“Changing The Status Quo, Changing Lives“
A. OVERVIEW
Madam Speaker:
Each time I go back to Cat Island, I see something new, or gain a new perspective.
The old buildings and structures, some overgrown for years, nestle against some of the newer buildings, or the older buildings with a new coat of paint.
The construction of the new airport is obviously a big change to the landscape, but the familiar beaches, and the sense of calm immediately signal that you’re back home.
I see and feel the push and pull that many Family Islanders feel.
They want and need growth and development, to enjoy greater prosperity and to encourage the young people to stay. But they balance those ambitions against their instinct to preserve the culture and spirit of the island.
Along with Cat Islanders, I believe the same is true of the people of Rum Cay and San Salvador.
Representing all of them, and doing all I can to improve their lives, and the lives of all Bahamians, remains the greatest privilege of my life.
And as I rise to open this debate in their name, it is good to be reminded of the great diversity of our country.
Not everybody wants the big city life of Nassau.
Not everybody wants what they see as the fuss and the drama.
Congratulations
Speaking of drama, Madam Speaker:
I’d like to pause for a moment to congratulate the Leader of the Opposition on his re-election as leader of his party.
We wish him well, as we partner together to fulfil the legislative responsibilities of this Honourable House.
And we are pleased that he wasted no time in setting out his party’s Economic Plan.
It provides a strong and welcome contrast to the measures contained in our Budget, making it easier for the Bahamian people to see the political choice they now face.
We also commend the Honourable Gentleman for having triumphed in what was obviously, a very difficult and acrimonious contest.
I simply cannot imagine what it must have been like, facing accusations of fraud, voter intimidation and “skulduggery”, along with threats of lawsuits and calls to the police.
I suppose therein lies another difference between our two parties.
Still – it is not for us to engage with how they go about their business.
And so we wish him well, for however long he continues to serve.
Given these distractions, Madam Speaker, we are not surprised that the Opposition perhaps did not have the time to study properly, the details set out in the Budget Communication.
In previous Budget contributions, I have often described the exercise as one which highlights the Choices and Priorities of an Administration.
The choice to call a party convention during the Budget period – arguably the most important session on the legislative calendar – the choice to prioritise a fractious leadership convention on the very weekend of the Budget period, is hard to understand.
Why prioritise one’s political ambitions at such a time?
Throughout this contribution, I shall therefore address some of overlooked details and misunderstandings which appear to have taken root on the other side.
I was unable to watch the convention proceedings myself. Having spent the previous evening celebrating at the ‘Primary School Student of the Year’ Awards, on the Saturday evening, I was keeping a watchful eye out for the winner. And what a very impressive young lady she is. Congratulations once again to the overall winner, Abigail Moss.
And so it was, that I did not watch the convention, but according to the reports I received, the newly-elected Leader of the Opposition put on quite a performance.
On this side of the House, we are used to sudden and dramatic changes of leadership on the other side, but his effort failed to impress.
Most accounts agreed with the editorial in yesterday’s Nassau Guardian: “His shallow treatment of vital issues highlights a serious lack of depth and a poor grasp of governance.”
I do not rejoice in the Honourable Gentleman’s misfortune, but I do urge him to pause and reflect.
The statement he issued last night, falsely accusing me of making an error in the budget, was little more than a series of nasty personal attacks.
He continually chooses to be insulting and demeaning towards me, instead of trying to engage seriously with the issues of the day.
This is what he had to say about me.
“Yet again, we find ourselves with an inattentive and ill-suited Prime Minister committing yet another obvious error on statements related to public finances.”
In fact it is the Honourable Gentleman who made the obvious error, in misreading or not understanding what the figures referred to.
But rather than simply seeking clarification, he chooses to be insulting.
Despite his obvious intention, his statement reflects poorly on him.
The Bahamian people know who I am.
I have always been diligent, always hard-working, always doing what I could to help the Bahamian people.
This was true long before I came into politics.
Now that he has been re-elected as Leader, the Honourable Gentleman will find himself subject to greater scrutiny.
The Bahamian people know relatively little about him.
What are his qualifications?
What is his experience?
What has he done in public life that reveals his character?
I wonder how the Bahamian people will feel once they find out who he is?
Madam Speaker:
Contrary to some of the commentary aired during their Leadership contest, it made no difference to our side, which individuals won or lost.
It was clear throughout, that whoever won, it would be the same party, with the same thinking, and the same ideology.
It is also largely the same team that left us with the various crises we inherited when we came into office in 2021.
Yes, Hurricane Dorian and the COVID-19 pandemic were major challenges, but the mishandling of the economy and the affairs of the country started as soon as they took office in 2017.
Background
Madam Speaker:
My Administration took office against the backdrop of an unprecedented era of fiscal mismanagement.
An election had been called eight months early, because of the “unprecedented headwinds” and “tough decisions” which required a new mandate, according to then Prime Minister and Minister of Finance, when questioned as to why he called an early election.
Two-and-a-half years later, we can confirm we met unprecedented headwinds and are still trying to find out what these “tough decisions” were.
Could it have been an IMF programme with public sector layoffs?
Or could it have been back-breaking increases in taxes, and perhaps the implementation of personal income tax?
Whatever the case, whatever the tough decisions he thought he’d have to make, the government of the day did not have acceptable solutions to the various crises the country faced.
