PM:"…my Government is not a government of procrastination."

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Prime Minister Rt. Hon. Hubert Ingrahama during the opening debate on the 2008/09 Budget.

Nassau, Bahamas – Going into further detail on the tax breaks in the FNM government’s 2008/2009 Budget, Prime Minister Hubert Ingraham said the reductions in the customs duties in the Budget are among the most important tax concessions granted to families in the recent history of this country.

RT. HON. HUBERT A. INGRAHAM
PRIME MINISTER
2008-2009 Budget Debate
4 June, 2008

Last week I had the privilege of presenting to the House of Assembly our Budget for the fiscal year 2008-09.

I wish to highlight a number of issues in greater detail so that the Bahamian people are fully informed on actions being taken by the Government to meet them where they are and to assist them in moving forward.

I note that my Government is not a government of procrastination.

We aim to move The Bahamas forward decisively, confidently and with resolve.

We have resumed our people-centred policies. I am proud of this Budget. I am deeply appreciative for the opportunity to continue on the path of reformation, transformation, modernization, democratization, accountability and transparency begun during our earlier terms in office.

I wish to acknowledge in this regard, the dedication and support of countless public officers throughout the public service and very particularly in the Ministry of Finance, the Department of Legal Affairs and the Office of the Prime Minister who laboured long and hard as is their custom, to complete the preparation for this year’s Budget presentation.

And I wish to also acknowledge and thank Mrs. Adell Gay and her hardworking staff at Government Printing for once again working through the night, on more than one occasion, so as to have printed materials and reports connected to the Budget Exercise and required for presentation in this Honourable House.

One year ago I advised Honourable Members of the coming retirement of the Financial Secretary, Mrs. Ruth Millar who I caused not to take her well deserved and earned retirement during my first term in office and who has, sometimes under protest, remained fully engaged during these past 15 years. As it transpired, Mrs. Miller willingly continued in service over the past 12 months for which I am grateful.

I now advise Honourable Members that having overseen the preparation and presentation of this year’s Budget Mrs., Miller will begin her long postponed retirement on the 1 July this year.

Mrs. Miller has given long and selfless service to the Bahamian people and I am pleased to acknowledge and recognize that contribution on this occasion.

Fulfilling Commitments

I want to also say how appreciative I am of the widespread public support for the Budget, and recognition of my Government’s determination to act to bring relief to tax payers, to stimulate the revitalization of the City Centre of Nassau, to lend increased support and impetus to the development of our least developed islands and to continue a programme of infrastructure enhancement and development.

This Budget is in keeping with our commitment to look out for the least of those in our society.

It is in keeping with our commitment to assist and support Bahamian entrepreneurship and Bahamian business development and business growth.

It is in keeping with our commitment to grow the Bahamian economy and to cause employment to be created, notwithstanding the tremendous external challenges impacting our economy, resulting not only from the slow down in the US economy, but also from the continuing rise in food prices and energy costs.

Reduction in Customs Duty

In my Budget Communication last Wednesday I announced the removal of stamp taxes on over 160 food items.

This was done to provide relief in this time of crisis in the world economic order and the resulting rising cost of food and energy and other consumer products.

We are not “Johnny come latelys” to the cause of the people.

We began, Honourable Members will recall, in 1992 when customs duty was removed from the importation of infant disposable garments (we generally call them Pampers regardless to their brand), infant feeding bottles, baby cribs, playpens and highchairs and associated mattresses.

In 1993 we removed customs duty from cocoa powder and from female hygienic napkins. In the same year we also reduced customs duty on computers from 50% to 25%.

In 1995 a host of tourist items enjoyed reduced tariffs. And, we removed duty from Bahamian music recordings; reduced duty on drums, and pianos; removed duty from contact lenses and eye-glasses and further reduced duty on computers and computer parts, newsprint and footwear.

In 1996/97, as we commenced a phased programme to modernize our Customs Tariff, we introduced a new classification system, simplifying and rationalising many customs duty rates.

In that budget year we did not raise a single rate of duty; instead we reduced the import duty from 35% to 25% on a variety of construction materials including doors, hinges, windows, felt, locks, concrete tiles, electrical and plumbing fixtures and apparatus. Customs duty on sheet rock was reduced to 15%; and we made cement duty free. In that same Budget, import duty on electric water heaters and dishwashers was reduced from ___ and ____ to 40% and 45% respectively; the duty on all refrigerators was reduced from 35% to 15%.

In 1997, milk and baby formula, chocolate and fruit juices for infants all had customs duty removed, and women’s undergarments benefited from duty reductions bringing them in line with duty on male undergarments.

In 1998 customs duty on the import of meat and poultry was halved from 70% to 35%.

In the same year we re-introduced a one-year benefit for taxi and livery tour car operators permitting duty free importation of new vehicles or vehicles not more than 3 years old. The provision was later extended for a further period, to June 30, 2001. When originally introduced in December, 1990, the concession which then applied to taxis only provided for exemption from customs duty for new vehicles and for a 50% reduction in duty on vehicles not older than 5 years.

In 2000, printed and perforated paper and jumbo rolls of printer paper as well as personal computers, digital processing units and related parts and accessories and video cameras were declared duty free.
Then, in 2001 customs duty was removed from grapes, pears, strawberries, apples, vitamins, school rulers, infant car seats and word processors, digital machines and calculators. In that year, we reduced duty on pineapples, canned pigeon peas and whole canned tomatoes. And, we reduced the duty on pens, pencils and crayons from 35% to 15%.

Also in 2001, customs duty was reduced from 45% to 35% on the importation of carpets and other floor coverings, vacuum cleaners, toasters, coffee machines and tea makers. The import duty on washers and dryers and their parts was again reduced from 40% to 35% and customs duty on cash registers and their parts was reduced from 50% to 35%.

