The Progressive Liberal Party (PLP) to its credit has presented a plan outlining what it says it would do to spur economic activity and stabilize government finances, as opposed to just talking and taking cheap political shots at opponents.
But while the opposition party deserves commendation for releasing its proposal for consideration and discussion ahead of another general election, the mechanics of how it would achieve and implement its objectives are glaringly absent.
An examination of their economic plan — released on Sunday — shows that while it contains certain new elements — like the reduction of value-added tax from 12 percent to 10 percent for 12 months, and the development of a cannabis industry — its key points are largely a recycle of the PLP’s Charter for Governance, released ahead of the 2012 general election, and which has gone largely unfulfilled.
Recognizing that economic recovery is impossible without getting beyond COVID-19, the PLP has committed to free testing, the elimination of restrictions not based on science and increasing the speed of
contact tracing, among other pledges.
The most controversial of its pledges in the plan is the pledge to reduce VAT to 10 percent across the board and to reassess at the one-year mark.
“We believe that by what we have outlined…by lowering the rate itself, will spur spending and will give people more funds,” PLP Leader Philip Brave Davis said.
“And more spending means the economy grows likewise.”
Not surprisingly, Minister of State for Finance Kwasi Thompson branded this promise as “completely irresponsible”, adding that it would be impossible for the government to maintain its spending levels with the projected loss in revenue.
“It is regrettable that the opposition would use a matter as serious as our fiscal and economic health to choose to engage in rank populist politicking,” Thompson said.
“They will say anything to win an election.”
Thompson ought to know populist politicking when he sees it. His leader, Dr. Hubert Minnis, has mastered populist politics. It’s why he railed against VAT’s introduction when he was in opposition, condemning the Christie administration for introducing the regressive tax on the backs of the poor.
The PLP has thus far presented broad strokes of what it claims it would do if elected.
With so many Bahamians burdened by VAT and a high cost of living, being told that they would see a reduction in that tax might sound appealing, though being told that it would last for 12 months would likely make many skeptical about the PLP’s proposal.
Importantly, the party has not released any modeling or analysis to back its assumptions.
This point was made by former Minister of State for Finance Zhivargo Laing, who hosts a weekday show, “Z Live” on Guardian Radio.
“An assumption that a reduction in VAT could produce increased spending is a reasonable assumption,” Laing told National Review, “but the assumption that that spending would result in economic growth that creates new and expanded revenue for the government is not necessarily reasonable because without modeling, it would be difficult to have reasonable certainty about how a reduction in the VAT in that way would translate in increased spending across the board, because you have wealthy people who also pay VAT, who, if they got that savings, wouldn’t necessarily spend it. They would pocket it as savings.”
In a statement, released on Monday evening, Thompson said a cut in VAT from 12 percent to 10 percent would not be sufficient to achieve the amount of economic activity to replace the loss in revenue.
“It would be impossible for the government to maintain its spending levels with that level of loss in revenue,” he said.
Thompson said the tax cut “would lead to a dramatic fall off in revenue likely in excess of $100 million” at a time when the country’s fiscal resources are under tremendous strain.
The government previously revealed that in the first six months of the current fiscal year (July 2020 – December 2020) the deficit widened to $736.1 million. VAT receipts declined 44.4 percent to $286.3 million.
While a tax cut would be welcomed by the masses, a PLP administration would be operating with blindfolds by instituting an immediate reduction in VAT ahead of its promised review of the country’s tax system.
“There is no need at this point to contemplate new forms of taxes,” Cooper said.
“However, we will leave everything on the table, subject to our review once we come to office.”
Prior to assuming office in 2012, the party also promised a “review of the tax system”, noting that it was not progressive, was too narrow, was becoming increasingly more difficult and expensive to administer, and was not sufficient to meet the financial needs of 21st century governance.
The PLP administration introduced VAT in 2015 at a rate of 7.5 percent.
Minimum wage and debt
In its new economic plan, the PLP also says it would “recommend” to the National Tripartite Council “that they move towards a minimum wage of $250 per week” from the $210 that currently exists.
