L. Ryan Pinder
Member for the Elizabeth Constituency
Address to Parliament
Compendium of Financial Services and Company Legislation
December 7, 2011
Mr. Speaker …
Today I stand on behalf of the good and proud constituents of Elizabeth to represent their interests and concerns in this honourable house. I also stand here welcoming the new members of the Elizabeth family. Today we witness this Government participate in legislative negligence, but we should not expect anything more. Forcing us to debate 15 Bills, some that do not have anything to do with the others, is a practice of legislative negligence, solely so that this Government can brag to an industry that it has accomplished something. Well, forcing through multiple pieces of legislation in an expedited fashion, without permitting adequate research and debate to create something to brag about, after systematically abandoning the same financial service industry over the last almost 5 years will do no good.
The legislation we debate today can generally be broken down into three distinct categories. These are:
1) Amendments in response to the OECD Phase 1 Review. These include the following:
The Bahamas and the USA TIEA (Amendment) Bill 2011
International Tax Cooperation (Amendment) Bill 2011
Segregated Accounts Companies (Amendment) Bill 2011
Purpose Trust (Amendment) Bill 2011
Investment Funds (Amendment) 2011
Partnership Limited Liability (Amendment) Bill 2011
International Business Companies (Amendment) Bill 2011
Foundation (Amendment) Bill 2011
Exempted Limited Partnership (Amendment) Bill 2011
Purpose Trusts (Amendment) Bill 2011
2) Legislation for the administration of the winding up of companies. This is new legislation is in an area that is very much relevant to the policies of today, especially as to the companies that have been forced out of business due to the mismanagement of the Government. These Bills include the following:
Companies (Winding Up Amendment) Bill 2011
International Business Companies (Winding Up Amendment) Bill 2011
3) Executive Entities Bill 2011. This legislation creates a new Financial Services product. This is completely independent of the OECD matters and is separate legislation, a new Bill.
There are other amendments included in the package that expand the scope of trust administration, and amend the Rule against Perpetuities with respect to certain transactions.
We on this side will structure our debate addressing the legislation and the related national policy matters as I have just broken down.
What I found shocking, however, is that the Government states that the majority of these Bills are to address deficiencies identified in the OECD Phase 1 Peer Review. This Government, however, has not tabled this review. Where is the transparency in Government? It certainly is not with the FNM, it cannot be the proper way to govern to ask us to debate amendments to Bills based upon recommendations of the OECD in its Review without seeing the Review findings. This is wrong, this type of behavior has no place in a Democracy and once again I warn that this FNM Government is a threat to Democracy. Well, as we have been saying, the PLP is different; the PLP will govern in the best interest of the Bahamas. I want to today table the OECD Phase Peer Review on the Bahamas. Bahamians expect transparency and honesty; I will give it to them today. I believe that honesty and transparency is fundamental to our Democracy. No more Politics as Usual, this is a new day.
The OECD Phase 1 reports describe the rules for ensuring that information is available, how it can be accessed by competent authorities and the mechanisms that need to be in place to exchange the information with foreign tax authorities. The reports include recommendations on how jurisdictions can improve their co-operation in international tax matters. Specifically, the Bahamas report recommends, “The Bahamas should ensure that reliable accounting records, including underlying documentation, are required to be kept in respect of all relevant entities and arrangements for a minimum five year period. The amendments we debate today are to address this recommendation. Likewise, the OECD Report makes recommendations regarding the access to information by the Minister if that information is located outside the jurisdiction. The amendments we debate to address this recommendation.
I was a participant in the technical briefings and meetings regarding these OECD encouraged amendments. One thing I note is that corresponding amendments to the Business License Act and the Companies Act are not included in what we debate today. At the time of the briefings, draft amendments to the Business License Act and the Companies Act were prepared and discussed and we were told that the OECD was requiring these amendments that govern our domestic companies. It was my recommendation that domestic companies should not be included in the OECD accounting records demand, we have to ensure Bahamian owned businesses are not unnecessarily given obstacles to their success. I am happy the Government listened to my suggestions. I was surprised when they were not tabled because at the time I was informed by officials from the Ministry of Finance that the OECD was requiring amendments to the Business License Act and the Companies Act.