Notwithstanding the grim circumstances which we inherited, with a skilled strategy and a disciplined effort, we have succeeded when many doubted that we would.
Investors, including Bahamian individuals, who invested based on this administration’s plans and fiscal strategies in 2021 by purchasing our publicly traded bonds, were richly rewarded. From August 2022, with the unprecedented shock or negative price adjustment in the Emerging Markets, our bonds gained over 35% in value.
Compared to countries in a similar category, we have been a top performer.
The market is not distracted by the theatrics and drama of political actors. Rather, they act on facts, trust and confidence in plans and strategies of the government.
Our performance in the markets illustrates the proof of our success.
Strategic Approach
Madam Speaker:
Last Wednesday, May 29th, 2024, I tabled the 2024/2025 Budget Communication, which marked the third Budget put forward by this Administration.
The Communication was detailed and comprehensive, as it sought to highlight the many important initiatives undertaken by our administration to ‘challenge the status quo’.
This Budget is part of a continuum, a Strategic Plan that was begun in 2021, which we continue to implement. In fact, in March 2021, while still in Opposition, we published our Economic Plan for Development.
It will not excite those addicted to high drama and conflict.
But The Budget has proved reassuring and inspiring, and welcomed by those with their eyes on the long-term growth and prosperity of the nation.
The overall commentary recorded in newspaper articles, reflects the fact that our budget and its accompanying measures, have gained widespread support.
Firstly, I will quote a news article from the Tribune Newspaper, published 30th May 2024, and headlined “Permanent residency reform labelled huge.” This news article noted that:
“Realtors and attorneys praised the Government’s “huge” move in raising the economic permanent residence threshold to $1m and diversifying how wealthy foreign investors can qualify.”
This was a response to this administration’s announcement that we will increase and diversify the minimum investment requirements to qualify for economic Permanent Residency to $1.0 million in real estate investments and/or the purchase of Zero Coupon Bonds from the Central Bank of The Bahamas, for a minimum of 10 years.
This same Tribune news article also noted that:
“Mario Carey, the Better Homes & Gardens Real Estate MCR Group founder …… backed both the increase, diversification and terms attached…” to qualify for economic permanent residency in The Bahamas.
“Richard Lightbourn, the former FNM MP and consultant/partner at the McKinney, Bancroft & Hughes law firm, echoed Mr. Carey in backing the Government’s decision to impose the ten-year term as a means to prevent foreign investors from simply acquiring status in The Bahamas, rapidly flipping their property purchases for profit, and exiting without making a meaningful economic contribution.”
In this same article, Mr. Carey also commended the Government’s move to undergo a comprehensive evaluation of all seabed leases in order to guarantee fair compensation for the use of Bahamian resources.
“I think that’s a brilliant idea. I think the Government should look at figuring out how to empower Bahamians to make money out of seabed leases.”
Madam Speaker:
We were pleased to see positive feedback regarding making steps to preserve the watercraft industry for Bahamians. I will quote again feedback from a news article in the Nassau Guardian Newspaper titled “The full Bahaminization of watersport industry welcomed,” which was published 30th May 2024. This article noted that:
“A watersports provider has welcomed the full “Bahamianization” of the watersports industry, outlined in the budget communication as leveling the playing field, but noted that local companies in the watersports sector can still leverage partnerships with foreign entities.”
Along with this, was feedback from Astra Nottage, director of sales and marketing for ‘My Own Watersports’, who told Guardian Business and I quote:
She is “comforted by the move to protect the industry from unfair competition.”
Madam Speaker:
Let me mention another comment from an article in The Tribune Newspaper headlined “Manufacturers hail Customs bond end,” which was published 30th May 2024. I quote:
“Manufacturers hailed the Government’s decision to eliminate the Customs bond and 45 percent machine parts duty as “a huge benefit” that will help them compete on a more level playing field.”
Additionally, Walter Wells, President and Chief Executive of Caribbean Bottling Company, the local Coca-Cola producer, told the Tribune Business: “This move will have a “tangible” impact on authorized producers under the Industries Encouragement Act as it will potentially boost cash flow and free-up assets for use in daily business operations.”
Lastly, the Nassau Guardian’s article published 3rd June 2024 and titled “ORG lauds gov’t for increasing revenue via outstanding taxes and fees,” featured Matt Albury saying and I quote:
“There is a great deal of satisfaction about the savings and inclusiveness of the GoBonfire eProcurement Platform…”
This positive feedback was directed to this government’s launch of the GoBonfire eProcurement Platform that has saved the government millions to date, and allowed for transparency and accountability in government contracting processes.
Madam Speaker:
In summary, the budget was designed to:
- Enhance the well-being of Bahamians;
- Promote economic growth;
- Consistently improve the collection and administration of Revenue;
- Prudently manage Public Expenditure;
- Encourage progress in our Energy sector and in Climate Financing;
- Make critical investments in infrastructure, housing and national development;
- Continue to build a robust healthcare system;
- Revitalize Grand Bahama;
- Strengthen labour relations;
- Invest in education;
- Improve food security;
- Invest in our public service workers;
- Strengthen national security, law and order;
- Diversify our tourism product; and
- Promote a more equitable business environment
This 2024/2025 budget serves as a pivot towards a new era for The Bahamas.
