CLOSING REMARKS
BY
THE RIGHT HON. PERRY G. CHRISTIE
PRIME MINISTER
AND
MINISTER OF FINANCE
DEBATE ON THE
2013/2014 MID-YEAR BUDGET STATEMENT
THURSDAY, 13TH MARCH 2014
Mr. Speaker,
In closing the debate on the 2013/14 Mid-Year Budget Statement, allow me to encapsulate the crux of the matter in three simple words: responsibility, accountability and transparency.
Some twenty-two months ago, Bahamian voters gave my Government a clear mandate to govern the affairs of our nation. Since that time, we have steadfastly endeavored to fulfill that mandate in the full knowledge that the public trust must be honoured with responsibility, accountability and transparency.
The presentation of the Mid-Year Budget Statement to this Honourable House last month is a testament to our commitment to those fundamental tenets of governance.
On that score, I would note, in response to a question posed in this Honourable House last week, that my Government has indeed fully implemented all of the provisions of the new Financial Administration and Audit Act.
Mr. Speaker,
In the Mid-Year Statement, I reviewed the extraordinary progress that we have made in relation to new employment-generating investments all across the nation. I am convinced that we have thereby set the stage for a solid recovery and expansion of our economy for the benefit of our citizenry.
There can be no doubt whatever that we are delivering on our responsibility to promote investment and growth.
We have also confronted the dire fiscal position that we inherited.
To that end, we have developed a medium-term fiscal consolidation plan to sharply reduce the Government Deficit and put the burden of Debt on a downward path to lower and more manageable levels.
Our plan is balanced, measured and targeted to achieve steadily and gradually our Deficit and Debt objectives over a four-year horizon.
Mr. Speaker,
The transition to these objectives is to be secured by the pursuit of a number of intermediate, operational fiscal targets in respect of Recurrent Expenditure, Capital Expenditure and Recurrent Revenue.
Specifically, as was spelled out in detail in the contribution of the Minister of State for Finance last week, we are aiming:
to reduce the size of Recurrent Expenditure relative to the size of the economy by some two percentage points;
to reduce Capital Expenditure by just under two percentage points of GDP; and
to enhance the yield of our revenue system by over four percentage points of GDP.
I want to emphasize that our plan is balanced across all major components of the fiscal accounts, i.e. it is not solely reliant on raising more revenues but also features a significant reduction in the growth of spending.
Our plan is measured in that it is to be secured by judicious and visible initiatives in respect of both spending and revenue. We have accounted for the details of this plan to Parliament in as transparent a manner as possible. The facts are on the table for all to be enlightened accordingly.
Our plan is targeted with clearly identified objectives for the key components of the fiscal accounts, as well as the underlying fiscal actions needed to get us to those ultimate fiscal objectives.
Mr. Speaker,
I need to address a particular point that has given rise to a great deal of uninformed and, in some instances, cynical speculation. I therefore welcome this opportunity to make it as clear as I possibly can that my Government is pursuing an aggressive, though measured, fiscal plan over the medium term, not for the sake of satisfying the so-called demands of foreign entities or multilateral institutions but rather because we are convinced of the absolute necessity of such a plan in the context of what my government honestly believes to be fiscal planning imperatives of the first order; imperatives that we ignore at our peril
It is therefore vitally important that Bahamians understand that redressing the public finances in a sustainable manner is a critical means to an end that we all desire.
Indeed this is critical to the preservation of confidence in our nation as a secure and attractive destination for investment, In no other way can we set a secure foundation for even stronger and more sustained growth in employment-generating economic activity for Bahamians.
I appreciate that our plan is ambitious; that it perhaps will bring us into territory that is novel to our nation, especially in relation to certain types of fiscal measures that we are proposing.
And let me say in this regard that I am acutely conscious of the anxiety, the psychological dislocation, that quite understandably afflicts major segments of the national community in relation to the advocacy of forms of taxation that are historically alien to the Bahamian experience.
Let while we must be sympathetic to such anxieties, we must remain ever so mindful that the public finance challenge that we face is one that can no longer be shirked or deflected.. As has been so often said, we can no longer keep kicking the can down the road, leaving it for some future government to deal with. Instead, the time is now. Daunting though the challenge may be, we must remain steadfast in our resolve to deal with the problem of fiscal reform with urgency that is required.
Mr. Speaker,
On this matter, I would return to a point made earlier in this debate by the Minister of State for Finance. We have judiciously crafted our growth and fiscal strategy to both pursue enhanced investment and growth as well as redress the public finances in a gradual manner over the medium term horizon.
By so doing, we have spared the nation of the extreme austerity measures and dire straits that are confronting a great many other countries around the globe.
As our decisive and responsible actions bear fruit, we are positioning ourselves such that Bahamians will have no need to fear the types of short-term and drastic cuts in Government programmes and services and/or steep increases in taxation that have been necessary elsewhere.
In fact, my Government is proud of its record in respect of taxation as we have purposefully avoided sudden, dramatic increases in the tax burden of Bahamians.
Mr. Speaker,
The record speaks for itself: over the course of the previous Administration’s term in office, the weight of Recurrent Revenue relative to the size of the economy was boosted from 16.6 per cent of GDP at the end of our previous government in 2007 to a new high of 18.4 per cent in 2010/11.
In Financial Year 2007/08 the GFS deficit was 1.6%, in Financial Year 2008/2009 it was 4%, in Financial Year 2009/10 it was 5.1%, in Financial Year 2010/11 it was 2.1% and in Financial Year 2011/12 it was 5.6%.
This reduction in the deficit in Financial Year 2010/11 was achieved by incorrectly accounting for the proceeds of the sale of 51% of BTC as revenue and not as financing. This mis-allocation disguise a worrisome deterioration in the public financing, as demonstrated in a doubling of the fiscal deficit in Financial Year 2011/12, which could have been worse if not for the Ministry of Finance again wrongly accounting for the sale of notes which the Government held in NAD as revenue and not as financing which is the international standard. So the total combined deficit for Financial Year 2010/11 and Financial Year 2011/12 should have been $918 million instead of the reported $621 million a difference of 3.7% using the Financial Year 2011/12 GDP.