And, we reduced the duty on medical equipment including – electro cardiographs, magnetic reson and imaging apparatus, dental drill machines and on other ophthalmic instruments, dental, barber and similar chairs and parts.

Clearly we haven’t just become tax-cutters. We’ve been in the business a long time. It is in our genes. And we are back in office, so here we go again!

This is the time for us to continue what we began – the reform of our Customs Import tariff so as to simplify and modernize it and to make our duty rates fairer for the benefit of those who need reform, duty rationalization and rate reduction on essential items most.

We continue this year, 2008, with our planned programme of simplification of our Customs Tariff and with our programme to reduce and or stem the rise in the cost of living for Bahamians across the spectrum of income levels, but very particularly for those most disadvantaged in our society.

In this Budget food items for which 10% import duties and 7% Stamp Taxes (for a total of 17% import tax) are being eliminated, include: citrus (grapefruit, oranges, tangerines, limes, and lemons), cereals, spaghetti (e.g. Kraft Dinner), bananas, and plantains.

In this Budget the 25% import duty on watermelons (we met the duty at 80% when we came to office) and mangoes will be eliminated as will the 30% import duty on guavas, peaches, frozen vegetables, and oatmeal.

The 35% import duty on all bread has been eliminated. (See Purity Bakery’s letter) Duty on the importation of dried unpackaged fruits and nuts has been reduced from 30% to 15% and the duty on fresh vegetables not previously reduced by us from rates greater than 15% have been reduced to 15%.

In this Budget the import duty on all types of bandages is to be eliminated and duty on liquid detergents is being reduced from 30% to 10%.

I was pleased to read in yesterday’s edition of The Bahama Journal, comments by Mr. Rupert Roberts the owner of Super Value Food Stores who projected that consumers shopping in his stores may expect to see savings of up to 37% on many items, particularly fruits and vegetables. I quote from the newspaper the following:

“Our customers will see 37% reduction in the price of frozen vegetables, 32% reduction in the price of certain vegetables and 12% reduction in the price of some fresh fruit…there will also be a reduction in the price of macaroni and laundry detergent and other items.”

Recognizing my Government’s initiatives to “lessen the strain on many people, who are stressed and weary of the skyrocketing prices of groceries” according to the newspaper report, Mr. Robert’s went on to say, “The government has come to the rescue of many people and provided relief and because of that many people who otherwise would not have been able to will be able to leave the grocery store with the things they need to take good care of themselves.”

Representatives from a number of other food stores commented that they also expected to pass on savings to their customers.

And, this Budget will further reduce the import duty on a number of building materials and house-hold appliances. These custom duty reductions have a dual objective, firstly, reducing the cost of construction and hence boosting both residential and commercial construction, and secondly, promoting “green” refurbishments and construction.
In this regard, import duties on wooden hurricane shutters, cement board, aluminum and wood doors have been reduced from 35% and 25% respectively to 15%.

In this Budget the duty on wooden windows will be reduced from 35% to 25%

Plywood will attract an import duty of 10%, down 5% from 15%. Duty on the importation of oriented strand board and insulation used in construction is being reduced from 35% to 10%.

In this Budget, customs duty on energy efficient home appliances (with ratings greater than 15.0) is reduced from 35% to 15% and duty on energy efficient windows (double glaze and or vacuum sealed) will be reduced from 25% to 15%.

Fluorescent bulbs, green bags and solar batteries and solar converters will have import duties of 20% and 35% eliminated – that is, reduced to 0; low flow shower heads will have import duty of 35% reduced to 15%.

Home-owners and businesses will also enjoy the benefit of reduced import duty on paint (3rd Schedule) from 57% to 45%. This is still too high but it is a protective tariff for local businesses.

Finally with the remarkable expansion of cellular phone service around our country, I am pleased to note that this Budget reduces the customs duty on cellular phones by 20%, from 35% to 15%.

Informal indications from retailers of construction materials and of household appliances indicate that consumers may expect to see savings on a number of items ranging from 5% on certain windows and doors to 14% on cement board and 18% on insulation.

I note that several of the customs duty reductions have come about on the recommendations of a number of retail establishments that have particularly since the commencement of our customs simplification in 1996, contributed to the exercise by keeping the government apprised of pricing issues.

We look forward therefore to stabilization of prices and, in a number of areas, a reduction of prices to consumers in food as well as construction, as already foreshadowed by some food retailers in the Press, and as predicted privately by a number of suppliers of construction materials and house hold appliances even in advance of the 1 July effective date.

I note in this regard that in an effort to better measure the cost of living and the stability of consumer prices, the Department of Statistics will begin to monitor prices on certain baskets of food and construction supplies so as to determine the effectiveness of Government’s targeted revenue items. Certainly price gouging will not be tolerated.

Tax Holiday for BEC

The tax holiday afforded to BEC for a 2 year period in this Budget is designed to slow the continued increase in energy surcharge passed on to customers by BEC. Additionally, the 2 year tax relief now being given should ease BEC back to a position of financial soundness.

We expect that the relief given to BEC for two years on customs duties and what was stamp tax amounting to 17% overall, will allow BEC to limit any further fuel surcharge. The impact on household’s incomes and savings could be significant.

As with consumer retail items, we will also monitor BEC pricing closely so as to ensure that any further fuel surcharge increases are limited by the amount of the concessions given to BEC on Stamp Tax.

The reductions in the customs duties in the 2008/09 are among the most important tax concessions granted to families in the recent history of this country.