We continue our commitment to fiscal consolidation, to reduce the budget deficit, and to usher in the fundamental changes needed to develop a modern economy that works for the benefit of all Bahamians.
How Ordinary Bahamians Benefit
Madam Speaker:
Directly or indirectly, everyone benefits from this budget.
As the purchasers of our bonds have benefitted since 2021, so too our citizens have also richly benefitted.
It may not land as obviously as tax cuts do, but, given the economic crisis of 2021, we are extremely proud of the fact that our administration did not increase taxes on our citizens. Bahamians were struggling and we were determined to do all that we could not to increase the tax burden.
And so we launched a strategy not to increase taxes, but instead to focus our efforts on tax collection.
With in excess of $1 Billion of uncollected tax revenue on the books, the potential was obvious.
All Bahamians benefitted from the host of additional measures which we introduced to revive and stimulate the economy.
We decreased the VAT rate from 12% to 10%, increased the minimum wage, and increased salaries for the public sector employees.
Additionally, we also reduced VAT on property transactions for Bahamians, expanded the first home exemption programme to include triplexes, and exempted VAT on the construction of homes.
The Real Property Tax owner exempt threshold was increased to $300,000 and the duty on electric and hybrid vehicles reduced to 10%.
Churches, unions and non-profit organizations have also been exempted from the payment of real property taxes.
We also reduced duties on a wide range of building materials and food, including chicken meat..
Madam Speaker:
This is only a sample of the ways in which Bahamians have benefitted from the three budgets which my Administration has implemented.
And all of it was done without increasing taxes.
While we have adjusted some fees to cover the cost of the services that we provide, these fee adjustments over the last three years pale in comparison to the reduction in taxes that we have provided.
Fee adjustments include for example, this year’s introduction of a new fee to allow for the home delivery of passports for Bahamians residing in the United States, Canada and Europe and other parts of the world.
Notwithstanding these adjustments, since coming into office, revenue has grown at a faster pace than the real economy has grown.
So, those who point out that we are projecting revenue to grow faster than GDP only need look at our recent experience to understand our confidence.
Our strategy for revenue administration is working.
Madam Speaker:
One of the fundamentals which underpins this, is the fact that, currently, the major revenue driver is the strong inflow from Foreign Direct Investment.
Foreign Direct Investment is a critical indicator of the confidence which international investors have in our administration.
Madam Speaker, my Government has never planned to burden ordinary citizens with tax increases in order to drive revenue.
I cannot stress enough how much this has benefitted the Bahamian people
Cost of Living
Madam Speaker:
Before I consider some of the specific details concerning Revenue, Investment, Expenditure and the management of the Debt and the Deficit, I wish to make some key observations in respect to the Cost of Living, the Public Service Salary Review, and the broad principles of Taxation.
I’ll start with the Cost of Living.
Madam Speaker:
By 2020, The Bahamas was listed as the sixth most expensive place in the world. But we have all experienced for many years, the seemingly relentless rise in prices across the economy.
The pandemic, the wars in Ukraine and the Middle East along with other factors, have made inflation and high living costs global issues.
But these do not explain the underlying high prices that we experience here.
There is a widespread, mistaken assumption that high costs here are due to the fact that we have such high imports, and that customs duties and government taxes are cause.
This is not the entire story.
If transportation costs and import taxes and duties are stripped out, the underlying price is still inexplicably high. When compared to other countries with similar imports and taxation arrangements, especially those in the region, we still rank poorly.
Since our first budget in 2021, we have introduced a number of measures designed to reduce the cost of living, but they have had little success in producing reductions in prices to the consumer.
Madam Speaker:
It is clear that something more structural is at play.
Our Government is already attacking the problem of the high costs of living by looking at the challenge from a number of angles.
One of the approaches is to reduce the high costs of trade by working through a body that will oversee our country’s overall trade environment.
We have therefore established a National Trade Facilitation Committee that will co-ordinate all our efforts across the different agencies of our Government. This includes the upgrade of the Potter’s Cay port, the digitalisation of the trade ecosystem, streamlining and simplifying processes, and increasing competition across supply chains.
The National Trade Facilitation Committee is not a talking shop. It is an internationally-recognised structure, one, in fact, which we ought to have set up previously under our existing international treaty obligations.
Evidence from the World Bank shows that the establishment of an NTFC has a big impact on reducing costs for ordinary people.
In fact, countries which have implemented trade facilitation reforms can reduce costs by up to one-third.
As the cost of energy is a main driver of high costs for households and businesses, we have given it the highest priority, not least by creating a new ministry to focus on finding solutions.
Madam Speaker:
We are fully committed to this agenda.
In order to reduce the high cost of living in our country, we need to do more than try to improve the existing mechanisms.
We need to undertake fundamental reforms. We need to change the status quo.
We are pushing forward to develop policies to ensure that The Bahamas will not continue to be one of the most expensive places in the world to live and work.
And all Bahamians will benefit from this initiative, not just the few who have already made their fortunes from the high prices.
Public Sector Salary Review
Madam Speaker:
I turn now to the Review of Public Sector Salaries which I announced in my Communication.
First, I wish to clarify that the Government’s decision to allocate funding toward its salary review in the public sector is specifically to improve pay to employees, and not to hire a private company to review salaries.
For some reason, a member of the opposition has spread baseless news that questioned how this money will be used.
I will clearly say it again.