The private sector minimum wage was increased from $150 per week to $210 per week in mid-2015.
In 2018, then Minister of Finance Peter Turnquest warned that an increase in the minimum wage could have a deleterious impact on the economy.
“By the time you account for the increase in wage, [and] the cost of living increase as a result of businesses increasing their cost to compensate for that increase in wage, the net amount of the increase is probably negligible,” he added.
Increasing minimum wage in the private sector is already getting strong pushback, not surprisingly.
Peter Goudie, the Bahamas Chamber of Commerce and Employers Confederation’s labor division head, was quoted in yesterday’s Tribune saying the PLP’s proposal would deter hiring by businesses “who are barely holding on” and may even result in fresh terminations due to the associated increases in labor costs.
On another note, the PLP pledges to “address arrears with government vendors and salary arrears owed to public servants”.
We do not know if the opposition knows what this amounts to or where the money would come from to meet these obligations. (Interestingly, after assuming office, the Minnis administration claimed the previous Christie administration had left $760 million in unpaid bills.)
As it eyes a return to power, the PLP has also made a broad commitment to “pursue debt restructuring at earliest opportunity”.
This would involve taking old expensive debt and restructuring it and getting new terms at much lower interest rates, which would, if they are successful, result in the country’s interest costs being much lower.
Retread
In its economic plan, the PLP under Davis also pledges to “work with tenants and landlords to reschedule rent payments in line with short-term ability to pay, providing breathing room until the economy recovers, and avoiding a severe homelessness crisis”.
At the height of the pandemic, the Minnis administration announced a similar measure that has had little impact as the pandemic stretched on.
The PLP also pledges to increase funding to social services for rental assistance.
It also commits to “work with banks to keep people in their homes”. It says that through a public-sector partnership, it would devise a plan to waive or reduce the interest payments on qualifying mortgages.
This pledge has a familiar feel.
A major plank in the PLP’s campaign in 2012 was its much-touted mortgage relief plan.
It pledged then to “work with the banks and other institutional lenders to agree to a 120-day moratorium on foreclosures”.
The party said in its Charter for Governance, it would “obtain the banks’ agreement to a write-off of 100 percent of the unpaid interest and fees for those mortgagors who are facing foreclosures.
Upon assuming office, the PLP was immediately confronted with the challenges of seeking to fulfill this pie-in-the-sky promise. After multiple failed attempts at meaningful mortgage relief, then Prime Minister Perry Christie said 350 Bahamian homeowners had been helped, seeing their monthly payments reduced 25 percent.
As was the case then, and remains the case now, the best mortgage relief is job creation so people have the ability to pay their mortgages.
Under the rubric “Kickstart the economy and job creation”, the Davis PLP pledges to “immediately” invest $50 million to fund entrepreneurial developments, and up to $250 million over five years.
This would be laudable, except that it is difficult to see where a PLP administration promising to immediately cut VAT would “immediately” find $50 million for such a program, given the critical state of government finances that currently exists and that is unlikely to see any appreciable improvement by the time a new term starts.
Perhaps it is relying on the expected savings in promised debt restructuring.
Trusting Brave on energy reform
The PLP pledges that a Davis administration would reconstruct for resiliency and advance renewable energy.
Among other commitments, it says it would “ensure reliable sources of affordable, sustainable energy, and move to reduce the reliance on fossil fuels.”
It says it would “recommit The Bahamas to a minimum reliance on renewable energy of 30 percent by 2030”.
It would “review BPL operations to reduce cost of electricity, maintain a reliable supply, and enter into contractual arrangements which would put BPL on a solid financial footing, and most importantly, reduce the costs of living and doing business in The Bahamas”.
Similarly, the PLP pledged ahead of the 2012 election that a Christie administration would adopt new strategies to reduce demand for energy.
“Incentives will be provided to reduce the demand for energy by measures such as increased uses of solar and wind energy, tank-less heaters, the most energy efficient systems for air conditioning, and other means. This initiative will include: retrofitting government buildings for wider use of solar power…” the party said in its Charter for Governance.