Concessions for Taxi, Livery and Omnibus Franchises

This budget also provides for the customs duty and Excise Tax free importation of new vehicles by taxi and livery cars with franchise once in a five year period. I emphasize that only new vehicles are eligible for this exemption –not second hand/used vehicles.

I also note that unlike prior legal provisions granting similar exemption from import duty on vehicles for taxi and livery tour purposes, this legal provision has no sunset provision. It will henceforth be a permanent provision of the Excise Tax available to licensed franchise holders once every five years. To remove this concession from persons engaged in the private ground transportation business the Customs Duty and Excise Tax Acts would have to be amended by this Honourable House.

Churches and schools will also be eligible for this exemption.

I give notice of my Government’s intention to move an amendment to the Draft Excise Tax Act in Committee to include omnibus franchise holders which was inadvertently omitted from the draft Bill tabled in the Honourable House last week Wednesday.

I also wish to signal that in addition to the assistance being provided for in this Budget in respect of ground transportation my Government proposes to authorise an appropriate increase in respect of taxi and jitney fares reflecting the increased cost of fuel/gasoline for the transportation industry.

And, we shall make provision to assist mail boat operators who are similarly challenged by the increasing cost of fuel. I expect that this might most effectively be achieved through a rebate of a portion of the duty paid on diesel.

New Excise Tax

As I have indicated both the new Tariff Act and the Excise Act respond directly to commitments made by the Government.

In last year’s Budget Communication, I advised of Government’s intention to continue the exercise to simplify the Tariff Act commenced in 1996, and further, to amalgamate customs duty and stamp tax.

As well, I reiterated our intention to pursue membership in the World Trade Organization (WTO). Indeed, so as to mitigate the potential negative revenue implications of accession to the WTO, we have acted to secure a sizeable portion of current revenues through the introduction of excise taxes on selected products.

I would now like to expand on the rationale for the new Tariff and Excise Acts, as well as set out their key features.

It is important to be clear, from the outset, on what an excise tax is and what it is not.

First, the new excise tax is not a general sales tax.

According to the Organization for Economic Cooperation and Development (OECD), excises are “selective taxes on the production, sale, transfer, leasing and delivery of goods”. Generally, they are imposed on a list of specific goods that have been chosen for particular policy reasons, in many countries for health or environmental reasons among others.

As such, excises represent a tax measure complementary to a general sales tax and are in no measure a substitute for a sales tax. Indeed, in many nations, they exist side-by-side with a sales tax or value added tax (or VAT).

We have no intention to introduce a sales tax.

Second, excises are taxes on specific products, whether produced domestically or imported and, as such, they are a perfectly legitimate form of taxation under WTO rules.

Indeed, excises feature prominently as an important policy tool in a number of WTO members, including countries such as Barbados.

In order to be perfectly clear on the nature and application of an excise tax, it is instructive to cite the New Oxford Dictionary: “excise duty is a tax levied on certain goods and commodities produced or sold within a country”.

To further stress the point, the IMF Model Tax Code states that “excise is an indirect tax included in the sales price of excisable goods” and “the production on the territory…or the import of excisable goods is subject to excise taxes.”

Accordingly, the distinguishing feature of excise taxes is that they are imposed on the consumption of products, services or activities that have been selected on the basis of particular characteristics.

Countries currently levy excise taxes on selected commodities that are characterized either by:

relatively low price-elasticity of demand (i.e. their consumption does not decline significantly in the face of higher prices and, as such, these commodities are good and reliable generators of revenue); or
the negative externalities on society imposed by their consumption (in other words, society at large pays a price for their use by individuals: e.g. health costs, environmental damage).

The usual list of candidates for excise taxation comprises tobacco, petroleum products, alcohol and vehicles, though a varied and wider array of products can be and are subject to excise.

The new Excise Act will see excise taxes replacing import duties and stamp taxes on a number of such products in seven Chapters of the Tariff Act. They are:

Tobacco and Manufactured Tobacco Substitutes
Mineral Fuels and Oils and related products
Tires and inner tubes
Vehicle engines and parts, and air conditioning
Electrical apparatus for vehicles
Motor vehicles and parts
Arms and ammunition

As well, we have included selected so-called “tourist” items in the Excise Act rather than include them in the tariff/stamp tax amalgamation exercise, in order to allow merchants to continue to market these products as being “duty-free”. Examples of the products concerned are perfumes and toilet waters, articles of leather, table linen, jewelry, certain cameras and parts and wrist-watches and certain clocks.

I advise that beer and alcohol products have been left out of the Excise and Tariff reconfiguration for the time being as further study is required of the competitiveness implications of applying equal taxation to domestic production and imports.

In total, some $234 million in 2008/09 terms will be secured through the introduction of the Excise Act.

The First Schedule of the Excise Act sets out the excise tax rates that are to be applied to specified products, whether manufactured in The Bahamas or imported.

To simplify the rate structure I adjusted all rates in the Excise Act such that the rate structure comprises only multiples of 5 and 10, above the minimum rate of 7%.

As well, some further individual rate adjustments were implemented to rationalize rates, i.e. by ensuring that similar products face identical excise rates. For example, all bituminous products for road surfacing use will now face exactly the same rate of tax. And there will no longer be one rate for bituminous mixtures for road surfacing use and “other” bituminous mixtures.

The overriding objective of the new Tariff Act is to simplify the taxation imposed on imports.

Imposing one amalgamated rate of customs duty will make the Tariff easier to understand and administer.

In addition, under WTO rules, contracting parties may not impose taxes that discriminate between domestic products and imports. It is thus clear that, when The Bahamas decides to engage in negotiations leading to WTO membership, all current stamp taxes on imports would have come under attack. Rather than eventually being confronted with the obligation to eliminate these taxes outright, a pre-emptive strategy is to combine all stamp taxes on imports with current customs duties prior to the WTO negotiations.