This funding will be used to compensate our hard-working employees.
Madam Speaker:
In order to offer competitive salaries, the government has to benchmark public sector salaries against private sector salaries.
Regular salary reviews should be conducted to guarantee that the government can provide adequate compensation to retain employees in the public sector.
Regrettably, a significant number of individuals have left the public sector to go to the private sector, because of the better pay and benefits on offer.
This trend is particularly notable among nurses, teachers, although it is also true of other professional groups.
Let me offer an example.
Since 2009, 15 years ago, the entry-level salary for a police constable has been $18,000. It is now $20,000.
If that salary were adjusted for the rate of inflation, the salary would be $24,000, not $20,000.
The same principle applies to all public service positions.
The simple truth is that, we operate in a globally-competitive job environment.
We are therefore not just competing with the private sector for professional and skilled workers, we are competing against developed countries as well for nurses, teachers, police officers, corrections officers, etc.
This salary review is critical.
If we do not offer salaries at competitive rates, people will not want to work in the public service.
If we do not offer salaries at competitive rates, people will not stay in the public service.
Salaries must keep pace with inflation, and be at a level which is competitive and fair.
The public service currently employs approximately 25 thousand employees. The recent increases in minimum wage and the various union agreements have been small steps in the right direction. We need to go further.
Madam Speaker:
In my Budget Communication I talked about the launch of “Cloud Bahamas”.
Cloud Bahamas is going to revolutionize the administration of public sector payments, by introducing new features such as electronic salary notifications, online job applications, and bi-weekly salary payments for all employees.
Bi-weekly salary payments mean that our employees will now be able to be paid every 2 weeks.
This will allow for more frequent paydays which will almost certainly support employees to improve their cashflow.
This, in turn, will hopefully shield employees from high-interest consumer loans, in order to fund everyday expenses.
More frequent paydays should significantly help those small businesses which rely on the uptick in economic and financial activity fuelled by government workers, which would otherwise only take place at the end of any given month – the time of pay for government salaried employees.
Madam Speaker:
Cloud Bahamas will also deal with other nuisances that employees currently face, due to a slow system.
One such nuisance is long-term pay discrepancies and employee accountability.
For instance, it is unacceptable that individuals with salaries of $20,000 and under, have to receive a back pay of nearly $100,000 because of long-term, unresolved pay discrepancies.
On the other side, salary recovery to the Government of $50,000 and above, shouldn’t be happening, especially when due to unknown job abandonment over a period of many years.
Employees shouldn’t have to wait many years to be paid the right salary, and the government shouldn’t have to wait many years to be notified that an employee has abandoned his or her job, but is still receiving pay.
These delays not only create financial hardships for individuals, but also hinder the efficiency and effectiveness of our government.
By addressing these issues with ‘Cloud Bahamas’ we can ensure that individuals are fairly compensated for their work without unnecessary delays.
Additionally, by improving mechanisms for tracking employee attendance and performance, we can hold individuals accountable for their responsibilities and prevent situations where employees abandon their jobs without notice.
This is not just a matter of fairness and efficiency, but also a matter of enhancing trust and integrity between government and its employees.
Demonising Taxation
Madam Speaker:
There is growing commentary in certain quarters, which seems intent on demonising the very principle of taxation.
Every tax, and every action to collect taxes, is criticised.
On the one hand, there is an ever-growing demand for more and better government services. The Bahamian people rightly expect government to build and maintain public infrastructure, and to provide the kind of services expected in a modern society.
And yet, every step we take to raise money to pay for that infrastructure and those services is characterised as some kind of pernicious or harmful act.
Madam Speaker:
A central feature of the social contract in virtually all democratic societies, is that we all put money into the pot, so that government is able to pay for those things which it prioritises.
While there is a fair debate to be had over how much each of us pay, and how the funds are spent, fundamentally we all agree that this is the best way to organise an economy.
And so we must dispel this idea that somehow all taxes are bad.
I go further.
It is a founding principle of the Progressive Liberal Party that those of us who have more should contribute more, and that we should pay special attention to the least vulnerable amongst us.
We unashamedly embrace the idea that striving for Economic Fairness and Economic Justice will make our country better for all of us.
In developing our taxation policy, we also have to deal with the realities of today.
We came into office facing an inherited debt of more than $10 billion dollars.
That has to be paid off, along with the high rates of interest that they agreed.
We need tax revenue to do it.
Worse still, that debt was used to pay salaries and other current expenditure, so the country did not benefit from any substantial investment. They did not build a single new road, school, hospital or other significant item of infrastructure, so that debt was not invested for any kind of future potential revenue.
All of this has to be addressed, along with the current spending requirements.
And so we are challenging the status quo to ensure that we have fairer taxation. Some of the wealthiest and most powerful companies in the country have behaved as though it is merely optional that they should pay their fair share of taxes.
That has come to an end.
Fiscal Reporting Requirements Adherence
Madam Speaker:
A member of the Opposition keeps making comments to the effect that this Administration is breaking the law, and disregarding legislation concerning fiscal responsibility.
They complain repeatedly about deadlines for reporting and procurement requirements which they implemented without proper support, infrastructure, or training.
Had they remained in office, they would also lack the resources to meet those requirements.
And so, Madam Speaker, it has fallen to my administration to establish the necessary resources to comply with the legislative requirements set by the previous administration, such as the procurement portal.