Worse still, this was not a managed and gradual enhancement in revenue. Rather, the full brunt of the upward jolt was experienced by the taxpayer in one single year, with the revenue yield shooting upward by virtually two full percentage points of GDP in 2010/11 alone.
Such a short-term jump of such severity in only one year is clearly prejudicial to the health of the economy.
In contrast, my Government’s approach to fiscal matters is a more responsible and prudent one. We are moving in a measured way to implement fiscal consolidation through the medium term.
Indeed the International Monetary Fund in its latest World Economic Outlook is projecting that with the measures in our fiscal reform plan a rebound in the growth of our economy can be expected in 2014, with a rate of real growth of 2.3 per cent, up from 1.9 per cent last year.
Growth is projected to strengthen further to 2.8 per cent in 2015.
In short, our plan will not depress the economy in the near term. On the contrary, it will underpin a strengthening in economic.
Mr. Speaker,
I am pleased to note that our improving growth performance has already begun to bear fruit in the form of an increase in the number of gainfully employed Bahamians and an appreciable reduction in the rate of unemployment. Indeed unemployment has fallen to 15.4 per cent as of last November, from a level of 16.2 per cent in May 2013.
Just as importantly, the number of discouraged workers declined by 15 per cent over the six-month period.
While the total labour force increased by some 1,200, the number of jobs expanded by 2,600, resulting in a fall in unemployment of almost 1,400.
That is progress that is real and encouraging. We are clearly on the right course.
Mr. Speaker,
Facts relating to an improving job market and numerous new investments were clearly set out in my earlier presentation on the 2013/2014 Mid-Year Budget to this Honourable House. I outlined more than sixteen projects in various parts of The Bahamas which were either underway, or will get underway during the course of 2014 and beyond, and others which were under serious negotiations.
The reality which is unfolding points to several thousand new jobs and very significant levels of investment either underway or committed.
Even in the bright light of reality, there are naysayers in this chamber who are trying to “hoodwink” the public into believing that these are empty promises. However, the facts speak for themselves and my Government will not be deterred nor diverted by false propaganda from discharging its sworn duty to the Bahamian people to restore economic prosperity in as full a measure is possible notwithstanding the challenges that continue to bedevil the global economy and, in particular, national economies inn our region.
As we look at economic performance and job increases over the past year, there are clearly some especially bright and promising spots. I offer now some examples that are illustrative of the positive economic trends here in our country.
Mr. Speaker,
According to the latest information available to me, with the soft opening of the Sunwing/Blue Diamond Memories Resort in Grand Bahama, 700 Bahamians are already employed at the resort, inflight, tour and travel operations, and 300 construction jobs have been created. The official opening will take place in less than two weeks, on March 24th, with additional persons continuing to be employed as more facilities come on stream. New flights are also arriving from Edmonton, Winnipeg and Toronto, with others to follow, to the benefit of local tour operators, taxi drivers and the Freeport business community.
The new Island Outsource Call Centre in Freeport has already engaged 65 employees.
Mr. Speaker, as Prime Minister, I would be the first to admit that the unemployment numbers, especially in Grand Bahama, are still at unacceptably high levels. Some who have been hurting for years on Grand Bahama because of the depressed economy there, are still in too many instances having to cope with terribly tough times.
However, things are happening in Gramd Bahama. Good things are on the move in Grand Bahama, and there are a great many more good things still to come in Gramd Bahama in the near to medium term.
However, if you were to listen only to the prophets of gloom and doom, you really could be forgiven for thinking that nothing is happening on Grand Bahama at all.
Nothing could be further from the truth. In addition to the specific instances of growth that I have just highlighted, I should indicate that my Government is involved in advanced discussions with the principals of Hutchison Whampoa, MSC Shipping and the Grand Bahama Port Authority relative to the $250 million expansion of Freeport Container Port. This will result in the usage by MSC of an additional one million containers per year passing through Freeport Harbour. This major additional investment by Hutchison and MSC will serve as a key catalyst for further industrial and commercial development in Grand Bahama. As a result, there is every expectation that new jobs will be created in very significant numbers in Grand Bahama in the near to medium term
Mr. Speaker, when we came to office in 2012 we met some rocky relationships between the former Government and private partners on Grand Bahama. We saw the historic Ministry for Grand Bahama as a priority. As a result of the tremendous leadership being demonstrated by the Member for Pineridge, public private partnerships are proving productive on that island. The proposed construction of a new first class hospital highlights this fact.
I also need to add, Mr, Speaker, that the tourism projections for Grand Bahama are encouraging indeed. More visitors are coming to Grand Bahama now as a result of our public private partnership efforts.
Managers and workers at the Port Lucaya Market Place say things are looking up in a way that has not been experienced in many years. For example, Edison Bain, a bartender at Rum Runners is quoted in the FREEPORT NEWS this past week. According to Bain “THE GHOST IS GONE. ALL THOSE CARS LINED UP ON THE ROYAL PALM WAY STRIP DAILY REPRESENT PEOPLE NOW WORKING.” In the same newspaper article, a manager from one of the market place restaurants says he has been working for 16 years at Port Lucaya, he has seen the good and bad times, and the past three weeks have been the best in a very long time. He and Bain spoke about more people working, money being made, and how tips were helping workers to cover some of their outstanding bills.
I also had the wonderful pleasure of meeting two talented and highly qualified Bahamians, both born and raised on Grand Bahama, who attended and graduated from local high schools there, attained remarkable qualifications abroad, and are now a part of the senior management team at the Grand Bahama Shipyard. Linda Turnquest, Director of Finance and IT Systems, reports, among other things favourable to Grand Bahama’s economy, that the Shipyard now has 563 full time employees the majority of whom are Bahamians. Bahamians, Mr. Speaker!
According to Ms. Turnquest’s team’s Economic Impact Analysis, for every job in the Shipyard, 3 additional jobs are created in the community. The Shipyard employs an average of 720 employees per month. Because of the specialized skills required for repairs, a significant number of foreign workers are in demand, but these workers, along with ship owners, and crew members spend millions of dollars monthly on the purchase of goods and services from local businesses.
Marvin Basden, the Facility and Maintenance Manager, during the same meeting, highlighted the millions of dollars being reinvested to improve and expand the facility to attract even more business.