This is the time to prepare the Bahamian economy to take its place in the world economy. We are late but thankfully, not too late.

The new Tariff Act amalgamates all current tariffs and stamp taxes on imports. Of course, all items that have been moved from the Tariff Act and appearing in the new Excise Act will be rated as “Free” in the new Tariff Act.

As well, some modifications to the Harmonized System classifications have been introduced to conform to international practice.

Provision has been made in the Bill for any required future changes to the Harmonized System classifications to be made by Order of the Minister of Finance.

As was done for the Excise Bill, it is also proposed to effect adjustments to all rates in the Tariff such that the rate structure, above the new minimum of 7%, comprise only multiples of 5 and 10 with the resultant rates being rounded upwards or downwards.

For example, the 42% rate on golf clubs and balls, or on carpets and other textile floor coverings, becomes 45% while the 17% rate on outboard motors, or on electric generating sets, becomes 15%.

As well, some further individual rate adjustments were implemented to ensure that similar products face identical tariff rates.

The net result of these proposed measures, in combination with those in the Excise Bill, will be to reduce further the number of rates to 23, down from 29 in the current Tariff.

Having brought the number of tariff rates down from 129 to 29, it is our intention to reduce the number of rates eventually to 15. In time we’ll get there!

Elimination of Stamp Tax on Mortgage Transfers

We are making important changes to the Stamp Act permitting us to deliver on a promise to eliminate the payment of stamp tax on the transfer of a home mortgage between licensed banking institutions first made by the Free National Movement in Manifesto ’97. Regrettably we did not fulfill this promise prior to our being voted out of office in 2002.

We are especially pleased and gratified not only to deliver on this promise now but to improve substantially on that promise to homeowners. The amendment to the Stamp Act when enacted will, in addition to the stamp tax free transfer of home mortgages between financial institutions, including members of the Credit Union National League, also facilitate the consolidation of home mortgages and other home loans without attracting the payment of stamp tax.

The amendment to the Stamp Act provides upon application for the exemption from the payment of stamp tax by any first time purchaser of a residential lot for the construction of a primary residence, the construction of a first home or the first time purchaser of a condominium or duplex unit to serve as a primary residence. Where a duplex is acquired, the exemption will only apply to that portion of the building used as the primary residence of the owner. To qualify the dwelling must be valued at no more than $500,000.

I advise that the Government proposes to move an amendment to the draft Bill for the Stamp (Amendment) Act introduced in the House of Assembly last week. The amendment will provide:

For the duration of the Act to be limited to a period of five years;
For the imposition of a penalty equal to the sum of any exemption obtained by the making of a false statement in addition to a fine of $5,000;
Correct a clerical omission of the word “not” in relation to a portion of a duplex not occupied by the owner;
Limit the grant of the exemption to first time homeowners only whether the home is situated in or outside of The Bahamas; and
Provide for a one time grant of an exemption to the same applicant.

Let me make this clear – a husband and a wife will be regarded as one person. So, it will be a futile exercise for one or the other to claim an exemption if either owns a dwelling.

Real Property 5 Year Tax Waiver for First Time Home-Owners

A complementary amendment to the Stamp Tax Bill provides for the exemption from the payment of real property tax for a five year period where a dwelling, valued at a minimum of $250,000 but not more than $500,000, is acquired by a first time home-owner as a principal residence. The Act requires that the dwelling place be inhabited by the owner for a minimum period of 9 months in each year save and except in cases where the owner’s absence is the result of travel due to illness, study or is job related.

Benefits under the Real Property Tax Act are not automatic and must be applied for to the Ministry responsible, in this case the Ministry of Finance. Provision has been made in the Real Property and Stamp Tax Bills for stiff penalties for the abuse of their provisions. Further I note that the Real Property Tax Bill like the amendment to the Stamp Act is a sunset law and the provisions therefore will expire on 30 June, 2013 – five years after its entry into force on 1 July, 2008.

I advise further that the exemptions becoming available under the Stamp Bill and the Real Property Bill Act apply to first time home owners only. As a consequence vacation homes, second homes, or homes purchased for investment (commercial) purposes whether owned by Bahamians or international persons, would not qualify for benefits.

In this regard, I note also that the amendment to the Real Property Tax Act removes the cap of $35,000 as the maximum tax payable on real property valued over $3.75 million and provides for a reduced tax of ¾ of 1% (reduced from 1%) for homes valued at $5 million or more.

These revenue measures will have a significant impact. We expect the extensive changes to Stamp Tax and to the Real Property Tax Act to enable middle class home owners to enter into the housing market, to shop around for the most inexpensive mortgages, and to assist them to develop their own principal residence. In addition, the middle class will benefit from the elimination of the customs duties and stamp taxes on food items and construction materials to which I have already referred.

Notwithstanding, I want to acknowledge that the Government is aware that a number of families are experiencing difficulties in meeting their monthly mortgage payments. In that regard I advise that we will put in place a programme, in consultation and collaboration with mortgage lenders, to bring relief to as many persons as possible. We wish, in particular, to extend assistance to individuals who have normally properly serviced their mortgages but who developed problems as a result of temporary lay-offs, severance or illness.

And I remind that my Government is seeking the authorization of Parliament for the issuance of a $75 million housing bond issue to permit the re-launch of the Government low and middle-income housing programme.

The City of Nassau Revitalization Act

Two important revenue initiatives have been particularly targeted to jump start first the revitalization of the City of Nassau, and secondly, the further development of our least developed Family Islands.