They passed legislation, specifically the PFM that mandated monthly reports, despite knowing that the Treasury system which is over 25-years-old, could not produce those reports.
The government’s payroll system which is also more than 25-years-old, was in dire condition during their term, yet they took no action.
My administration is working to address these issues.
But these spurious attacks will not distract or divert us from our successful strategy, nor will malign our clear progress and achievements.
Next on this matter, I want to clarify that the PFM Act 2023, in the First Schedule on fiscal objectives, in section 8, clearly states, and I quote “The fiscal objective for the fiscal balance (Overall Balance) will reduce it from a deficit of 6.1 percent of GDP in FY2021/2022 to a fiscal balance that does not exceed a deficit of 0.5 percent of GDP from FY2024/25 onwards.”
The Government is adhering to this requirement in FY24/25. Yes, we have pushed our balanced budget or surplus year by 1 year, but we are still compliant with the fiscal responsibility objective when it comes to the fiscal deficit that does not exceed a deficit of 0.5 percent of GDP from FY2024/25 onwards.
I also want to point out that the Fiscal Strategy Report, that reflects these targets, is not the Budget document itself.
The FSR sets the guidelines for the Budget that we adhere to at the macro-level. But the budget process itself is a lot more complex, rigorous, and wide-reaching, and completed at a level of fine detail.
This point routinely escapes some commentators, so much so that I wondered if they understand the legal framework of fiscal management. Comparing the FSR to the Budget, is like comparing apples and oranges.
Trust in The Numbers
Madam Speaker:
The final and most important commentary I would like to address is the reliability of the numbers being presented in the budget.
I have said it in my Budget Communication but I will stress it again here.
As the Minister of Finance, I have taken a hands-on approach to this budget and have ensured that it was a collaborative effort across the entirety of government.
That is, across every ministry, agency and department in support of the Ministry of Finance’s meetings with Ministers, permanent secretaries, and heads of public corporations. This has led to better accountability and a more comprehensive and accurate budget.
So, we did not arbitrarily come up with figures. Extensive work has been done to ensure that our projections reflect reliable and accountable figures.
Madam Speaker:
Over the past three years, this administration has worked hard to regain the trust of investors, bankers, ratings agencies, and the multilateral agencies with respect to our fiscal policies.
To a large degree, we have succeeded. The general commentary on The Bahamas’ fiscal position has been favourable and our bond prices have recovered from the lows of 2021.
However, we still have a lot of work to do to rebuild the fiscal buffers which are very necessary if we are to survive as a Small Island Developing State.
We have projected a deficit of 1% to 1.5% based on the expenditure and revenue performance up to April 2024. I will admit, however, that achieving this target has required a heightened degree of expenditure constraint, and focus on revenue collection.
However, as we have demonstrated over the last three years, our fiscal plans are based on reality, not fantasy.
In addition, it should be noted that the fourth quarter deficit experienced in the last two years was the result of deliberate policy decisions to eliminate, as much as possible, the arrears for vendor payments left by the previous administration.
I am happy to report that, as the arrears report in the mid-year budget presentation has demonstrated, this policy has succeeded and we have substantially reduced vendor arrears.
Madam Speaker:
From the side opposite, there was a lack of critical analysis of the budget.
This was not surprising, as the disclosures made by prominent members of the former administration confirm what the public has long-suspected.
The internal dysfunction in that administration made good governance almost impossible.
It has been now left to my administration to right this ship and steer the country in the right direction fiscally. This budget is a critical step in that process.
I have used my capacity as Minister of Finance, and the force of the Office of the Prime Minister to ensure that we stay on the path of prudent fiscal management, across the whole government.
This is why transparency and collaboration are so important.
B. REVENUE
Madam Speaker:
I will now go into more details of our fiscal policy measures within the 2024/2025 budget.
This will include the revenue and expenditure measures reflecting the Government’s priorities.
I will begin with revenue measures.
Revenue Measures
Madam Speaker:
Taxes on real estate, whether stamp tax or VAT on real estate, have been a prominent part of our tax mix for a very long time.
It is a tax without the automatic enforcement mechanisms of modern taxes such as VAT or business licences.
The purchaser or his/her agent has to willingly present the conveyance for stamping, and recording the sale of the property.
If they do not present the conveyance for stamping that by itself does not invalidate the sale, and recording the property itself does not validate the sale.
However, it does create an unnecessary risk for the legitimate purchaser. Because of the lack of financial resources, some purchasers have not paid the tax, and, given the passage of time, the property value has increased and, therefore, the tax burden has also increased.
This is why the six-month period where conveyances for property can be stamped at the original value is such an important concession. It allows purchasers the ability to regularize their purchases.
Madam Speaker:
Another peculiar feature of this tax is that most of the revenue is collected on purchases by Bahamian companies owned by non-Bahamians.
This has always been a feature of the tax, either with the current structure of VAT or the previous structure of stamp tax.
This has only increased with the repeal of the Immovable Properties Act.
The very nature of the tax be it stamp tax or VAT on real estate makes it susceptible to abuse.
Over the last two years, as a tax authority, the Department of Inland Revenue detected some unusual activity in this tax.
Unusual in that significant real estate transactions, although announced by realtors, were not immediately followed by the presentation of conveyances for stamping.