The company’s newly appointed Chief Operating Officer, Reuben Bryd, told me at that same meeting on Monday that they are securely positioned to be on Grand Bahama for many years to come. More than just repairing ships, the company donates about $150,000 annually to more than 100 community projects and is set to host its 4th Annual Fishing Tournament with 100 percent of the funds raised going to youth development island wide.
Representatives of the Grand Bahama Shipyard also met with the member for Fox Hill in his capacity as Minister for Foreign Affairs and Immigration. The work and support of these ministries are critical to the ongoing success of the Shipyard. The Member for Fox Hill has had a first hand look at the operation and has become a big fan of the Shipyard’s training programme. He knows better than most that the more training done to qualify Bahamians the less of a demand there will be for work permits over the long haul.
I was also pleased to learn from the same meeting that more and more Bahamian welders are being certified and are performing at world class standards.
Just this past week, the Grand Bahama Shipyard executed repairs on one of the largest ships in the world, THE ALLURE OF THE SEA, completing the same ahead of schedule. This accomplishment speaks to the success of Bahamian/foreign partnerships and reminds us that Bahamians can and are performing at world class standards in a variety of disciplines.
Yes, Mr. Speaker, things are happening on Grand Bahama. There are many convincing signs of resurgence and regeneration. We continue to strive mightily for the full economic recovery of Grand Bahama and we bring to this task a sense of optimism that is grounded in reality.
We are confident that our optimism is not misplaced.
Mr. Speaker:
Across the water from Grand Bahama, in Bimini, there are currently 458 Bahamians employed at Resorts World in operations and 264 in construction, most of whom were not employed there a year ago. In the coming weeks additional Bahamian construction workers will be employed. Of particular note, Resorts World, in conjunction with Ministry of Labor, held a job fair for the employment of an additional 153 construction workers in Nassau last week.
Efforts are also being made to source workers in Family Islands including Bimini, Long Island and Grand Bahama. A further 350 workers will find full time employment later this year upon completion of the new hotel, deep water cruise ship ferry jetty and airport expansion.
Moving to Abaco, at Baker’s Bay Golf and Ocean Club in Abaco, there are 627 Bahamians employed in construction and operations, compared to 442 a year ago, showing an increase of 229. Thirty Bahamian contractors and sub-contractors are today employed at the resort.
Active discussions are underway to secure a buyout of the present owners of Winding Bay and to expand this resort to its full potential with the early opening of the Marsh Harbour airport and the creation of the new port in North Abaco, and the added residential and hotel components at Schooner Bay, the Abacos are well poised for great economic expansion.
Moving to Exuma, with the recent acquisition of additional acreage at Emerald Bay, it is expected that the Chairman of Sandals will take the opportunity to expand his Sandals Emerald Bay Resort, which is experiencing its best winter season ever. Knowing the enterprising spirit of Sandals Chairman, you may rest assured that he has significant plans in mind for the additional acreage at Emerald Bay. And I will have more to say about Sandals in New Providence in just a minute.
The Leaf Cay project will herald a new type of resort development in The Bahamas featuring over water bungalows and unique spa facilities, with adequate environmental safeguards. At Black Point Exuma, Plain Bay Enterprises Limited, headed by Bahamian Mr. Jacob Allen Smith, is in advanced negotiations with the Government to develop a 160 room two story villa type hotel, multiple family units, a marina other resort amenities and a 18 hole golf course.
Also in the Exuma Cays, Ms. Dona Bertarelli, reputed to be one of Switzerland’s wealthiest women and the owner of the Grand Hotel Park which was voted Switzerland’s best hotel in 2013, has acquired Children’s Bay Cay and William’s Cay. She is proposing the development of an ultra high-end, environmentally sensitive resort designed to attract the world’s rich and famous.
Still on Exuma, I am pleased to confirm the completion of the sale of of the February Point Resort and surrounding property. This resort is to undergo major expansion and already staff is being employed.
In order to protect the interest of future generations of Bahamians, the Government and the new owners/developers of February Point have agreed to enter into a Heads of Agreement which will include:
1. Preparation of a Master Plan, to guide the orderly growth and further development of Georgetown and the surrounding area.
2. The creation of a joint venture between the developer and the Government with respect to a substantial portion of the Developers’ vacant land which will be earmarked for housing, commercial, public accommodations, sports and recreational, public infrastructure and other community purposes.
3. Public consultation with the residents of Georgetown and Exuma will be enhanced as an integral part of future planning.
Further down in the Southern Bahamas, at Long Cay, or Fortune Island as it is known to some, approval has been given for Lodge Management Ltd, headed by American investor Mr. Scott Dennis Patterson, to proceed with Phase One of a luxury residential community resort, golf course and marina.
Phase I of the will include 10 guest villas, 100 residential units, health spa, beach club, restaurant, quarters for construction workers and employee housing units, marina, support facilities, airstrip and airport terminal facilities.
This project is expected to transform the economy of the southern Bahamas, resulting in re-population of the Long Cay and the stimulation of further development by residents and descendants of this once thriving community.
In Cat Island, I am pleased to advise that the long awaited Cat Island Partners resort, residential and PGA Golf Course project is now in readiness to proceed. In a public/private sector partnership, the Government has agreed with the developers to construct an IAATA compliant airport terminal, and to extend the runway at the Bight, Cat Island. This project will indeed be the catalyst which will result in significant economic growth for Cat Island, with its direct and indirect economic impact, as well as the attraction of other investors.
Over in Eleuthera, we remain actively engaged with South Eleuthera Properties, headed by Mr. Franklyn Wilson CMG, and Cotton Bay Holdings Ltd. headed by Mr. Luis Carlos Samiento and the Four Seasons on their respective plans for two upscale resort/residential and golf resorts. Together these two projects in South Eleuthera, represent an additional investment of over $200 million projected to occur over the next three years.
Moving to Andros, there are plans for the Hotel Corporation of The Bahamas to enter into a venture with a group of Bahamian investors and their successful American partner for the re-development of the Andros Lighthouse Yacht Club property at Fresh Creek, and to turn it into a haven for nature lovers, anglers, families and boaters.