The City of Nassau Revitalization Act has been designed to include mainland Nassau as defined in the Interpretation Act inclusive of Potters Cay but excluding Paradise Island and the other near-by cays and islands off New Providence Island. I advise that the Government will move an amendment to Bill before the House for the enactment of the City of Nassau Revitalization Act to exclude Paradise Island and other near-by cays and islands off New Providence as beneficiaries under this Act. The Bill is complementary to the recently adopted amendment to the Hotels Encouragement Act which provides for concessions to Bahamian-owned restaurants and shops catering to tourists similar to those available to developers and operators of hotels.

Under the City of Nassau Revitalization Act, applicants may obtain concessions/waivers on the import duty on construction materials to be used in the construction, refurbishment or repair (capital investment) of any structure, commercial or residential, within the confines of the City of Nassau.

Additionally, applicants may obtain Real Property Tax relief for up to five years from the date of the completion of the capital investment. The continued good maintenance and upkeep of the structure will be required for the continuation of the real property tax benefit.

Finally I note that this Act is for a period of five years; its provisions coming to an end on 30 June, 2013.

I indicated in my Budget Communication that the Government will be conducting certain capital projects during this budget period as a means of stimulating economic activity. Among projects to be undertaken is the completion of the upgrade of the Western Esplanade and the Down Home Fish Fry at Arawak Cay part of which is already underway.

Redevelopment and Enhancement of Down Home Fish Fry at Arawak Cay

I was very pleased to have been the instrument through which the Free National Movement Government’s first initiative to provide public utility and sanitation services to the spontaneous development at Arawak Cay was realized. In particular, I was pleased to have provided the independent entrepreneurs at Arawak Cay, some 36 in all, with Crown Leases at $1 per square foot for the locations upon which they constructed their establishments. I have been disappointed in this regard with the abysmally low number of entrepreneurs who have kept their lease payments current; and disappointed also by the several operators who have abandoned their sites leaving them as eye-sores for the public.

I have been a regular patron at the Fish Fry and believe it is a wonderful opportunity for Bahamians to display to residents and visitors, an authentic Bahamian experience. I take the opportunity to remind persons who hold leases at Arawak Cay that the leases do not provide for the sublease of the premises. In particular, we do not expect, and will not sanction, the Down Home Fish Fry becoming, as the straw market has become, a business place for immigrants who lease from Bahamians. The Fish Fry is meant to be a Bahamian experience.

I must say that I have also been disappointed by the inadequate attention given to maintaining the facilities at the Down Home Fish Fry by both the government and the private operators. I am especially concerned that this negligence not be permitted to deteriorate to the point of becoming a threat to public health.

So as to avoid such a development the Ministry of Agriculture and Marine Resources in collaboration with the Ministry of Public Works and Transport will be conducting a major refurbishment and upgrade to the Down Home Fish Fry to include the following:

1) the installation and relocation where appropriate of new sewer mains and manholes;
relocation of water meters;
installation of fire hydrants;
paving of breezeways;
demolition of derelict and unsound buildings;
addition, repair and replacement of external lighting;
replacement of faulty electrical panels;
repairs of restroom blocks and plumbing;
construction of additional restroom facilities; and
installation of a live conch storage tank and processing area.

I do finally wish to advise the entrepreneurs located at the Down Home Fish Fry that they ought not be concerned that the relocation of the commercial port to Arawak Cay will increase heavy duty commercial traffic at the Fish Fry. I wish to advise that a new causeway is to be constructed which will keep all cargo traffic away from the recreational and cultural facility at the Fish Fry.

Family Island Development Encouragement Act

Another significant provision of the 2008-2009 Budget is the re-enactment of the Family Island Development Encouragement Act. I note that the Economic Development Enterprise Act passed while our predecessors in office were in Government, was never brought into force by them. That Act will be repealed by the enactment of the Family Island Development Encouragement Act.

As originally enacted the Family Island Development Encouragement Act contained two schedules. Schedule I included the least developed islands of the southern Bahamas: Acklins, Cat Island, Crooked Islands, Ragged Island and Cays, Mayaguana, Rum Cay and Long Cay, and later Andros and the Berry Islands. These islands enjoyed customs duty and stamp tax exemptions on all construction materials.

Less disadvantaged islands including Exuma, Inagua, Long Island, and San Salvador were eligible to receive only customs duty concessions.

The new Act will provide for customs and excise tax exemption for all listed islands, and the exemption will be applicable to both construction equipment and construction materials and supplies. Additionally, machinery required for the clearing and preparation of farm land will also be eligible for duty waivers under this Act.

With the exception of Exuma and the Berry Islands, graduates of this programme, all islands previously a part of the programme have been included and additionally Sweetings and Water Cay in Grand Bahama, Grand Cay and Moores Island in Abaco and Current Island in Eleuthera have been added.

We are very conscious that many other of our Family Islands have depressed enclaves that would benefit from concessions to stimulate investment and development. We continue to seek to identify a means by which we might adequately monitor such an extension of benefits of this Act to them so as to permit some settlements or portions of other islands to benefit from the concessions.

I also note that this too is a sunset law. It will expire at the end of the five year period following its entry into force on 1 July, 2008. In this regard, I advise that should the Minister Responsible designate another island, cay or portion of an island eligible for concessions, the period of concession will commence on the day of that approval and will not be retroactive to the commencement of the entry into force of the act. Similarly, the concession will not be for any period beyond the original expiration of this law, that is the 30 June, 2013.

In the meantime I wish to highlight that stiff penalties for abuse are provided in the Family Islands Development Encouragement Act. The penalties which provide for the payment of a heavy fine in addition to the payment of duties and taxes not paid will be applicable not only to individuals making a false declaration as to the destination and use of products, but also to suppliers or transporters of goods from an eligible island to any other island in The Bahamas not included in the Schedule of the Act.