As I said before, the presentation of a conveyance for stamping is by no means automatic or mandatory and purchasers could delay the presentation of conveyances for a number of reasons. However, for high-end real estate, traditionally these conveyances have been presented without delay.
The Department also noticed an increase in the use of ‘inter vivos’ transfers to trusts and other exotic structures.
Inter vivos transfers or deeds of gifts have legitimate estate planning purposes, although their uses in The Bahamas are limited because we have no estate taxes.
So limiting inter vivos transfers to natural persons does not impede the estate planning ability of any real estate owner.
Madam Speaker:
I will now speak briefly on the International Business Income Tax.
The draft legislation is well-advanced and will be laid and circulated before the summer recess.
In the Communication, I spoke about possible changes to the Business Licence Act, to address possible tax arbitrage and double taxation issues.
The International Business Income Tax also represents a unique opportunity to reposition and attract new types of businesses.
The Government is actively exploring these opportunities and will speak in more details once the legislation is introduced to Parliament.
Madam Speaker:
Along with the assorted items that have either had reductions in custom duty, or have been made duty free, we have increased the vehicle age requirement, from three years or less to five years, for exemption for taxis, livery and tour buses under the Excise Act.
Madam Speaker:
Long-term residential rentals in the past were not subject to VAT until 2022, when VAT was placed on these rentals if the owner leases more than 4 properties.
We have seen that this disproportionately impacts the tenant, so we are reverting to a position where VAT is not required in this case.
Going forward, only vacation home rentals and commercial rentals will be subject to VAT.
Madam Speaker:
The surcharge will be increased incrementally each year for unpaid tax on foreign vacant land. A surcharge of 5% is applied in the first year; 7.5% in the second year; and 12% per year in the third year and beyond.
This should send a clear message that this Government expects those who owe taxes should pay their taxes, or be penalized in increasing increments.
Madam Speaker:
The Public Finance Management Act of 2023 was amended to allow a public entity or an agency to collect fees incurred for services provided, as a means of cost-recovery and not for profit.
Madam Speaker:
I also want to address the sale price in Power of Sale matters.
Amendments to the Real Property Tax Act will now allow for the Chief Valuation Officer to sell property for less than the outstanding taxes, penalties and costs, in cases where the current market value of the property is less than the overdue tax, penalties and costs.
Additionally, abandoned property can now be acquired by the Treasurer for development of the property as it relates to national development.
A public notice will be issued for 30 days to the public , in order to notify the owner who may then pay any outstanding taxes to avoid acquisition by the Treasurer.
Madam Speaker:
In order to prevent a clear tax avoidance strategy currently being employed by foreigner owners of property, we are clarifying in the Real Property Tax Act that, despite a life tenant of a property being a Bahamian, the property will not be considered Bahamian-owned if the beneficiaries are not Bahamian. The real property tax should be paid by the foreign owner despite a Bahamian being designated as a life tenant. The Bahamian living there will not be required to pay the tax, but only the foreign owner.
Revenue Arrears Successes
Madam Speaker:
My government has been hard at work addressing revenue arrears, and improving collections of these arrears.
If we look at the total tax arrears to March 2024 in the budget annex, more than half of the increase in arrears is due to the arrears from Grand Bahama Port Authority amounting to $357.0 million.
The remaining amount is largely related to Real Property Tax.
In the communication, I was explicit in stating that Real Property Tax billings went up by 14% which directly contributed to the surge of arrears.
Real Property Tax is due by the end of March so the amount of Real Property Tax arrears would decline naturally after that period.
It is surprising, therefore that some have sought to question the dedication of our collection efforts.
Our Government has:
· Increased Customs post-clearance audits and introduced the Customs exemption application;
· Increased VAT audits;
· Established the Large Taxpayers Unit within the Department of Inland Revenue to manage taxpayers who contribute the majority of tax revenues;
· Established the Revenue Enhancement Unit and the Tax Audit Committee to promote greater tax compliance, revenue collection, and financial reporting;
· Implemented collection of Real Property Tax on properties under mortgage by requiring domestic commercial banks to include such fees in mortgage payments and remitting the same to Government;
· Commenced the ‘Power of Sale’ proceedings against delinquent property owners for undeveloped land and high-end commercial and residential properties;
· Required property owners operating short-term vacation rentals to register their properties, which will promote tax compliance;
· Made clarifications to provisions in the Business License Act, Real Property Tax Act, and Stamp Tax Act to provide the DIR with the enforcement powers to penalize offences under these legislations; and
· Proposed revisions in registration fees and taxes in the maritime sector to reduce tax avoidance and achieve regionally comparable tax outcomes.
Madam Speaker:
These are the concrete efforts that this Government is making.
And these are the facts that back the improved performance in tax collection which we all have witnessed. We are not increasing taxes, we are collecting what is due.
Madam Speaker:
Although we are in high interest rate environment, this government has set in place a number of measures to still ensure that capital and infrastructural investments can be maintained, including new hospitals, investments in roads, housing, school repairs, food security, national security and the like.
These are the measures that have been documented in my communication for this budget and previous budgets.
As it is generally expected that there will be greater control over inflation, we expect that interest costs and therefore, the cost of debt, will moderate over the medium-term.
D. EXPENDITURE
Madam Speaker:
I will now turn to expenditure measures.
