New fiscal measures introduced to boost Bahamas economy

NASSAU, Bahamas, Thursday May 30, 2013 – The Bahamas government has announced a series of fiscal measures it hopes will turn around an economy that recorded slight growth last year but below the nearly three per cent figure that had been projected.

Prime Minister and Minister of Finance, Perry Christie, presenting the 2013/14 “Budget Communication” to Parliament late Wednesday, said the prospects for the Bahamian economy in both 2013 and 2014 “remain unchanged from the projections presented in both last year’s Budget Communication and the Mid-Year Budget Statement.

“The IMF (International Monetary Fund) continues to forecast that our economy will expand by 2.7 per cent in real terms this year, followed by 2.5 per cent next year,” he said, noting that last year, the economy grew by economy grew by 1.8 per cent in real terms in line with the 1.7 per cent growth registered in 2011, but below the 2.5 per cent rate projected in the 2012/13 budget.

Christie said this economic situation has had significant negative implications for the government’s Recurrent Revenue collections and that in this fiscal year, Recurrent Expenditure is being held to a level of US$1, 7 billion million, just below the level set out in the Mid-Year budget statement, while Capital Expenditure next year will be contained to a level of US$295 million, not significantly changed from the US$300 million projected in February.

“I would mention, in this context, that we expect investment in public infrastructure to be bolstered in the period ahead by the public-private partnerships. I would also signal that the government will engage in roadwork projects across the Family Islands in the coming year including, in particular, Abaco, Andros, Acklins as well as others.

He said Recurrent Revenues in 2013/14 will be enhanced by the ongoing, projected modest growth of nominal gross domestic product (GDP”.

“They will also be bolstered by the various revenue adjustment and enhancement measures that I have announced in this Communication. On the basis of the measures that I have outlined, Recurrent Revenues in 2013/14 are now projected at $1,5 03 million, still leaving a gap from the forecast of $1,580 million that I set out in February.”

He told legislators that the  “bright spots in economic performance have continued to be tourism and construction.

“Tourism continues to record steady gains on the basis of growth in key source markets and recovery in the group business segment, along with buoyant sea arrivals,” he said, noting the construction sector was buoyed last year by both foreign investment activity and public sector investment projects

But despite the gloomy picture, he is predicting that both the deficit on Recurrent Account and the GFS Deficit will be eradicated by 2015/16 and that the Primary Deficit will be eliminated by 2014/15 which he said “is critical to reversing the upward trend in the debt to GDP ratio”.

“As it stands, the GFS Deficit next year will reach US$443 million or 5.1 per cent of GDP, as compared to the estimated outcome of 6.1 per cent of GDP this year.

“The central components of the medium-term plan, in respect of Recurrent and Capital Expenditure and Recurrent Revenue, will continue to engage beyond 2013/14,” he said, adding “ we will continue to exert discipline on Recurrent and Capital Expenditure such that the levels of both continue to decline as a proportion of GDP”.

Prime Minister Christie announced a raft of revenue measures including the Excise Tax on cigarettes and cigarillos that will move from an ad valorem rate based on value to a specific rate per stick, to counter fraudulent Customs declarations and disincentivize sub-standard imports that could have more damaging health consequences.

He said a number of tariff rates are being reduced to provide additional relief to certain products used for medical reasons, such as defibrillators and regarding the environment, “we are aligning the tariff rate on inverters for solar panels to zero, in line with a new duty-free treatment for panels and the duty on LED appliances is being eliminated to bring it in line with the treatment of LED light bulbs.

But he said government corporations such as Nassau Airport Development and the Bridge Authority will now be subject to Business Licence tax, as a means of enforcing greater discipline on resource usage within these entities;

He said the Business Licence fee regime, which is based on sales or turnover, is also being simplified, with the elimination of most special rate categories, an adjustment in the maximum rates paid by larger firms, and a consolidated treatment of parent companies and subsidiaries.

In the financial services sector , the government is introducing a new a Business Licence fee for domestic banks at the rate of three per cent of gross revenue and a two-year phased adjustment is proposed for the fees on offshore banks and trust companies.

“With these adjustments we are also retaining the existing assets based fee paid by domestic banks.

These inflows will collectively increase the means for the government to directly fund costs incurred by the Group of Financial Services Regulators,” he added.

Christie said that after having been at current levels for many years, stamp duties on imported spirits are being increased.

“We are also eliminating the $10 stamp tax levied on Customs entries and introducing a one per cent Customs processing fee on all entries, subject to a minimum fee of $10 and a maximum fee of $500.

“We are introducing a Customs processing fee schedule for manifests and other declarations for inbound and outbound aircraft and vessels.

“The reality is that, in all of these instances, we are recovering the administrative costs involved for Customs in providing these services. In the case of Grand Bahama, the Government will, in 2015, also have to assume the cost for security and border control services now handled by the United States.

“We also propose to amend the Stamp Act such that stamp tax shall be applied when Bahamian dollar dividends or profits are converted for repatriation out of The Bahamas,” he told legislators.

Prime Minister Christie said that as a result of the new fiscal policies his administration would be implementing during the financial year, the government Debt will return to a level in the area of 50 per cent of GDP by 2016/17, “as opposed to a level approaching 70 per cent in the absence of our decisive action plan to redress the public finances”. (CMC) Click here to receive free news bulletins via email from Caribbean360. (View sample)