Of much more transformative potential for Andros, progress continues to be made on The Bahamas Agricultural & Marine Science Institute (BAMSI) at North Andros. Indeed crops are already being planted on the commercial farm, and livestock has been introduced as well. Classrooms are now under renovation and construction. Indeed on February 21st, just a few weeks ago, contracts for a third set of building contracts were executed with Bahamian contractors for the construction of an additional five main buildings including:
The administration building valued at $3 million
Dorms for men and women valued at $2.6 million each
A lecture theatre valued at $1.7 million
The construction of these new buildings will generate immediate new jobs in the depressed Androsian economy.
Longer term, these new buildings are also important because they will constitute the main infrastructure of the school which I am convinced will form the nucleus of a new city in North Andros, a new city that will be professionally planned and supported by the diverse pillars of agriculture, marine resources, tourism, commerce, education, research and the exploration and preservation of the rich biodiversity of Andros.
It is my Government’s vision that BAMSI will form an integral part of The University of The Bahamas and that it will be affiliated with the University of Miami and other reputable international universities in areas of agriculture, marine sciences and research.
We are convinced that BAMSI will become a centre of excellence in the region. With considerable growth in related industries, we can make inroads to diversifying our economy, become more sustainable, in terms of providing food for our own consumption and the millions of visitors who visit our shores annually. If we are successful in that, as I am confident we will be, we will stem the outflow of foreign currency while increasing capital inflows from exports.
Make no mistake about it, BAMSI will have an enormously positive impact not only on Andros but the Bahamian economy as a whole. The Institute will have a range of activities to support farmers, fishermen, and agri-and marine resources development. It is not inconceivable to expect over time the creation of some 5,000 new jobs (professional, managerial, skilled and unskilled) in these diversified sectors.
Moving now to the nation’s capitol, the owners of the South Ocean Beach Hotel and Golf Club are now actively considering several substantial proposals for the acquisition and extensive redevelopment of that property. The owners and some of the prospective developers are in serious dialogue with the Government. We expect a successful outcome very shortly, which will result in another major resort development which will complement the outstanding Albany project.
As for Albany itself, construction jobs have increased from 650 to 962 in the past year alone, and permanent operations jobs have increased from 384 to 453, for a net gain of 381 jobs during the past year. This significant gain in employment at Albany will be further bolstered by a $150 million expansion, starting in the second half of this year. As a result, an additional 1,000 direct construction jobs and at least 300 additional direct permanent jobs will be generated at Albany over the next 2 ½ years.
Not too far from Albany, at Lyford Cay the Holowesko boutique hotel has engaged 40 construction workers already. Another 80 permanent jobs are expected to come on stream when the new hotel opens by the end of 2014.
In New Providence and in the Exumas, Sandals and their affiliated company Unique Vacations, have over the past year increased their Bahamian staff from 1,210 to 1,343, for a net gain of 133. In addition some 150 construction workers were engaged in substantial $20 million upgrades at the Royal Bahamian Hotel. Indeed Sandals has done a complete remake of one of its towers, adding new balconies with sea views. At another tower they have turned the ground floor into “swim-up” suites complete with private pools and personal butler services. They have added highly attractive dining, spa and native entertainment features as well. One happy by-product of this is the creation of entrepreneurial opportunities for the display and sale of distinctive Bahamian made products by Bahamian craftspersons and artists on their premises.
In the coming weeks, Unique Vacations plan to proceed with the construction of its new headquarters building on Blake Road. This will also create scores of new construction jobs and additional permanent jobs upon completion.
The BahaMar current head count of permanent hotel employees shows an increase of 130, up from 1,175 to 1,305, plus 321 Bahamian construction employees. Their $3.5 billion new, one-of-a-kind resort project which opens at the end of this year, is already identifying prospective staff members, for as many as 4,000 new permanent jobs to be created when the project is fully completed.
The recently acquired Nassau Palms Hotel in downtown Nassau, is currently employing 70 Bahamians on construction related jobs, and is targeted for completion in December when the hotel will employ in excess of 100 Bahamians.
It is also encouraging that substantial interests continue to vie for the acquisition and re-development of the downtown Hilton Hotel and adjacent land. The expected outcome is that a major redevelopment of this property will give impetus to the overall redevelopment of downtown Nassau, in accordance with the EDAW Master Plan, which my Government left in place during my first term in office, and is now being re-activated.
Moving to Paradise Island, the Atlantis head count of employees grew over the last year from 7,947 to 8,173, a gain of 226 jobs. Additionally 360 different Bahamian companies, large and small, were awarded construction related contracts by Atlantis in 2013 totaling over $33 million. This year they are forecasting construction related expenditures on contracts to Bahamians totaling over $21 million.
Mr. Speaker:
The projects which I just outlined do not include other major investments now being discussed, and which will emerge in the upcoming months and will further demonstrate renewed confidence in the Bahamian economy. I firmly believe we are the right, upward track and that a bright future now looms large, bringing with it job creation in impressive numbers across a wide and diverse spectrum of the national economy throughout The Bahamas.
Mr. Speaker,
I turn now to the financial services sector.
I have said on numerous occasions – that the financial services sector of The Bahamas flourished and continues to flourish because of a combination of talent from within The Bahamas – a talent which we have cultivated over the years as a national treasure; and secondly, because of sound “growth-focused” government policy.
The story of the financial services industry in The Bahamas and the 4,000 plus professionals which directly work in the sector and the tens of thousands more that are indirectly affected by the sector is a story of which all Bahamians should be proud. As my Minister for Financial Services has noted in his budget address, the financial services sector is an important driver of wealth creation in our country. In the financial services sector, Bahamians were able to apply their hard won education and receive competitive compensation which moved them into a vibrant middle and upper middle class.
The financial services industry continues to evolve. As changes in the global landscape occurred, keen practitioners, aided by legislators were able to ensure that The Bahamas was able to meet the legitimate needs of clients. And so we saw the introduction of the regulation of the banking sector in the mid-1960’s, and subsequently other legislation over the years to formalize and modernize this industry. We can stand proud as one of the first countries to regulate trust business – a niche area that we carved out as uniquely ours in the financial services world.