The development of our physical infrastructure is a crucial part of our agenda, as it directly impacts the quality of life for Bahamians and the overall economic growth of our country.
Therefore, Madam Speaker:
Along with the $5 million investment in small homes as a separate budget outside of urban renewal, this budget also allocates $2 million to continue the rent-to-own housing programme, as well as $1 million for subdivision development.
Family Island development efforts are continued in this year, which is reflected in the $10 million allocation in this budget.
Road repairs and maintenance in the Family Islands and New Providence is set to continue in this budget period with a total of $26 million allocated, along with a further $1.5 million for improvement in drainage infrastructure.
Along with these infrastructural investments, $5 million is budgeted for airport infrastructure development over the period.
As explained in the budget, these investments will be augmented by parallel investments from either the Family Infrastructure Fund, or in the case of aviation, by the Airport Authority.
In addition to funding preparatory work for the new hospital in New Providence, $8.1 million has been allocated to maintain our community clinics and $5.0 million has been allocated to maintain medical facilities.
Madam Speaker:
I wish to make special note of what we are doing in Grand Bahama.
Efforts are already underway to transform the status quo and ensure that the responsibilities of the Grand Bahama Port Authority are properly carried out.
The latest round of negotiations for the sale of the Grand Lucayan Hotel are at an extremely promising stage. We hope that a positive announcement is imminent. The House will recall that the hotel was bought by the previous administration, against all advice and for an amount higher than the valuation. It remains a drain on the public finances.
As I said in my Communication, the government is purchasing the Princess Towers hotel, the West Sunrise Road and the site of the International Bazaar for under $4 million. A higher loan facility has been arranged with the Afro-Exim bank for an exciting new development of that site. Again, details will be announced very shortly.
Madam Speaker:
Investment in national security is an ongoing effort by my government. Therefore we have sustained a pipeline of funds to purchase a supply of CCTVs, budgeted at $5 million.
$5.1 million has been budgeted for military, police and prison equipment.
Other security and communication equipment such as body cameras, has been budgeted at $1.5 million.
Along with new vessels for our Defence Force, we are allocating funding of $3 million for dry docking, and a further $2.4 million for development of the Coral Harbour Base.
Madam Speaker:
By providing our citizens, especially our young people, with quality education and opportunities for growth, we are not only shaping the leaders of tomorrow but also ensuring a thriving economy.
Education is the key to unlocking the full potential of our youth and preparing them for the challenges and opportunities that lie ahead.
We will therefore continue to invest in our major educational institutions.
Along with financing for accreditation of the University of The Bahamas, allocations have been made for educational reform and operations at UB, along with aid for BTVI. We will also continue with our commitment to provide scholarship funding for students to attend both institutions.
Repairs and maintenance of our primary school and high school buildings will also be continued this year.
Further, a $7.2 million allocation is made to the School of Agriculture and Marine Science in Andros along with scholarship funding to attend BAMSI.
Madam Speaker:
Following on from the launch of the consultation period at the end of January, $1 million investment has been allocated in the budget for the Creative and Performing Arts School.
The National Youth Guard programme, which trains young Bahamian men and women to help with responses to national disasters, has been allocated $1 million to develop a Bahamas National Youth Guard Facility.
Madam Speaker:
Our National Youth Guard is not only training young Bahamian men and women to offer skilled support in responding to national disasters, it is also equipping them with the kind of skills for jobs where opportunities are flourishing. Out of the first cohort alone, 85% of participants have gone on to become gainfully employed.
We are now recruiting the third cohort of this trailblazing programme, and invite all young people to apply. This is potentially a life-changing opportunity, that can open many doors to the future.
Madam Speaker:
I have already said that we will continue to support NGOs and other organizations in our communities that bring relief to Bahamians, especially our most vulnerable.
Along with funding for a women’s shelter, funding allocations have continued for the Red Cross, the Ranfurly Home for Children, and the Crisis Centre. In fact, funding for the Red Cross has increased from $66,000 in 2023/2024 to $500,000 in this budget.
Additionally, for a wider reach, the Department of Social Services’ food assistance program continues this year with a $20.5 million allocation to assist those in need.
This budget also allocates $3.0 million for support of community projects in Grand Bahama through COLLAB.
Madam Speaker:
I wish to touch on the discussion surrounding our State Owned Enterprises.
The Public Hospitals Authority receives the lion’s share of the allocation to SoEs of around 50%, not surprising given our commitment to universal healthcare.
In the Budget Communication, I spoke about significant investments in the healthcare sector and the continuation of the programme to refurbish clinics and the Princess Margaret Hospital.
This increase in capital investment does not mean that PHA is exempt from our drive to make SOEs more efficient – quite the contrary. Because of these investments we expect the PHA to become more efficient.
Madam Speaker:
We are continuing our plan to make SOEs more efficient by enforcing the guidelines and requirements in the PFM. We understand that this will take some time, and we will provide support to SOEs for their compliance with the PFM as necessary.
Madam Speaker:
I am happy to report that we are indeed challenging the status quo in our energy sector.
We are putting in a place a number of solutions to a long-standing, frustrating problem.
After the load-shedding during the recent hot weather, we do not need additional evidence that our outdated electricity infrastructure is broken.
Just recently we just passed two new, comprehensive pieces of legislation that provide the framework for the first serious energy reforms in The Bahamas in decades.