I understand, however, the controversy does not lie in the amendments to the Bills we are debating today. The controversy lies in the implementation of its requirements. When asked how will these requirements now be implemented, what will be the requirement of the Registrar, if any? Will it have to be demonstrated that financial records are being kept by the relevant entity in order for it to be renewed each year? What if this information, as is likely, is in another country, maintained by persons elsewhere? If so how will this be done? These are all open questions that from my understanding, the Government does not have an answer to. We get the same answer from the Government as we do when we raise questions to other legislation, “it will be addressed in the Regulations.” Well this answer is just not good enough. Do your job and give us the full bag of what is required at the same time. We are doing the People’s business, let us do it well, is that too much to ask?
The Bahamas is looking at a July 2012 phase 2 review, which will review the effective implementation of relevant tax transparency and information exchange provisions in law and regulations. If we have all of these questions regarding the implementation of the requirements, then how can we possibly be in a position to demonstrate we, as a country and an industry, successfully and adequately operate within the mandatory requirements of the OECD? This is a real concern, not only of mine, but of the industry, and an area where this Government should stop playing politics with everything, and govern in the country’s best interest. Further consultation and discussion is required to address this issue, sooner rather than later. The industry cannot withstand another fiasco as was witnessed in 2000.
But the OECD is not the only international organization to express opinions and give ratings and grades to the Bahamas. Many international agencies have expressed their dissatisfaction with the mismanagement of the Country and its economy by this FNM Government.
Financial Mismanagement of the Country
During the last 4+ years of this FNM administration Bahamians and the international community has witnessed negligent management of the finances of the country, putting at risk the country’s financial stability and viability for decades to come. Uncontrolled borrowing, and a lack of fiscal responsibility and discipline on spending have resulted in negative outlooks and commentary about the financial and economic state of the Bahamas in the short future. In fact, under this FNM administration, the credit rating was downgraded more than once, and we are at risk for another credit rating downgrade. This could have significant negative effects on the financial viability and economy of the Bahamas. Proof is in the objective statements, opinions and rankings from the international community. I would like to discuss the evidence of this Government’s failures and mismanagement.
Standard & Poor’s – December 2009
In December 2009, Standard & Poor’s took the extraordinary position of downgrading the credit rating of the Bahamas “on the grounds that increased spending and a narrowed revenue base has weakened the government’s fiscal position.” Standard & Poor’s lowered the credit rating of the Bahamas to BBB+. The Government failed to adhere to the warnings of Standard & Poor’s, which has resulted further negative pronouncements by the Moody’s credit rating agency. This Government does not manage and care for the long-term economic well being of the Country. It’s all about Politics and not People.
Standard & Poor’s – July 25, 2011 Report
Standard & Poor’s recently made similar observations in 2011 that they made approximately 18 months prior when they downgraded the Bahamas credit rating. In their July 25, 2011 report Standard & Poor’s identified one of the weaknesses of the Bahamas was “a rise in fiscal debt and deficits that were generated during the recession and nascent recovery given higher spending and limited pickup in permanent revenues.”
The rating agency also observes that the ratings could come under pressure if The Bahamas’ fiscal deterioration persists and the economic base erodes more severely, however, they do recognize that ratings could rise if the government takes a more proactive response to reduce debt levels. I see no proactive and progressive policy by hits Government to reduce the debt levels; in fact, this Government is all about debt and more debt without care or concern as to how it will be paid back. Standard & Poor’s observes that at the time of the observation, the deficit as a percentage of GDP is more than 65% higher than the average for BBB rated countries. This is an alarming statistic, and demonstrates that there is no progressive policy of debt reduction by this FNM Government. In fact, there is no Policy in this Government’s bag of tricks. Just the same old Politics as usual. Well I told them the Bahamian people will no longer accept this!!! Bush Crack, FNM gone.
IMF – August 2011
A recent working paper by the International Monetary Fund on “Public Debt targeting An Application to the Caribbean” sets out a fiscal model and makes recommendations to regional countries, including the Bahamas, to curtail spending in order to get a handle on drastically increasing debt. The recommendations are to maintain debt levels within a specific range so that the debt levels do not spiral out of control.
