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‘Fiscal cliff’ could hurt tourism industry

Former state minister of finance wary that Americans might become even more conscious of spending and deter regular visitors
Guardian Business Reporter

Published: Jan 03, 2013

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The recently approved “fiscal cliff” deal in the U.S. could negatively impact The Bahamas’ tourism product according to James Smith, former minister of state for finance, who said the trickle-down effect of the agreement could result in less visitor expenditure.

James Smith told Guardian Business that Americans could become more conscious of their spending, which could deter regular visitors to The Bahamas from taking their vacations.

“It affects U.S. consumers and shakes their confidence in the own economy,” Smith said.  “Consequently, when they are making decisions including the decision to travel, if they are uncertain or if they think their income is going to be affected the next period, they might likely postpone or cancel any travel plans they might have had.

“You could still end up with an increase of 4 to 5 percent, but without the fiscal concerns it could have been higher.”

Smith’s comments come after the U.S. House of Representatives voted on Tuesday night to approve a Senate bill to prevent the U.S. from going over the “fiscal cliff”.  The bill extends decade-old tax cuts on incomes up to $400,000 for individuals and $450,000 for couples, and protects over 100 million families from large income tax hikes.

Smith mentioned that the effects might already have been felt, due to the fact that Americans may have already been weary of their financial future.

“There’s likely to be some impact and we already may feel some of it because it has been operating in the U.S. consumer mind for the past several months,” he said.  “Even before a partial deal was struck I think several Americans who might have been intending to travel inside or outside the United States might have cancelled or postponed those plans and I think it may be reflected in Bahamian figures.

“Logically there should have been some impact in the last several months because of the uncertainty.  Now that there has been partial agreement it still has its implications for the pocket book of some Americans in the sense that certain tax benefits will still fall away and the payroll taxes increases will go up.”

The fiscal cliff announcement came at the wrong time according to the former finance minister, who said the consequences of Hurricane Sandy that greatly impacted the eastern seaboard of the U.S. could mean double trouble for The Bahamas.

“The trends that we see out of the United States, particularly from the Northeast where we get 80 percent of our visitors, and we having this fiscal cliff matter following on from the devastating effects of Hurricane Sandy… we are likely to feel something,” Smith said.  “If we have a reduction in travel to The Bahamas then that would filter through to a reduction to tourism expenditure and it could have a negative impact on the gross domestic product depending on how large the cancellation or reduction in traveling expenditure is.  But we will have to see what happens over the coming months.”



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