When I came to head the Government of The Bahamas in 2002 – one of my first missions was to ensure that the financial services industry received dedicated Cabinet level oversight and so I introduced the Ministry of Financial Services and Investments. When I was returned to office in 2012, again one of my first actions was to return the financial services industry to dedicated oversight, this time under the able leadership of The Hon. Ryan Pinder.
Mr. Speaker,
The global financial services sector, of which The Bahamas is a part, is undergoing the process of evolution right now due to a myriad of reasons, including: a prolonged economic downturn, aging populations and the resulting pressures being placed on the so called “on-shore” jurisdictions in the search of government revenue. It is important to note that no country is immune.
However, The Bahamas is emerging from this period with the best in class. Indeed, the value of our dollar remains strong and credible and our economy continues to strengthen. Our domestic financial services sector remains robust – surviving without significant upheavals – as unfortunately experienced in many countries. Foreign investment continues to flow into the country, demonstrating continued confidence in the fundamentals of The Bahamian economy and in our people. Finally, our international financial services sector continues to attract new and significant entrants creating employment opportunities for Bahamians.
Mr. Speaker,
The growth of the financial services sector demonstrates the principle of evolution. In the early 1960’s through to the 1990’s, The Bahamas used to be known as a deposit booking centre with a preponderance of US and Swiss financial institutions. As of 2012, recognizing the shifting world that we found ourselves connected to, I instructed the Minister of Financial Services to begin to re-brand The Bahamas as a “full service business centre”.
Banking, of course, is a major component of our offering, but we also offer the full range of trust, fund, insurance, and wealth preservation and asset protection services. We continue to develop our services for the high-networth individual including: second home, yacht and aircraft services. Finally, the Bahamas is developing itself as a seat of arbitration, particularly for financial services and trade disputes, taking advantage of our unique geographic position at the crossroads of the Americas.
Mr. Speaker,
For well over a year now, the Ministry of Financial Services has been in discussions with the industry and has been keeping the Cabinet personally aware of all developments and potential developments which could affect the financial services sector of The Bahamas. One of my goals in re-creating this Ministry was to ensure that there was constant dialogue between industry and the government so that the second pillar of our economy would have the necessary support to grow. Industry has been supportive of the Ministry and its approach to this mandate.
Through this dialogue with the private sector, it became evident to me that the evolution of the sector must continue. In this vein, the Government of The Bahamas has been championing several new initiatives.
The first is the aggressive pursuit of new products and markets. For example, The Bahamian Captives Industry is being re-developed. We have seen good progress in this area as we seek to attract world recognized Captive managers to The Bahamas and to ensure continued growth. In a few short weeks, I also expect to see debate begin, in this honourable place, on a new fund product that will revolutionize the way we do business with Latin America.
I have also instructed Minister Pinder and his team to continue their interactions with the senior officials of our financial institutions. We are keen to understand their perceptions of our strengths and their perceptions of our weaknesses. Based on these discussions, I have already seen progress and actions to remedy any deficiencies are being addressed to ensure that The Bahamas remains an attractive jurisdiction.
Mr. Speaker,
We continue to see the dividends from our investments in Brazil over the years. I have instructed Minister Pinder to continue with the same zeal to Mexico and the rest of Latin America, Asia, the Middle East and parts of Africa. We also see new opportunities within the Canadian and US markets which will be explored.
Mr. Speaker,
Our marketing strategy is not driven by whim, but by evidence based research and collaboration with industry as to what is working and what is needed for continued growth.
Going forward, I have instructed the Minister of Financial Services to take the message of The Bahamas and what we have to offer to the epicenter of our financial services sector – that is to the boardrooms of the head offices of our licensees in Switzerland.
Going forward, my Government will begin to sensitize The Bahamian public to the reality that financial services is everyone’s business. A further reality means that in order for the sector to continue to improve the lives of the ordinary Bahamian, it is imperative that the sector grow – both through internal resources and also by attracting foreign capital and talent.
The Bahamian slice of the financial services pie cannot expand until the entire pie expands and this will require new thinking and a new level of tolerance.
The Bahamas is not alone in this realization. I look at the wealthy OECD countries – the UK, Australia, Canada, the US and much of Europe and our major offshore competitors like the Cayman Islands. Each of these countries has transparent and predictable paths to attract foreign persons with significant talent and means to their financial services sectors. Each of these countries is also ensuring that they attract the brightest and the best in the world. Indeed, as the world becomes increasingly smaller, The Bahamas loses out by not also attracting the persons that it needs to grow its “pie”.
The policies that my Government will be advancing, Mr. Speaker, are entirely consisted with my Government’s and my personal philosophy towards Bahamianization. I do not believe Mr. Speaker that a policy of development-focused immigration is at odds with a policy of progressive national development. Indeed, they complement each other.
As such, the Ministry of Financial Services in conjunction with all of the relevant Ministries and Departments of the Government has been working on proposals for me to ensure that The Bahamas designs a transparent, predictable and user friendly immigration policy to attract those foreign investors and entrepreneurs who intend to make a meaningful commitment to the overall development of The Bahamas. The financial services industry assures me that with the right government policy (and I am not talking about policies that are found in some of our neighbours to the South!), I mean a development focused immigration policy – a large number of persons are willing to invest in the country and to choose The Bahamas as their place of primary residence.
I have charged the Minister of Financial Services to create a policy which not only attracts homeowners but also individuals who are job and wealth creators. I would like to attract people who want to establish businesses along the lines of the National Investment Policy and those which complement the existing skills pool of The Bahamas and encourages higher education.
Mr. Speaker,
I turn now to the subject of Tax Reform.
My Government’s programme of tax reform, as one of the core components of our fiscal consolidation strategy, has garnered much attention and commentary in recent weeks.
That is to be expected in a small economy such as ours where the subject of tax reform has been mooted in various forms over the course of many years.
However, at the end of the day it is left to my Government to assume responsibility for the much needed and overdue reform of the way we raise revenue to adequately finance the programmes and services upon which Bahamians depend.
Indeed, we all deeply value our public health and educational services, our social assistance programmes, as well as the basic public infrastructure that Government provides across the vast breadth of our archipelagic nation.