The PLP in 2012 also pledged to increase the efficiency of the Bahamas Electricity Corporation, including encouraging private sector electricity generation that can be sold to BEC.
But the Christie administration, with Davis having direct oversight of BEC, failed to achieve any transformation of BEC or any marked progress in making it more efficient. In fact, the corporation’s fortunes worsened.
A subsidiary, Bahamas Power and Light (BPL), was created, and management was subcontracted to a foreign company that failed to meet most of the benchmarks it set.
A million-dollar business plan was created, but Davis failed to honor his promise and make it available to the Bahamian people.
Now, the PLP under Davis says it would finally make energy reform a reality.
Opportunities
The PLP says a Davis administration would “create greater equity and opportunities for Bahamians in tourism”.
It has committed to “negotiating additional and stronger positions in the hotel and hospitality supply chains for Bahamian businesses to reduce industry reliance on imports, which ‘leak’ value out of the economy, and has resulted in the industry becoming increasingly uncompetitive because of the high cost to visitors”.
The PLP pledges, among other commitments, to reform subsidies to investors to level the playing field for Bahamians to compete and build wealth in tourism; focus on stopover visitors and expand opportunities for them to spend more on products, services and activities in the wider community; incentivize Bahamians to set up vacation rentals and portals like Airbnb, and provide funding through the Small Business Development Centre.
It has also committed to negotiating greater value from the cruise ship industry, including an environmental levy per passenger and expanding sports, medical, religious and heritage tourism to grow Bahamian-owned business opportunities. (Commitments that were also previously made by the PLP).
The party said in the 2012 document, “The PLP will launch a new National Resort Development Initiative in which public and private sectors will cooperate to create sustainable new resorts, based on the following key principles: Bahamians will become major investors in the hotel and resort business created by this initiative; the scale of the initiative will be important to ongoing viability, particularly for gaining and sustaining presence in the international tourism market place.”
The PLP left office without any progress in this regard.
Today’s PLP also pledges to expand the blue economy by safely and sustainably developing industries around marine biotechnology, aquaculture and deep-sea exploration, as well as expanding the green economy through, among other commitments, “developing a comprehensive regulatory framework for growing, harvesting and exporting cannabis so that the industry creates opportunities for many, not just a few”.
The party said it would encourage joint-ventures in the medicinal cannabis industry.
The Davis PLP says in its economic plan it would also “assess the value of natural resources throughout The Bahamas” — something the Christie administration had repeatedly claimed was underway, but never delivered on.
The party also commits that if elected it would review current concessions regimes for projects and negotiate equity in projects that request lease of Crown land or the seabed.
It also commits to reviewing and renegotiating contracts for mining of natural resources and establishing a Sovereign Wealth Fund to receive royalties from our natural resources and spur strategic development and long-term growth for the benefit of generations of Bahamians.
Notably, the last PLP administration also committed to establishing a Sovereign Wealth Fund. While legislation for such a fund was passed in 2016, no such fund was ever created.
In January, Prime Minister Dr. Hubert Minnis, amid growing calls from some circles for such a fund, claimed his administration would create one.
Trust
Plans and pledges presented by political parties are contracts that they can be held to when elected to power.
Deciding whether to vote for the PLP based on its economic proposals and other promises really amounts to a gamble.
We have seen repeatedly our political leaders assume office and abandon their important commitments: We are often told that “things are much worse than we expected them to be”, or “because of unforeseen crises, we have to shift course”.
Every administration must adjust priorities in line with present realities, but it is often insulting to the electorate to witness a wholesale disregard for the pledges that were presented in opposition with such enthusiasm.
Whether the PLP’s economic plan will be accepted by the electorate, and whether the PLP will be trusted once again to govern our affairs will ultimately come down to two factors: the level of angst voters feel toward the current administration, and whether Davis and the PLP are seen as trustworthy.
The post In PLP’s economic plan, retreading the old, with a bit of the new appeared first on The Nassau Guardian.
source https://thenassauguardian.com/in-plps-economic-plan-retreading-the-old-with-a-bit-of-the-new/
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