THE RT. HON. PERRY G. CHRISTIE
MINISTER OF FINANCE
DEBATE ON THE
2014/2015 MID-YEAR BUDGET STATEMENT
WEDNESDAY 25TH FEBRUARY 2015
Mr. Speaker, during the course of the debate on the 2014/15 Mid-Year Budget Statement, we have heard varied claims from Members opposite about my GovernmentÅfs fiscal and economic track record.
In a nutshell, these assertions are tired repetitions of their past pronouncements on the matter, revolving around the themes of:
_ wasteful and unaccountable spending;
_ little to show for the money spent; and
_ our need to show what we have achieved.
Mr. Speaker, in closing the debate on the Mid-Year Statement, I will again as I have in the past encapsulate the crux of the matter in three simple words: responsibility, accountability and transparency.
The presentation of the Mid-Year Budget Statement to this Honourable House last week is a testament to our dedicated commitment to those fundamental tenets of governance.
Notwithstanding the reckless and unfounded comments of the party opposite during the debate that we are unaccountable, the Mid-Year Statement clearly demonstrates that my Government is administering the nationÅfs public finances in a responsible manner, that we are duly accountable for these matters to both Parliament and Bahamian citizens and that we have done so in a fully open and transparent manner.
Irresponsible claims that the Government will appropriate new incremental revenues from the VAT, for instance, to merely waste them frivolously or, as was claimed last week, to Ågplay with them without accountabilityÅh border on both the ludicrous and the ridiculous.
Our fiscal plan is crystal clear; it accounts fully for all revenues projected to be collected and it sets out explicitly where public dollars will be spent on either recurrent or capital expenditures. It also delineates how incremental revenues will be dedicated to reducing Government deficits and ultimately getting our nation to a lower burden of public debt.
In the Mid-Year Statement, I also touched on the multi-faceted economic growth strategy that we are steadfastly pursuing and, in that context, I referenced the tremendous progress that we have made in promoting new investments across the nation. Through persistent efforts such as these, I am convinced that we have set the stage for a solid recovery and expansion of our economy and job opportunities for our citizens.
My optimism for the future is indeed virtually unbounded and I do believe, as I stated forcefully last week that we are on the cusp of a new era of economic prosperity.
My deep and abiding optimism for the future is anchored in the facts that I laid before the House in the Statement.
We are delivering on our responsibility to promote investment and growth and I have rendered account of our work to date to both Parliament and Bahamians.
And so, Mr. Speaker, I again bring into question the veracity and plausibility of the statements made by Members opposite this week that my own and my GovernmentÅfs optimism is, in their words ÅgrosyÅh and that Ågwe are out of touchÅh. The many investment projects that we have been successful in stimulating and encouraging are very real, Mr. Speaker. They are backed by very real investors, investing very real dollars that will create very real jobs for Bahamians.
Over the past two years we have seen heightened interest from high net worth individuals and companies wanting to invest in The Bahamas and the convergence of wealth seeking opportunities throughout our archipelago; so much so that the profile of The Bahamas has been raised in the international investment community. In terms of foreign direct investment and from a development standpoint we are seeing not only an increase in capital investment momentum but also a greater mix in the Bahamas tourism product from traditional moderate and upscale resorts to high end, luxury and even ultra-luxury resorts, themed and new types of all inclusive facilities, as well as mixed use residential, business and resort offerings. Some of these brands are managed differently and will require more rigorous training of employees to prepare them to meet new standards of service and operational requirements in order to compete internationally and to continue to grow the industry to provide more jobs and economic opportunities for our people.
This new development paradigm will require different labour utilization models, the use of smart technology in service delivery and will demand that our telecommunications and energy infrastructure is more efficient, reliable and less costly. These new high-end products will, ultimately, transform The Bahamas product offering but our reputation in the marketplace, our brand quality, will depend on how well we manage the transition to a destination with more product offerings and how successful we are at providing a satisfactory guest experience to both regular and high and ultra-high net worth customers.
The side opposite continues to suggest that despite evidence to the contrary, that promised jobs are not being realized from various investment prospects. In fact, we continue to improve overall growth performance and employment continues on an upward trajectory. I am pleased to say that this year alone as many as 7,500 to 8,000 new operational and construction jobs are projected to be realized as a result of my Government’s initiatives to stimulate economic activity.