My Government’s actions will ensure that we will be well positioned to continue to offer and expand a wide range of public programmes and services in a fiscally responsible way.
It is clear that the demands on Governmnet are significant and will continue to be so as we move forward. Foremost among these, of course, is the need to meet the debt servicing obligations of Government that have built up, particularly over the last several years. Accordingly, a significant portion of our annual revenue collections must be allocated to simply paying interest on the national debt, as well as repaying debt principal that is maturing each and every year.
In addition, we face important commitments in respect of the public infrastructure needs across the the nation, for which financial resources must be developed allocated.
For example, among these many demands are the following:
Some $100 million over the next several years for the Bahamas Agriculture and Marine Science Institute and related infrastructure at North Andros of which I just spoke;
$10 million per annum for the Prescription Drug Programme;
$60 million over the next three years for Family Island Infrastructure, such as roads;
up to $100 million for Government buildings renovation and replacement, such as BOLAM House on George Street in downtown Nassau, the Post Office Building, the Clarence Bain Building, and other public buildings in need of major renovations;
$8 million per annum for the maintenance of Public Health Facilities;
$5 million per annum for mini hospital operations in Abaco, Exuma and Eleuthera
$26 million per annum for maintenance costs, medical and surgical supplies, drugs and vaccines and new staff for the new Critical Care Block;
$220 million over the next four years for replenishment of the fleet of the Royal Bahamas Defence Force (RBDF);
$5 million per annum for RBDF operations; and
$50 million over the next four years for renewing the public educational plant (assuming $15 million per each new school which is a conservative estimate as the last school came in at just under $20 million).
There will also be additional capital costs attendant upon the evolution of The College of The Bahamas into the University of The Bahamas.
The foregoing does not include the huge capital expenditure which must be committed to make our numerous international airports in the Family Islands compliant with new IATA and FAA security requirements, the upgrading of runways, terminal buildings, equipment and staffing.
Mr Speaker,
We are also saddled with the ongoing funding of the operations of Bahamasair, and public corporations like Water & Sewerage Corporation and The Broadcasting Corporation of The Bahamas, amounting to some $100 million per year. Of particular note, this amount does not include some $200 million allocated to the Public Hospital Authority.
Another major burden of expenditure which the Government has to meet is the annual cost of some $100 million on health insurance, and unions are clamouring for more. The introduction of a National Health Insurance Scheme would not only benefit the public at large but also absorb these very high premiums being paid for health insurance.
The financial position which the Government faces today was not helped by the terms of the sale of majority shares of BTC, the costs associated with the sale, downsizing prior to the sale and the significant financial obligations which remain to be met. Nevertheless my Government undertook in its Charter for Governance to restore majority ownership in BTC, which has been successfully completed.
Rough estimates place the cost of the exercise by the FNM administration on the sale of BTC majority shares near $100 million. The negotiations under the PLP to take back 2% cost around $12,000.
Further, Mr. Speaker, although we have been told repeatedly about the value of the shares being Two Hundred and Ten Million dollars ($210M); the public statements of CWC and the records will show that the final agreed price for the 51% stake was approximately Two Hundred and Four Million dollars ($204M), almost Seven Million dollars ($7M) dollars less than the reputed price.
In addition, Mr. Speaker, the Prime Minister’s Statement to Parliament on 8 February 2011 9the date on which he inked the deal to sell the 51% stake) categorically stated that any sums in excess of Fifteen Million dollars ($15M) left in BTC would be turned over to the Treasury. Again we rely on CWC’s consolidated financials of March 2012, which reflect that Fifty-Nine Million dollars ($59M) was found in BTC after the takeover resulting in CWC only having to make a net cash payout for BTC of One Hundred and Forty-Eight Million dollars ($148M).
Mr. Speaker, the FNM also agreed that after privatization BTC’s obligation to the BTC employee pension plan would be reduced from 20% per employee to 10%. The Agreement provided that the balance of the obligation and associated risks would be assumed by the Government, which undertook to guarantee any shortfall in the BTC pension plan through the establishment of a trust which was to be endowed with an initial amount of Thirty-Nine Million dollars ($39M). The trust was established but the $39M endowment was never made. [At the date of privatization back in 2011, the BTC pension fund had a surplus. By the end of 2012, it was running a deficit of Thirty-Five million dollars ($35M), which has since grown to sixty-Two Million dollars ($62M).]
As our medium term fiscal plan calls for restraint in respect of both recurrent and capital expenditures, it is evident that we will be called on to make critical spending choices going forward, and to clearly prioritize the areas of government spending. Renewed and more buoyant economic growth will no doubt help by increasing revenue inflows. But by itself that will not be enough. Tax reform is also indispensably needed to expand our revenue base.
However, I cannot stress strongly enough that our overriding fiscal consolidation plan will only be succesful if it is targeted at getting us to our critical fiscal goals, namely, eliminating the deficit and reducing the burden of debt. It is only through the attainment of those goals that financial resources will be freed up and responsibly allocated to new and emerging expenditure priorities.
Mr. Speaker,
The discussion of our tax reform agenda brings me yet again to the word “responsibility”, for it is undeniably the case that in developing our plan, we chose to do so in a responsible manner.
It bears repeating loudly and clearly again today that tax reform is not a single-minded “money grab” on the part of Government. On the contrary, our tax reform strategy has four overriding objectives, namely:
Firstly, to improve the revenue yield of our tax system to more appropriate levels in line with the programmes and services delivered by a modern Government.
Secondly, to enhance economic efficiency and the growth potential of our economy and job prospects.
Thirdly, to make our system of taxation fairer as between the various income groups in society
And fourthly, to bring relief to the poor, marginalized, and less fortunate in our society with programmes that will systematically and steadily improve the quality of their lives while ensuring that they become fully participating and productive members of the community
I will expand on each of these in turn, for I believe that it is vitally important that all Bahamians have a clear understanding of what it is the Government is proposing in the area of tax reform and, more importantly, what it will mean for their daily lives.
Before I take that path however, let me take you back to documented evidence on when this discussion started. This is important because I need to dispel the myth that government policies are being formulated in a vacuum or that these are radical new ideas that have just been developed by my goverrnment.