Consistent with Moody’s and Standard and Poor’s, the IMF study indicated that to maintain debt levels the Bahamas requires fiscal reform, to reduce recurring expenditure. The IMF report indicated that a reduction in expenditure by 2% was required to just maintain the current debt levels, which are significant. Further reduction in expenditures, or increased Government revenues are required to reduce the debt levels of the Bahamas.
But what are the FNM’s plans to bring this about. Certainly the Bahamian Tax payer cannot stand for further tax increases. But without plans for economic and revenue expansion this is the only alternative. Bahamians, if you want to survive as the best little country in the world, with a future for you and your children, you must vote them out. Bush Crack, FNM Gone.
Moody’s – August 2011
More recently, Moody’s revised its outlook on the Bahamas from stable to negative. Moody’s identified 3 reasons for such downgrade: 1) The significant run up in the government debt levels in recent years; 2) The country’s limited growth prospects; 3) The challenges the government is likely to face in raising revenues. It appears in the report, Moody’s made note of the out of control borrowing by this Government, with no prospects in the near to medium term of raising the revenues to reduce the debt levels. Again, economic and revenue expansion is essential!! But where is the FNM plan? What is the FNM plan? More taxes on Bahamians? I say no – that cannot be the way.
More importantly, however, Moody’s observed “given the country’s limited growth prospects, the government will have difficulty achieving a meaningful reduction in current elevated debt levels in the near-to-medium term …” Moody’s also observed that “a failure by the government to reverse the recent trend of rising debt would likely result in a downgrade of the Bahamas’ rating.” I fear that this is a warning that we can expect another downgrade of the credit rating of the Bahamas in the near term, particularly if the No Policy FNM Government is returned. I say to the Bahamian People it is their best interest to say Bush Crack – FNM Gone!
Standard & Poor’s – October 31, 2011 Downgrade
Just a little over a month ago Standard & Poor’s again downgraded the credit rating of the Bahamas. Standard and Poor’s lowered The Bahamas’ Credit Rating from BBB+/A-2, to BBB/A-3 and its transfer and currency convertibility assessment from A- to BBB+. This is further evidence that this FNM Government has placed the Bahamas in a precarious position. We read the response by this Government, implying that this was entirely a result of a change in methodology, putting greater emphasis on diversification, but where is the diversification??? Regardless of what the Government says, it is clear that this FNM Government has failed to implement any policies to reduce the debt, shrink the deficit or expand and diversify our economy. Without proactive action, these types of international comments and downgrades will be the norm for the Bahamas. I can tell you that any Government I am a part of will bring proactive action that is required, and restore Hope and Dignity to the Bahamian People. We will put People over Politics.
IMF 2011 Article IV Consultation – December 2011
Just this month, the IMF released their 2011 Article IV Consultation Review of the Bahamas, and if one were t read it carefully, you could easily see the warning messages of the IMF. The IMF observed that the deficit of the Central Government deteriorated in Fiscal Year 2010 / 2011, explaining that although one off transactions created more revenue, expenditure increased disproportionately. The IMF also made note that public debt continued to rise, reaching an alarming rate of almost 62 percent of GDP. Even though growth may be forecasted, which one can easily question, the observation by the IMF is that a weaker fiscal and debt position will persist in the near term. The IMF has projected, based on the deficit trends of this Government, that the overall public debt will be an alarming 69% of GDP by 2016. It seems that this FNM Government is determined to put the Bahamas on a course to unsustainable debt levels. As we sit here today at a debt of 62% of GDP, interest on government debt is the single largest line item in the budget. What will it be when debt is 69% of GDP. And this 69% is estimate is assuming growth of 2.5% – 3%. I ask you, does it feel like the Bahamian economy is growing?
We on this side have made the point that the so-called initiatives by this FNM Government would not be enough to cause increased revenues and slow the acceleration of the national debt. The IMF agrees, they make note that although the Staff welcomed the authorities’ mid-term strategy, the noted that this would not be sufficient. It was observed that more comprehensive polices are required to reduce the Government debt, “a stronger fiscal effort was needed.” It is clear in its review that the IMF is saying, “Government debt is a problem, and this FNM Government is not doing enough to address it.” We on this side have been saying this for the last 4 years. The IMF observed that not only does revenue collection need to be reformed, but a restraint on spending is required, again something that this side has been saying for the last 4 years. In my opinion, this most recent report by the IMF is an indictment against this Government on the financial management, or mismanagement, of the country. In my opinion, the IMF is giving this FNM Government an “F” in Fiscal Management.
