversation that either we reduce the social benefits government provides us with or increase the revenue base," he added.
"I don't say that to say it's void of growing the economy. But the 'green paper' doesn't speak about economic expansion. Increasing taxation doesn't expand an economy. Tax breaks and tax concessions do that. We're not at the point of extending tax breaks or tax concessions because we've been doing that for the past 50 years.
"We need to right-size our revenue structure and look at how we use tax breaks and concessions to stimulate the economy. We're more at the point where the piper is blowing, and have to pay the piper. I don't have any great expectations for the Budget. It has taken us 50 years to get where we are. No single Budget will reverse that course. No single Budget seeks to give that impression."
Mr Bowe said he was "hoping, perhaps naively", that the narrative around the Budget focuses on conversations around what reforms are necessary to ensure the National Insurance Board's (NIB) long-term viability and the Ministry of Finance's drive to increase revenue.
"I may be seen as more of a pessimist but I've been around long enough to listen to the euphoria," he added. "I'm awaiting the numbers to bring us back to reality. We're at the point where we need to educate the masses and demonstrate to them that we're not making decisions to keep the party going but making decisions to keep the country viable and sustainable for generations to come."