Here is how the IMF characterized their discussions with the government in 2001. At the time the Minister of Finance was Sir William Allen, and I need not remind you who was in the seat of Government at the time.
I quote: “The [Bahamian] authorities were in agreement with the need to strengthen government savings over the medium-term to allow for a higher level of investment…they would launch a four-part program to improve the collection of property taxes…Taking account possible future obligations under the Free Trade Areas of the Americas (FTAA), the [Bahamian authorities] agreed on the need to conduct within a very short time a broad assessment of the tax structure, with a view to introducing a sales tax or a value-added-tax that would permit a significant reduction in import duties. To that end, technical assistance from [the IMF] has been requested”
When the PLP took office in 2002, we told the IMF, in time for their 2003 report on the Bahamas, that our administration would focus on strengthening collection of the taxes rather than introducing any new taxes.
When the FNM returned to power in 2007, Hubert Ingraham was the Minister for Finance and his Minister of State for Finance was Zhivargo Liang. Again the record shows that there was acceptance that at some future point the Bahamas might have to introduce a VAT.
In the 2010 Article IV Report – while the Party opposite was in office – the IMF reported, and I quote “It was agreed that a comprehensive tax reform was necessary…[and the authorities] have also been laying the foundations for the adoption of a value added tax, sometime in the future.”
In 2011 the then FNM government acknowledged to the IMF that our current system was “inefficient and inequitable”, but that nothing was likely to change until after the 2012 elections.
Mr. Speaker,
As we progressed from 2002, I should point out that there were a number of very important technical studies that were done to help the government shape its reform agenda.
The IMF conducted a tax policy mission just after 2002 and another mission leading up to their most recent assessment in 2013.
As the thinking on VAT progressed, the government commissioned a study by the Crown Agents, to deal among other things with the design of the VAT framework for the Bahamas and to consider what would be a suitable rate for the VAT. That study came in with a recommended rate of less than 10 percent, because at the time, the government was only pressed to re-balance its revenue dependence rather than raise additional revenue.
The most recent study that was done for the government was sponsored by the IDB, over the summer months of 2013. It has given us insights on what would be an appropriate level of social policy response to accompany the introduction of the VAT.
Mr. Speaker,
The point of this historical narrative is to demonstrate that, in terms of the first objective of tax reform, it has long been evident to objective and well-intentioned observers that the base of our tax system is simply too narrow and inadequate for present and future purposes.
Our system with its very heavy reliance on import duties is one that goes back hundreds of years when the structure of economies such as ours was relatively simple and rudimentary. Over the years, however, successive administrations have been reducing import duties, influenced in large measure by the Bahamas moving towards joining the WTO. Some other more equitable form of taxation must therefore be developed top take the place of import duties.
In earlier times, production and consumption were predominantly focused on goods and products. However, modern economies have evolved well past that point and are now predominantly service-based. This is certainly the paradigm of the Bahamian economy.
Our tax system is simply not geared to adequately tax service-related activities to the same extent as goods are now taxed. We must therefore broaden the tax base of our system accordingly.
The point needs to be emphasized that historically speaking we are relative latecomers to the process of tax reform. Other nations around the globe, including our region, moved earlier on to broaden their tax bases by introducing systems of personal and corporate income taxes as a means of bolstering their revenue streams. We, of course, have shunned that avenue all through the years.
Mr. Speaker,
As many large international studies have demonstrated in the intervening years, the taxation of incomes, whether personal or corporate, is not without its very serious drawbacks, especially in terms of economic growth and job creation.
Governments have thus increasingly resorted to sales taxes as a means of raising revenue.
A new innovation in this area surfaced in the 1950s, in the form of the Value Added Tax or VAT which, while it functions basically as a sales tax, also offers through its structure the benefit of enhanced compliance and reduced fraud.
The adoption of this new VAT evolved gradually during the initial years but its acceptance has mushroomed in the last 30 years, to the point where VAT is now in place in well over 140 nations around the globe, including the Caribbean region.
The key attraction of VAT is that it is a reliable, secure and stable source of Government revenue. That clearly serves the first core objective of our tax reform plan.
Mr. Speaker,
As for the second objective, I would note that coming to the tax reform agenda somewhat later than others has had definite benefits for the development of our plan.
We have seen and studied the experience of other nations, whether through site visits or through the studies undertaken by the OECD, the EU or numerous academic researchers.
As the Minister of State for Finance outlined in his budget contribution, the evidence is clear that VAT is the preferred option for tax reform, over taxes on personal and corporate incomes or even payroll taxes, from the perspective of economic growth and job creation.
We have chosen VAT as the preferred option in our plan to reform taxation.
The Government however is also strenuously pursuing a strategy of maximizing the taxes which are already in place, including real property, business licence, departure tax and customs duties and stamp duties.
In all of these areas significant progress in collections has been made.
In the case of real property tax we have engaged private assesors to deal with the backlog of assessment and we are engaging private collectors as well. We are also implementing a new information system.
In relation to Business Licence fees, we have introduced new, more efficient collection procedures. We have signed an agreement with IATA to address departure taxes; and with customs duties, we have implemented a vigourous inspection programme.
The reforms that we are implementing will considerably improve revenue collection of existing taxes. However, there should be no illusion that these amounts will be sufficient to deliver the targeted improvement in the revenue yield of our tax system by 2016/17.
Overall, we are looking at an improvement in revenue on the order of some $500 million by that year, or just over 4 per cent of GDP. The strengthening of economic growth over the short top medium term that I reviewed earlier in my contribution today will contribute needed revenues of over $100 million. The modernization of the Real Property Tax system and the Customs Department is expected contribute to additional revenues, on the order of roughly $100 million and $80 million, respectively.
The regularization and taxation of the webshops, to which I will shortly return, could provide further incremental revenues, depending on the rate of taxation that is selected. However, it is clear that such a new source of revenue would fall far short of the additional revenues that are needed to get us to our medium term revenue objective.
All told, with both stronger growth and the revenue enhancement measures that I have outlined, we would still be left with further revenue needs, on the order of $200 million.
That being the projected shortfall, the VAT that has been proposed, along with the planned cuts in tariffs and excises, will be critical to securing new incremental revenues of the required order of magnitude.