Indeed, the Government proposes to introduce an amendment to the Bill to include additional offences with respect to the improper use and transportation of building materials and machinery. Of particular note is the stipulation that building materials and machinery if transported to islands not included in the Schedule of the Act are liable to forfeiture as will the transporter of such goods – e.g. mail boats.

Increase in Immigration Fees

I mentioned in my Budget Communication that immigration fees are to be increased in this budget period. I note for the record that the Free National Movement has always believed that Bahamians ought to be given preferential treatment as regards employment in our country so long as they are suitable and qualified for the employment contemplated.

We also accept that there are occasions when special skills and expertise may not be available or not available in sufficient numbers to meet the requirements of our economy.

In such cases we believe that work permits ought to be granted in a clear and transparent way and at a fee to cover the cost of the application process, and to contribute toward government’s revenue which is applied, inter alia, to training of Bahamians to reduce the dependence on international staff.

The record shows that under an FNM Government Immigration fees were increased by 50% in some scales in 1993. Fees were again increased in 1999. Having not been increased during the tenure of our predecessors in office it has been left for us to once again increase immigration fees. In this regard, I note that work permit fees which ranged between $10,000 per annum at Scale 1 and $650 at Scales 10 through 12 with a reduced fee of $350 for registered farm labourers have been increased to $12,500 per annum at Scale 1 to $1,000 at Scale 8 reflecting some realignment upward among the scales. And, the special rate applicable to registered farm labourers has been increased to $500 per annum. The Minister will comment on this in his speech.

One of the other things the Minister will comment on is what we regard as a major achievement. For 50-plus years, prisoners at Her Majesty’s Prison have had to use slop buckets to dispose of their waste.

We have now agreed that they will be eliminated at Her Majesty’s Prison.

Increase in Domestic Bank Licence Fees

I would also note that this Budget provides for an increase in Domestic Bank Licence Fees for the 8 banks licensed to offer banking services to Bahamian individuals and businesses – Royal Bank of Canada, Scotia Bank, First Caribbean Bank, Commonwealth Bank, Bank of The Bahamas, Fidelity Bank, and Citibank. These fees which ranged between $250,000 and $750,000 annually have been increased to a range of $300,000 to $2.5 million annually.

Construction Activity

This Budget seeks to provide the best possible circumstances for stimulating increased economic activity, especially in the construction sector. It is to be noted that construction tends to spread economic benefits more widely and deeply through the economy and society than many other economic activities. Therefore, by catalyzing growth in this area, we stand to produce broad benefits for our communities.

I recall that during our terms in office, construction enjoyed unprecedented levels of growth. For example, residential construction across The Bahamas grew from 1,948 in 1993 to a peak of 2,773 in 1999, an increase of some 42%. Indeed, from 1997 to 2002, residential construction never dipped below the 2,000 mark, and this was despite the fact that the government was not itself engaged in the large scale construction of dwellings.

It was the robustness of the economy and the prosperity being enjoyed by Bahamians that empowered private individuals to build their own homes as opposed to having to have the government build them.

It is worth noting that since the stamp tax for first time homeowner programme was initiated in 2003 and the expanded Government home construction initiative, the highest level of residential construction was in 2004 which was the year in which the hurricanes struck Grand Bahama. In that year, only 107 more homes were constructed than in 1999.

Construction in every subsequent year was less than 100 homes higher than in 1999.

We believe that the combination of first time home owners exemption for purchase or construction of a residential single family or duplex dwelling, tax-free debt consolidation, tax-free purchase of vacant land for building a dwelling place, tax-free movement of mortgages from one lending institution to another, and meaningful reductions in the import duties on construction supplies create an optimal environment to spark construction. This is especially so when one takes account that the exemptions cover both lower and middle-income families covering as they do dwellings up to a value of $500,000.

Infrastructure Development

I have indicated that the Government will build a number of administrative buildings during this Budget period. I wish to note that in addition to the government office accommodation complex to be constructed in New Providence, Grand Bahama and in Central Abaco, two gymnasiums will also be constructed, one in Abaco and the other in Eleuthera.

Other infrastructure projects will be undertaken around the country, including the provision of potable water for the first time in the following communities: Green Turtle Cay, Abaco; Williams Town, Exuma; and Current Island, Eleuthera.

The Green Turtle Cay Water Supply Project, which includes the provision of potable water and the expansion of the existing distribution network, is estimated to cost a total of $3.6 million and will be undertaken over an 18 month period. The first segment of the project will be carried out during this Budget period with an expenditure of some $2.5 million.

Road works are also scheduled for Current Island and for Central and North Eleuthera where the roads have been permitted to deteriorate to an embarrassing degree over the course of recent years. I advise that contracts will be awarded during this month with respect to road works in Central Eleuthera and North Eleuthera, to be followed later this year for South Eleuthera.

And I wish to assure my constituents in North Abaco that in addition to the development of a public playground at the public beach in Treasure Cay, road works will be undertaken in Coopers Town and Fire Road, and the causeway now joining Great and Little Abaco will be removed and replaced with a properly constructed causeway providing for the free flow of water, and hence the restoration of fishing grounds.

GRAND BAHAMA

My administration is pained by the economic hardship faced by Grand Bahama. This is especially so because we took considered and decisive action to cause a turnaround in that island’s economy when we were last in office. The resurgence that occurred in the Grand Bahama economy during our previous terms in office was especially welcomed because it followed upon years of neglect by our predecessors in office.

Once again today, we are faced with the challenge of reviving and growing the Grand Bahama economy.

