Halkitis on Moody’s: Govt’s targets viable with holistic approach to fiscal reforms

The Davis administration is confident in its “big picture approach” to increasing revenue, Minister of Economic Affairs Michael Halkitis said yesterday, while admitting that the government will not meet its targets without a holistic approach to fiscal reforms.

The minister was responding to the recent analysis of the government’s supplementary budget by sovereign credit rating agency Moody’s, which stated that the government is unlikely to meet its 25 percent revenue-to-GDP target through improved tax compliance alone.

Halkitis said the need to implement revenue reforms will be balanced against the need to facilitate the rebuilding and recovery of key areas of the economy.

“The Davis administration agrees that improved revenue collection, while an important step in maximizing the impact of current revenue collection models, will not meet our 2025 target of a 25 percent revenue-to-GDP ratio if done in isolation. We are also aware that we cannot simply rely on an expected uptick in the economy over the next few years to be sufficient enough to cover budgetary deficits that have remained a persistent issue even before the most recent economic downturn,” he said in a statement released yesterday.

“The government is pursuing a holistic approach to fiscal reforms that includes improved collection of revenues through the substantive establishment of the Revenue Enhancement Unit, as well as the progressive reforms that will come out of the Revenue Policy Committee, which will be comprised of some of the brightest fiscal policy and economic minds in our nation.”

The government intends to reduce value-added tax (VAT) – its highest yielding revenue base – to ten percent from 12 percent by January. It believes a lower tax will spur increased spending and economic activity.

“As you will note in our existing legislative agenda, we have already begun working towards a more fair and equitable tax system where everyone pays their fair share. These plans go far beyond more efficient tax collection and compliance. We are closing loopholes, streamlining our policies and aligning with international best practices. This is being achieved while introducing an across-the-board consumption tax reduction that will yield savings for everyday Bahamians, by lowering the cost of living while stimulating consumption at a critical moment in our economic recovery,” Halkitis said.

“Existing models indicate that this change will produce a positive impact across all major sectors in our economy, as well as on national employment, economic inequality and income levels. The need to implement revenue reforms will be balanced against the need to facilitate the rebuilding and recovery of key areas of our economy.”

Parliamentarians are scheduled to debate the supplementary budget next week in the House of Assembly, at which time it is expected that amendments to the VAT Act would be tabled which would allow for the reduction of the rate and removing exemptions from zero-rated bread basket items.

“As more of our agenda is rolled out, we are confident that both the Bahamian people and external observers will see the wisdom in our approach and our clear pathway to meeting our 2025 revenue goals.” said Halkitis. 

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