Mr. Speaker,
The third and fourth objectives of tax reform in The Bahamas are, as I indicated, to make the tax system fairer and to uplift those who are in poverty or in a marginalized position in our society.
As a government we depend on taxes on goods to the virtual exclusion of services. It is a heavy reliance on import duties that hits the less well-to-do in society particularly hard.
In a modern society and democracy, that simply cannot be allowed to continue.
A Value Added Tax or VAT in The Bahamas would be applied to consumer purchases, whether they be on goods or services. That will go some way to making our tax system fairer.
To further mitigate the impact of tax reform on the less affluent, we are also proposing to implement significant reductions in import duties and excise taxes. That will further reduce the relative burden of taxation on those whose consumption is predominantly goods-based.
Mr. Speaker,
As is done elsewhere in the world, we have committed to implementing a significant enhancement of our various social assistance programmes to further mitigate the impact of VAT on the poor.
Fortunately, we have had the benefit of hindsight, so to speak, as well as the experience of other nations, on which to base the development of a Bahamian VAT. We have thus tailored our VAT on the basis of best practice elsewhere, by and large.
For example, we are proposing a number of exemptions from VAT.
Most of the items that would be exempt from VAT would speak to social policy.
On food, for example, the old age pensioner and others on very limited income would be able to walk into the grocery store and purchase healthy food items that are exempt from VAT.
The list is very extensive and includes the following.
baby food
fresh fruits
fresh vegetables
fresh meat (chicken, beef, pork, mutton)
seafood
bread
rice
grits
flour
oatmeal
sugar
vegetable oil
There are also exemptions for utilities for identified households that consume moderate amounts of these services. That is, on electricity and public water and sewerage services.
Minimal impacts would also be sought for organized and properly constituted charities. These would be able to qualify for some refunds of their VAT costs.
We are also proposimng to limit zero-rating under VAT primarily to exports. VAT is designed to be a tax on domestic consumption and, as such, the system should be designed to relieve all exported goods and services of any VAT charges.
In the category of exports are also the services provided to non-residents largely through the international financial services sector. The VAT will not be used to undermine the viability of this sector.
We are proposing a simple VAT rate structure as this will simplify private sector compliance and reduce the costs of VAT administration. It will also avoid issues and problems with the proper classification of goods and services.
We are proposing to register only businesses with a turnover exceeding $100,000 per annum, thus avoiding the entanglement of our smaller businesses in the system of VAT collection and filing.
We would still capture well over 95 per cent of the total turnover in the economy in this way.
Focusing on the larger firms will also ease administration of the VAT.
Mr. Speaker,
As to the rate of VAT, I can assure you that it will not be as high as 15%. But the actual rate is not settled yet although I expect it will be in the very near future along with the final list of exemptions as well as the date for the introduction of VAT. The Government is awaiting the completion of dialogue with the private sector and the public generally on these and other matters, including, frankly, the question as to whether we are indeed absolutely convinced that there really is no viable alternative to VAT. In this regard, the Government has facilitated the engagement of consultants by the private sector to thoroughly study the matter, and only when this and the resulting dialogue have been completed will we make a final commitment. In this sense, therefore, although the proverbial door is closing, it is still open at the moment. My government therefore welcomes further input from the private sector and the public generally so that we can seriously consider alternatives to VAT and, if need be, change course accordingly. We need to get it right. And the best way of ensuring that it is done right is for the Government and private sector to collaborate on developing something that gets the job done for the benefit of The Bahamas and its people.
I want to emphasize, therefore, that the VAT position I have outlined is not cast in stone. It is not yet a foregone conclusion. My Government has clearly demonstrated its openness to entertaining varying proposals from the public on VAT and alternative sources of revenue. We will therefore await the outcome of the study being conducted on behalf of the Coalition for Responsible Taxation.
Mr. Speaker,
For many past decades there has been an informal “numbers” industry in The Bahamas. This industry, in spite of the efforts of law enforcement officials has existed and has during this period been enjoyed by a large part of the population.
With the invention of computers, the traditional numbers business has been transformed into a sophisticated industry with many, if not most, activities being conducted on “the web” in cyberspace, thereby rendering enforcement even more problematic. Inded, the present Lotteries and Gaming Act, developed as it was in the 1969 in the pre-computer age, was not really designed with a view to regulation or enforcement of web-based gaming of the kind prevalent in The Bahamas and the world today
Exacerbating the problem was the issuance by the Government over the past several years of licenses for registered “Web Shops.
In reviewing the various provisions of the laws impacting the activities associated with Gambling in the Bahamas, it evident that the time has come for us to comprehensively review the criminal sanctions imposed on various gaming activities and to formalize the licensing of gaming operations to:
1. Ensure proper regulatory control of web shops;
2. Apply the taxation regime applicable to gaming activities to web shop businesses; and
3. Avoid possible sanction from international financial services regulators.
Since the proliferation of the web shop industry, international regulators have called for increased supervision of such activities. In 2012, the Financial Action Task Force (FATF) advised that
“Countries should ensure that the other categories of designated non-financial businesses and professions are subject to effective systems for monitoring and ensuring their compliance with requirements to combat money laundering and terrorist financing. This should be performed on a risk-sensitive basis. This may be performed by a government authority or by an appropriate self-regulatory organisation, provided that such an organisation can ensure that its members comply with their obligations to combat money laundering and terrorist financing”.
Mr. Speaker,
It is important that in dealing with this matter I re-trace the history of the “Gaming” Referendum”.
For only the second time in the history of the Commonwealth of The Bahamas, the Bahamian Electorate participated in a referendum to answer specifically the questions asked of them namely:
1. Do you support the regularisation and taxation of web shops and
2. Do you support the introduction of a National Lottery
To facilitate this referendum, my government passed amendments to the Referendum Act to allow for the holding of non-constitutional referenda.
As it relates to the issue of webshop gaming, the PLP from my first term in office between 2002 and 2007 realised that the burgeoning web shop gaming industry, when viewed in light of the gaming laws of The Bahamas passed in 1969, required urgent attention. Subsequent to our departure from government in 2007, we continued to monitor the activities of the industry and noted that its presence continued to gr