High unemployment, growing social deprivation and business stagnation characterized the situation in our nation’s second most populated island when we came to office last May.

In addition to Grand Bahama’s economic dilemma, the island is also challenged by the continued warring between the principals of the Grand Bahama Port Authority. This has further demoralized the business climate in Freeport and indeed around Grand Bahama.

I might advise that I indicated to one of the principal shareholders of the Grand Bahama Port Autority, Sir Jack Hayward, that the Government of The Bahamas cannot wait much longer for them to settle their dispute and the Government is willing to buy the Port Authority.

We cannot wait for an indefinite period for them to settle their differences. The Government of The Bahamas is willing to buy the Grand Bahama Port Authority and get Grand Bahama moving again.

This Budget provides the stimulus to restart the Grand Bahama economy beginning with the construction sector particularly in the residential area.

The construction of a government complex in Grand Bahama will help to spur economic activity.

We expect additional cruise ship stops to Grand Bahama beginning in July 2008 will bring thousands more visitors to that island.

We remain focussed on bringing other investments to fruition in Grand Bahama over the course of the next twelve months, growing the economy and creating reliable jobs.

GENERAL COMMENTS ON THE LEADER OF THE OPPOSITION’S NEWS STATEMENTS

In its attempt to find legitimate criticism of the 2008/2009 Budget, Members Opposite have managed as only they can, to come down on every possible side of this Budget.

On the one hand they decry the tax rollbacks. In their words, “by providing a wide range of tax rollbacks with the stated view of putting money in the hands of consumers,” the Budget will, in their words, “over compromise its revenue base.” And yet they conclude that “the poor can find little help in this budget,” and “there is little in the Budget in the way of support for the middle class.”

Having wrongly accused the Government of doing nothing to help the poor, they assert that “The Government has used sleight of hand to adopt the PLP’s approach to assisting the poor and the needy.” And this is the dilemma for them throughout.

They go on to say that “the Government must explain how, given the many tax concessions offered in the 2008/2009 budget and no significant new or increased taxes, we are expected to believe that revenue will increase by $137 million or almost 10% over last year even though the economy is only expected to grow by 2% in real terms.”

If true, that would be a legitimate question to be asked of the Government. Not surprisingly their question is riddled with inaccuracies. Leaving aside the faulty arithmetic (the revenue is only projected to grow by $114 million or 7.8% over the projected outturn for last year, not $137 million – a difference of $23 million).

Members Opposite should know that the growth in current prices in revenue should be compared to the growth in current prices in the economy. The comparison is therefore 7.8% for revenue growth and 4.8% for economic growth – not 10% and 2%.

This growth in revenue is achievable through revenue buoyancy and the limited measures included in the Budget. By comparison, the spread between projected revenue growth and projected economic growth in the 2008/2009 Budget is less than their last Budget of 2006/2007. In that Budget revenue growth was projected at 11.1% and economic growth at 6.5%.

Secondly, Members Opposite expressed concern that the National Debt rose by 6.2% during 2007. Their new-found concern is interesting. In office the national debt rose by more than this in two years. In 2003 it rose by 8%, and in 2005 it rose by 7.8%. Now we are told an increase in national debt of 6.2% is a concern.

They also noted that Government’s foreign currency debt service to total revenue was 3.8% at the end of 2007 as compared to the previous two years of 1.9% in each. It is curious that they did not go back a further two years to 2003 to discover that it was as high as 16.8% under their Administration which apparently did not concern them.

In the context of The Bahamas, however, with a very low foreign currency debt, and where the incidence of a payment could make wild shifts in foreign currency debt service to revenue ratio, this is not a very meaningful statistic. Why it is now a concern to them is not quite clear. For whatever it is worth their record is worse than ours.

National Debt

Members Opposite have maintained that during their term in office they properly managed the affairs of the state, grew the economy and attracted record levels of foreign investment. The record does not substantiate their claims.

The record shows that the national debt increased by $828 million during the single term in office of our predecessors; an average annual increase of $166 million. This represents the largest increase in National Debt in any five year period. It was built up as follows: –

2002/2003 $ 184 million
2003/2004 162 million
2004/2005 162 million
2005/2006 141 million
2006/2007 179 million
$ 828 million

Moreover, during the five year period the accumulated deficit on the recurrent account amounted to $394 million. That is to say, $394 million of the debt incurred was for the funding of current consumption and not for capital investment.

One consequence of this level of public sector debt expansion is the impact it has had, jointly with the high level of private sector debt expansion on the country’s foreign reserves.

Despite the considerable foreign direct investment inflows which the country has enjoyed for more than ten years, the level of external reserves has not shown the growth expected. It has, in fact, been on a downward spiral since 2005, primarily on account of the pressure of domestic credit growth and the $828 million debt increase in the public sector.

In 2005 under pressure from the enormous increase in credit, a deficit on the Balance of Payments reduced external reserves by $89 million. The following year, 2006, for the same reason another deficit on the Balance of Payments reduced external reserves by a further $79 million. And this pressure continued into 2007. While we have begun to change the credit dynamics, the deficit on the Balance of Payments still reduced external reserves by $45 million in 2007.

The change is clearly underway, however. The projected out-turn for 2007/2008 confirms that the recurrent balance should be a surplus, and that the overall deficit should be of the order of $126 million, all fully applied to the funding of the capital expenditure account, with a small surplus from the current account contributing to capital funding.

For this current Budget, 2008/2009, even after taking account of measures to cushion the impact of the current turbulence on the Bahamian people, a balanced recurrent Budget is still projected as the borrowing arising is entirely for the funding of capital expenditure.