The scale of the challenge is enormous but we are determined to move forward with this long-overdue effort.
Madam Speaker:
Even though the details have yet to be announced, Members of the Opposition are already complaining and stirring up anxiety over our proposals. We have not forgotten that their big solution to the energy problem was the fraudulent Oban deal, which they now try to pretend never existed.
Our initiative is real.
In short order, a significant announcement will be made, before the end of this Budget Debate.
E. DEFICIT & DEBT
Madam Speaker:
In my Budget Communication, I set out the progress made by my government in the administration of the public debt.
I wish to make an additional point.
In an article published in The Tribune published 30th May 2024, and titled “Key tax arrears jump 31% to hit $1.325bn”, concerns were raised by the author regarding the public debt interest payments, reflected in our recurrent spending for the upcoming FY2024/2025 fiscal year.
The writer observed that: “Interest…represents money that is being sucked away from public services such as health, education, social services, housing and national security.”
We understand that interest expense eats away at real expenditure, but the reality is, we have to pay interest on the accumulation of debt covering all [previous?] governments.
Our interest expenses were compounded by international Central Banks, most notably the Federal Reserve, which just recently tightened monetary policies by increasing interest rates to combat heavy inflationary pressures.
So, an increase in interest expense is not a reflection of any policy decision by this administration, but rather the result of external forces which unfortunately we cannot control.
G. FNM Economic Plan
Madam Speaker:
At the beginning of this contribution, I said how pleased I was that the Leader of the Opposition has already articulated their Economic Plan.
The Bahamian people will now be able to compare those proposals against those set out in all our Budgets to date.
Of course, there are elements of the FNM’s plan which are divorced from reality, so they should be considered with caution.
But one thing their plan does seem committed to, is the same old ‘Stop, Review, Cancel’ approach of old.
They seemingly want to overturn or reverse virtually every single thing we have done, just for the sake of it.
We leave it to the Bahamian people to consider the folly of that.
Madam Speaker:
A few elements of their plan do warrant special attention.
Firstly, in respect to the banking industry, they propose to force commercial banks to set up a physical branch on each major Family island.
It’s the sort of thing that sounds good, but the reality is that banks closed those branches in the first place, because the cost proved prohibitive.
So, Madam Speaker, rather than propose innovative ideas on how to provide small island communities with the banking services they need, the Opposition propose an uneconomic solution which is pretty much impossible to achieve.
Did it ever occur to them that the Sand Dollar and other digital innovations might provide a roadmap as to how to fulfil the need?
Secondly, so keen were they to oppose everything we’re doing for the sake of it, they complained about how unfair it is that Bahamians aren’t able to set up banks.
It must have come as a terrible shock to the owners of The Commonwealth Bank, for example – which, according to their website, became fully Bahamian in 1983 – it must have been a terrible shock to them to hear that they haven’t been Bahamian these past 40 years.
Madam Speaker, as a matter of law and fact, for many, many years now, Bahamians have already been able to set up banks.
The Leader of the Opposition’s lengthy attack on this imaginary issue raises serious questions.
How could he not know?
Is he living in the same Bahamas as the rest of us?
Or is this the kind of “…serious lack of depth and a poor grasp of governance…” which The Guardian Newspaper referred to?
Then they seem to have a problem with those who work in the pubic sector.
In their view, government is ‘too big’, although they didn’t say which and how many of the 25,000 government workers they intend to terminate.
And of the ones that would remain, they also seem to object to the salary review exercise which we propose.
But, Madam Speaker, it is their opposition to the National School Breakfast Programme which is truly breathtaking.
We are tremendously proud of that Programme which to date has served over 100,000 meals to approximately 4,350 children.
The worldwide data, could not be clearer: feeding school children through these kinds of programmes is one of the surest ways to improve the educational outcomes for those young people.
In one breath, the Leader of the Opposition complained about people he knew not receiving their food vouchers. Then in the next breath, he says we shouldn’t be proud of the National School Breakfast Programme as a Signature Programme.
He wants us to feed adults, but not children?
Madam Speaker:
For the avoidance of doubt, let me say it loud and clear.
My Administration is proud of the National School Breakfast Programme.
The Bahamian people are proud of the National School Breakfast Programme.
Coming out of this budget, the Programme will be substantially expanded to over 11,000 children.
Every child in every Family Island School can be served a hot, healthy, nutritious breakfast.
Are we proud of this programme?
We certainly are!
Madam Speaker:
The praise and support from for this budget, from the markets and from across the spectrum of public opinion, illustrates that this is truly the right budget for our time.
With prudent policies and an effective fiscal strategy, we are steadily and determinedly turning the economy around.
Madam Speaker, look how far we’ve come.
Yes, just look how far we’ve come.
Revenue is up.
Debt to GDP is down.
And the deficit down, by $1 billion.
From the multiple crises that the country faced in 2021, here we are, back on our feet, talking about growth and investment and opportunities, rather than rescue, and headwinds, and mountainous debt.
A lot has been done, but we still have a lot to do.
We are challenging the status quo across a range of sectors, and addressing some of the big structural issues that have plagued the country for decades.
We continue to be grateful to the Bahamian people without whom none of it would be possible. It is the hard work and support of everyone that makes our country what it is, and will make it what it can be.
May God continue to keep us safe and prosperous in the years ahead, and may God bless our Bahamas.
END