Global Financial Services Index – September 2011
The most recent publication of The Global Financial Centers Index released in September demonstrates the further erosion of the Financial Services Industry of the Bahamas under this FNM Government. In fact, report after report, for the last 4 reporting cycles, the Bahamas has fallen in the rankings of The Global Financial Centers Index. The Bahamas has fallen from being ranked 59, to 64, to 67, to 72 in the most recent report. This trend is an indictment against the failures of this FNM Government as it relates to the Financial Services Industry. You will hear that this legislation today shows the commitment of this Government to the Financial Services Industry, my response is just look at the objective measurement, where we have fallen 4 straight reporting cycles. By any measurement, the trend as we see in The Global Financial Centers Index is an indictment of failure, especially as compared against our peers. This Government is not serious about the Bahamas and by extension the Bahamian People.
Ease of Doing Business – October 2011
The Bahamas has fallen in the ease of doing business measurements as compared to other countries. We have fallen from being ranked 59th in the 2009 report, to 71st in the 2010 report, to 77th in the recently released 2011 report, which was subsequently adjusted down to 82nd, and now a further fall in the 2012 report to 85th. In the last 4 years of ranking under this FNM Government, the Bahamas has fallen from a respectable ranking of 59 to an embarrassing 85th. This is an important downward trend, evidence that despite what you might hear from this Government about their initiatives, the facts speak for themselves. The Bahamas is worse off today that it was just 4 years ago, and this Government has no plans or programmes. I tell you, it is time this Failed National Monstrosity Government be gone!!!
The downward trend, year after year by international organizations is evidence of the failure of this FNM Government and its mismanagement of the affairs of the country. This is not political rhetoric; it is a discussion of objective measurement standards. The international report card of this Government is a failing grade, this FNM Government has done significant damage to the Bahamas, significant damage to Bahamians. The country and Bahamians deserve better than what they have had the last 4+ years and I promise the Bahamian People that the New PLP Government in 2012 will give you better!!! We will put People over Politics.
Abandonment of the Financial Services Industry
The legislation today will not convince the Financial Services Industry that this FNM Government is in their best interest, in fact, the track record of this Government is entirely the opposite; it is a Government who has abandoned the industry. The Industry knows this and can’t wait for them to be gone. The international agencies’ observations are evidence of this, but also the very actions of this Government demonstrate the Government has abandoned the Financial Services Industry. A new PLP Government will give the Industry the opportunity to flourish and grow and be the strong second pillar of our economy thereby significantly increasing revenue enabling us to be in a position to address our national debt and get back the respect of the international agencies.
Ministry of Financial Services
At the outset of its term in office, this Government disbanded the Ministry of Financial Services. The Ministry of Financial Services was the policy and regulatory component of the Financial Services Industry. Without the Ministry focusing on our second pillar of our economy, the advancement of the financial services industry has suffered. The needed attention that was required in response to the international pressure on Tax Information Exchange Agreements wasn’t there. We should have been the leaders in the region in the response, instead our competitors were perceived as the leaders and we as the followers.
Instead of a stand-alone Ministry to lead the industry, this FNM Government first assigned the portfolio to the Minister of State for Finance. I had commented that this was the wrong thing to do. With the demands in the Ministry of Finance, having responsibility for the financial service industry would not result in the attention it deserves. I guess the Prime Minister agreed with me, removed the portfolio from the Minister of State for Finance, and assigned it to the Attorney General. Again, I thought this was a mistake, with the challenges in our judicial system; the Financial Services Industry would again not get the attention it deserves. The only solution for a progressive industry is a stand-alone Ministry of Financial Services.
A consequence of a lack of focus by the Government on the Financial Services Industry is not only an industry that has fallen in the rankings, but it is also an industry that is becoming more and more closed to Bahamians. If the Government had the necessary focus on the industry, it can do so in a manner where qualified Bahamians are first in line for financial services career opportunities. What we have witnesses over the past 4 years is less Bahamians employed in the industry, and more ex-patriots being employed. A new PLP Government would ensure this would not be the case, we would ensure that this was reversed because we on this side Believe in Bahamians.