Recent financial commitments from investors will have significant economic impact on a growing number of our Family Islands and the New Providence economies. Of course, the most visible turn-around has been seen in Grand Bahama in 2014 where real gains are being made in improved infrastructure, investment and employment. As an example, the Freeport Harbour Company plans a $17 million capital investment in berth upgrades this year which will employ some 30 plus persons. The Freeport Container Port is ready to start work on a container freight station which will employ some 30 persons. Additional work is contemplated for airport upgrades and on the expansion of the Freeport Container Port in the second half of this year, creating employment for some 300 persons.
Last year Blue Diamond’s Memories Resort which is managed by Sunwing created over 700 direct and indirect jobs, plus 300 construction jobs which, along with the $14 million refurbishment initiative by the Grand Lucayan Hotel, which took on an additional 70 workers for the winter season, has seen the revitalization of the Grand Bahamian hospitality industry.
We would have heard previously from the Minister of Tourism, the member for West Grand Bahama and Bimini of the five-year partnership arrangement recently made this year with the Grand Celebration which will result in an additional 300 new jobs becoming available for Bahamians. In conjunction with the Ministry of Tourism, the Ministry of Labour and the Grand Bahama Island Tourism Board, the Job Fair to fill these positions will be coordinated by the Ship Mate Limited Crewing Agency for persons interested in working at sea on variable terms in positions which include retail, cabin attendants, hotel stewards, bell & pool attendants, laundry staff, entry level cooks, kitchen personnel, junior waiters, bar servers, and able bodied ordinary seamen. The selection and training process which is already underway will be fully managed by Bahamian professionals.
The Port Lucaya Marketplace, which was recently sold for $5.5 million will also now undergo significant upgrades creating additional jobs and entrepreneurial opportunities. The Grand Bahama Yacht Club, which was sold for $6.6 million in 2012 and which has achieved occupancy rates of 70% attributed primarily to its incredibly successful relationship with RCI Vacation Exchange, has taken its staffing from 10 last year to 20. Overall, Grand Bahama hotels reported a 56.1% increase in rooms occupied and 33% increase in rooms’ revenue at end of 2014 and the island is expected to sustain this trajectory in 2015.
Nassau & Paradise Island
On Paradise Island Access Industries spent $140.5 million to acquire the One and Only Ocean Club last year. With the announcement of plans for a $50 million phased expansion and acquisition of additional beachfront property contiguous to the Club for potential, future development, the owner has committed to preserving the hotel as an exclusive member of the iconic One & Only brand and to maintaining the brand’s market competitiveness. The first phase will include a $12 million renovation of the Hartford Wing this summer with 35 construction employees, adding $1.2 million in taxes through VAT and Business Licence collections, and will maintain current levels of employment of 435 staff following the renovations.
The Atlantis Resort on Paradise Island which is currently the primary employment driver in The Bahamas with 7,743 employees at end of year last year, concluded a $1.95 billion re-capitalization of the development and a major re-branding in strategic partnership with the Marriott International family as part of its Autograph Collection. The refinancing and rebranding initiatives boosted occupancy levels by Marriott’s world-leading networks in both leisure and group business segments and beneficially allows for Atlantis’ extended reach into Marriott’s loyalty membership network of 45 million customers. The property’s owner, Brookfield Asset Management, spent $21.4 million in upgrades last year and expects to add another 183 jobs as a result of the new gaming legislation and restaurant CAPEX capital projects currently under consideration.
Also on Paradise Island, the Paradise Island Harbour Resort which was sold in 2013 to Warwick International for $10 million, commenced renovations of the 245 room hotel last year. Together with the $5.7 million renovation at the Comfort Suites, more than $37 million has been spent on product upgrades to Paradise Island resorts.
In downtown Nassau, China Construction is the new owner of the landmark British Colonial Hilton Hotel and will undertake a $200 million expansion project slated to be completed over the next 20 months. The project will include ninety-four (94) condos and an eight-two (82) key hotel, six theatres, a skyline nightclub and roof-top bar, restaurants, 50,000 square feet of retail shops, amphitheater, office centre, entertainment facilities, car park, 100-slip marina and boardwalk. The project will provide 200 new construction jobs for Bahamians and will support 500 new permanent jobs on completion, in addition to the 277 staff presently employed at the Hotel and Commercial Center.
This project, Mr. Speaker, is destined to revitalize our city and in conjunction with the joint venture Downtown Redevelopment Project with Government and the private sector, will see a transformation of the Port of Nassau into the premier port of call in the Caribbean region.
