Govt ‘subsidies and incentives’ $200 mil annually
Guardian Business Editor
Published: Oct 24, 2013
Subsidies and incentives provided on an annual basis to the public and private sector by the government have amounted to around $200 million annually in recent years, with the majority going to the industrial and tourism sectors, according to a top Ministry of Finance official.
John Rolle, financial secretary in the Ministry of Finance, said that if the government was to cut back on such spending, it would result in “greater private sector retrenchment” and a lesser ability to “attract foreign investments”.
Rolle made his comments in a presentation on value added tax (VAT) made yesterday to around 150 attendees at a luncheon organized by the Bahamas Chamber of Commerce and Employers Confederation (BCCEC).
He was highlighting the case for the implementation of VAT, and why while expenditure reduction is an important component of the fiscal consolidation which is necessary if the government is to get its finances in order, this alone cannot solve the country’s financial challenges.
Pointing out that if it is to get its finances into a more sustainable position long-term, the government needs to increase revenue annually by at least $500 million per year by 2017, slightly higher than four percent of GDP in real terms, Rolle suggested that tax reform can deliver half of this revenue, while the remainder will require economic growth and addressing expenditure reduction.
With respect to expenditure, the finance official suggested that it would be no simple endeavor to “roll back tax concessions”, noting that of this $200 million, 33 percent goes to support industrial entities, 25 percent goes to tourism, 12 percent to utilities, 12 percent to manufacturing, eight percent to public corporations and four percent to support the agricultural sector.
However, he conceded that this “doesn’t negate the fact that longer term we have to look at this to ensure we do concessions right”.
Rolle also proposed that public sector “right-sizing” is more difficult than many may assume, given that as much as over 70 percent of government salaries go on immediate salary deductions to banks, credit unions and insurance companies, to the tune of $200 million annually.
Were these people to lose their jobs, it would impact all of these institutions, and have a knock-on effect on the financial system, he noted.
Rolle pointed to other “expenditure control” reforms the government is undertaking in order to “clean up” financial “wastage” as it looks to consolidate fiscally.
These include implementing “cost-reducing procurement practices” where “proper bidding” will occur in relation to government purchases, reducing public corporation subsidies, imposing more “frequent metering” of budgetary disbursements, and making “budgetary corrections” where it is discovered that overly generous allocations were provided in certain areas in previous years.
In addition, Rolle said that the government is implementing a “centralized recruitment process” in an effort to weed out wastage of funds.
“I know the views on employment would mean that we shouldn’t have any growth in employment and that’s difficult to argue against, but still there’s that inclination to hire which, if you don’t control it in a centralized way, tends to run away,” he said.
“Salaries tend to be (another) one of the areas where government expenditure tends to grow, sometimes in a very surprising way from year to year. So it’s very important to keep an eye on salaries.”
With respect to procurement practices, Rolle noted that the government was recently successful in securing significant savings by upgrading procurement processes as it relates to computers.
“One of the things we did this year was that we put out to tender the supply of PCs – computers. We were astounded in that we saw savings on the cost of computers in the $600 range in terms of what we are buying a PC for now.”
Rolle argued that while The Bahamas does need to be more disciplined in its spending The Bahamas is still a relatively low tax and low spending country in comparison to the Latin American and Caribbean region, even after fiscal reforms that are set to take place.
He said that growth is important given that without this pressure will remain on the government to continue to be an “employer of last resort”.