Let me tell you the story of one of my new constituents, one of my new family members in Elizabeth. I was speaking with new residents this weekend, and I was told a story of how one resident, very accomplished and educated, lost his job at an offshore bank 3 years ago. He has been unable to find a job in the banking sector, despite the fact that it seems jobs are available for ex-pats. A Ministry of Financial Services would allow for the focus needed to grow the industry and to ensure that my constituent has the opportunity to further his career in the area of his expertise, the financial services industry. The next Progressive Liberal Party Government is committed to the creation of the Ministry of Financial Services, to give the industry the focus that it needs, and deserves and ensure that Bahamian Professionals are given the opportunity for success.
New Financial Services Products
As part of the legislation we debate today, included is the Executive Entities Bill, 2011. This legislation has nothing to do with OECD requests; it creates a new product, the Executive Entity. The industry has been requesting this product / new entity for over a year now. It is curious that the Government is just bringing it forward. This is a good vehicle, to be used in a number of structures, including planning using Private Trust Companies. I think it will be a beneficial addition to the toolbox that the industry has at its disposal. I question, why now, is this an attempt to curry favor with the industry? If so, it will not work, they know you are not a Government committed to the Financial Services Industry and they know the New PLP Government will, our track record speak for itself.
PLP Legislative Developments
During the prior PLP administration, new products for the advancement of the industry were commonplace. The PLP Government took a proactive, rather than a reactive approach to the continued development of the Financial Services Industry. This in large is a direct result of having a dedicated Ministry of Financial Services and having a commitment to the growth of International Commerce to prevent the need to further tax Bahamians. The former PLP Government brought legislation in the following areas:
Private Trust Companies
Various amendments to existing financial services legislation
In many instances, throughout the time when the PLP was in Government, new and innovative products were created through legislation for the financial service industry. A Government committed to the advancement of the industry, and opportunities for Bahamians. The PLP believes that the industry can further expand, and provide more opportunities for Bahamians, as a result of the PLP policies of economic expansion.
The current makeup of the financial services industry is rather narrow, primarily concentrated on wealth preservation and management. The expansion of the industry will directly result in to the economic activity of the Bahamas. Financial Services makes up a wide variety of industry, including commercial banking, investment banking, international insurance products and services. As the PLP implements its plan for economic expansion, including promoting a robust trade agenda, the support institutions in financial services will grow along with it.
Once we create an environment to develop the Bahamas as a trade hub between Europe / Asia and the Americas, there will be a necessity for international commercial bank to support the transactions. There will also be a necessity for international insurance to insure the shipments. There will be a necessity for international investment banking activities, such as the purchase of currency derivatives and instruments. These should all be located in the Bahamas to support the economic expansion of industry in the Bahamas. As the financial services industry further develops, incorporating a robust commercial arm, career opportunities for Bahamians will further develop.
We always hear the question and concerns that Bahamians abroad do not come home because the career opportunities do not exist. Well an expanded Financial Service Industry focused on commerce, coupled with a National Development Plan that includes a robust trade agenda will provide these career opportunities. These plans will provide the employment opportunities for Bahamians, such as the new member of the Elizabeth family I met last week that has been unable to find a banking position for 3 years. This is progressive reform, progressive growth, and concentration on putting Bahamians first.
Based on the track record of the PLP, and the plans and programmes one thing is clear, a PLP Government is in the best interest of the economic growth and Financial Services Industry of the Bahamas.
It is clear that the FNM Government has mismanaged the economy, and through its excessive and uncontrolled borrowing, has put the Bahamas at risk with respect to its finances. International credit rating agencies and other lending organizations throughout the world have issued warning after warning, all ignored by this administration. The Progressive Liberal Party has consistently argued that the mismanagement of the country’s affairs by this FNM Government could place generations of Bahamians at risk. We only have to watch the news to see what uncontrolled borrowing and spending has done to countries around the world, if not constrained, the FNM will cause the Bahamas to head in this same direction. The Bahamas deserves better, Bahamians deserve better, Bahamians deserve the PLP. The PLP has a record for responsible fiscal management; the PLP has a history of building and promoting industry such as the Financial Services Industry. We are heading to election real soon, maybe one of the more important elections for the Bahamas and Bahamians. A PLP Government is the only choice to make responsible decisions and govern in the best interest of Bahamians.