To put the period 2002/2003 to 2006/2007 in context, comparison is made to the period 1997/1998 to 2001/2002. Adherence to sound fiscal policy produced a cumulative recurrent deficit of only $34 million for the entire five-year period. This is to be compared with a recurrent deficit of $394 million in the period following, from 2002/2003 to 2006/2007. It is not an accident that in the one instance the cumulative deficit is less than one tenth of that in the other. The favourable balance on recurrent account on our watch came about as a result of deliberate policy – a reflection of our conviction that the practice of borrowing to meet current consumption had to be eliminated or it would have disastrous consequences for the economic welfare of the Bahamian people.

Revenue Projections
Members Opposite – for want of points of realistic criticism – are questioning the Revenue projections for 2008/09.
Recurrent Revenue is projected to increase by 7.8% over 2007/08 Projected Outturn. The 7.8% consists of growth of the economy in current terms of 4.8% and improvements in revenue administration of only 3%.

The growth rate of 4.8% is possibly on the conservative side. If the US economy improves speedily in later 2008 and into 2009, the impact on our economy will be positive and will result in our growth rate exceeding 4.8%. Furthermore, a recovery in the US economy would mean that the financial crisis initiated by the collapse of the sub-prime market will have closed. This means that global investment flows will return to normality. This is another factor which would be to the advantage of The Bahamas because a number of the investment projects would probably be accelerated.

As regards the 3% for improvements in revenue administration, the simplification of the Customs Tariff will have a positive impact on the speed and efficiency of the Customs Department.

Furthermore, in my Communication I referred to the intensive training planned for the Customs Department. Also we will be pushing ahead urgently with the implementation of information technology to upgrade the performance of the Department.

For these reasons I believe that the Bahamian people will find the concerns of Members Opposite over the revenue projections, lacking content.

Soundness of Government Statistics

The reference by Members Opposite in the final paragraph of their press release to “the Government has revised all of the GDP figures upwards and by so doing, the GFS deficit is understated.” is a grotesquely insulting statement in relation to the work of the Department of Statistics.

The Department revised the GDP data in accordance with international practice and with technical assistance from the IMF. I can state categorically that there was no political interference by my Government or Ministers in the revision.

What the revised GDP numbers show is that when we left office in 2002, the ratio of Government Debt to GDP was of the order of 30%. In the 5 years Members Opposite were in office this figure edged up by almost 5 percentage points to 34.7%. Very little was achieved by the opposition for this nearly 5% points rise in the ratio of the Government Debt to GDP.

For a modest rise of 0.4% in that ratio, we are reforming the Customs regime with substantial benefits to all Bahamian families, we are containing increases in the cost of electricity, we are injecting dynamic policies into the revitalization of the City of Nassau and the Family Islands, we are reflating the economy through major construction projects, and unlike our predecessors we are not threatening to dishonour the commitment for pay increases to the Public Service. We clearly did not borrow any of those policies from the bare cupboard of our predecessors – the Opposition!

Honouring Commitments

A significant proportion of the labour force – perhaps as much as 1 worker in 7 – will benefit from the pay increase provided in the 2008/09 Budget.

I refer, of course, to the increases being given under the existing industrial agreement to the Public Service. The increases will improve the incomes of many persons and families in the lower and middle income groups. In this regard the Bahamian public – and the Public Service in particular – will note the difference between the actions of my Government and those of the previous administration.

In the 2003/04 Budget, presented by the previous administration 12 months after entering office, the previous administration had sought to defer the pay increase due from 1 July, 2003, which had been agreed with the Public Service unions.

This was a blow for the many lower and middle income families with a breadwinner working in the Public Service. It was a major unilateral step by that administration in attempting to disregard the agreement with the Public Service unions which had been so carefully and honestly negotiated by parties on sides, the Government and the unions.

Against this record in 2003/04, I am sure that many Bahamians will find it difficult to accept that Members Opposite are in any position to occupy the moral high ground about the concerns of lower and middle income groups.

We have taken fundamental measures to bequeath to future generations of Bahamians, a beautiful environment and a sound economy. In relation to the environment we have taken major steps to engage the revitalization of the City of Nassau; and we have made major strides in environmental policy and administration.

In relation to the soundness of our economy, we built up its strength in the years 1992 to 2002, which enables The Bahamas to ride out without undue difficulty any problems arising in that period and in the years to 2007.

In the 2008/09 we are simply taking the advice of the IMF Managing Director and using our undeniable economic and fiscal strength to ease the current difficulties and to prepare for the rebound of the global and US economies.

The General Election is Over

Now, even after a whole year it seems Members Opposite have still been unable to accept the judgment of the people.

They are still angry and frustrated. Still whining and complaining.

With one breath they say we are not doing certain things only because those things are in line with their policies.

On the other hand, they say we are following policies they left in place. But they can’t have it both ways.

Could it possibly occur to them that we are making decisions in the best interest of the Bahamian people – whether they happen to agree or disagree?

They are still labouring under the delusion that Bahamians believe their false propaganda that they are the ones who have the best interest of people at heart, especially poor people.

The truth is that history will show that we has an enviable record in dealing with matters that are near to the hearts of the people.

We are and always have been more progressive than those who use and abuse that title.

Conclusion

One year ago I commented that Members Opposite spoke in two tongues on the subject of this Budget. One group claimed the budget was theirs and reflected their priorities. Another group complained that we had gotten it all wrong.

One year later they have failed to reconcile their position.

We press on. We undertook to restore good management to our economy and to bring fiscal prudence back. We are doing this to the benefit of all the Bahamian people.

In this our third non-consecutive term in office we continue our march toward the rising sun.

Mr. Speaker, I so move.