The Nassau Palm Resort was acquired in 2013 by Sunset Equities Limited which gutted the property and has spent $20 million for acquisition and capital works. The hotel which had been on the market for three years will be branded and will re-open with 140-150 employees in the second quarter of this year.
The 3.5 billion dollars investment in the Baha Mar project on Cable Beach will catapult the destination into one of the Caribbean and Latin America’s premier resorts featuring an eclectic collection of upscale hotel brands, 100,000 square foot casino and the largest convention hotel facility in the region. As of mid-February this year Baha Mar had over 3,015 Bahamian construction workers on site as compared to 1,500 during the same period last year and is expected to have 3,000 new operations employees when the resort opens and increasing to 5,000 by the time all the resort components come on full stream.
The Meliá Nassau Beach recently completed a $19 million renovation and became a part of the Baha Mar brand. Employee counts increased by eighty (80) persons when four new restaurants opened at Meliá in December of last year.
Also in Cable Beach, the upscale Silver Leaf Resorts Group is developing a 71 unit time share with a capital investment of $30 million. The project, which is slated to begin in the second half of the year, is expected to employ up to 120 construction workers and on completion will offer 40 permanent jobs.
The Tavistock Group, owners of the ultra-high-end Albany Resort in western New Providence has already commenced construction of phase two of the Albany project comprising two marina condo-hotels each with 40 units at a cost of $140 million, with total build out planned of 200 units, medical and wellness, financial, retail and commercial centres and golf academy over the ensuing years. Albany has created over 800 construction jobs during this phase which will be completed at the end of 2015 and will add 34 new jobs in the coming weeks to the current 453 bringing the total number of full-time employees to 487. This number is expected to expand by 300 over the course of the next three years.
Further west, the Holowesko’s 10-acre, $30 million development near Lyford Cay, employed 30 people at Mahogany House last year and provided over 100 construction-related jobs. On completion of the $23 million construction project and $2.6 million being spent on domestic purchases and services, the 30-key, five-star, boutique Island House hotel will have one hundred twenty (120) full-time jobs when it opens in April of this year. The Holowesko Highbourne Cay project in the Exumas has seen an increase this year from 21 to 33 employees.
Also in western New Providence, my Government recently approved the $17 million acquisition by members of the Lyford Cay community of the Lyford Cay Shopping Centre for the construction thereon of high-end office buildings, retail shops, luxury townhouse and villa residences, memorial park, police station. As this project gets underway it will stimulate further economic activity in the Western District of New Providence, creating additional jobs and entrepreneurial activities in the near future.
Bimini is certainly keeping pace with this new development paradigm as Genting has invested over half billion dollars in air and sea port infrastructure and transportation, hotel, casino and other infrastructural works, undertaken through their Resorts World Hospitality Company. Their new 300-room Hilton branded luxury hotel is nearing completion with some of the rooms now ready for occupancy within the next two weeks.
In 2013 there were 158 full time employees at the resort; by end of 2014 the number increased to 500 and today the number stands at 536. Before the end of this year when the new hotel is fully operational the resort will be employing some 700 Bahamians. Additionally, at present there are some 314 Bahamian construction workers employed at the property. These employees are drawn from Bimini, and Grand Bahama, New Providence, Abaco, Andros, Eleuthera, Exuma and Long Island.
The Bimini Superfast, accommodating 1600 passengers can now disembark passengers at the new deep water pier. In addition to its seaplane and executive jet fleet, Resorts World is poised with the opening of the new hotel to acquire and put in service this summer additional aircraft to reach new markets.
In Abaco, Southworth Developers have acquired the Winding Bay Resort, and have committed an additional $348 million to expand the development over the next 10 years creating many new jobs, contract and entrepreneurial opportunities for Bahamians.
Also in Abaco, the owners of the Baker’s Bay Golf and Ocean Club have 34 new residences currently under construction at a cost of $150 million and another 30 coming on stream this year subject to manpower availability. This critical mass will significantly raise the profile of Abaco and expand employment from the current 796 to 911 by year end.
Additional development is planned with 90 more residences proposed for build out over the next two years. Some 250 additional construction jobs plus a significant number of new operational jobs are projected over the next two years. To meet both increased construction demand and highest quality standards, the developer in concert with the Government, will mount in concert the job training as well as a vocational and skills training programme at the Government’s secondary school in Marsh Harbour.
In Andros the economic impact of BAMSI is being felt in the communities in the North in particular, creating 305 new jobs in the academic, farming, aquaponics, marine, tutorial, administrative and construction areas at the Campus and Production Centres, with car rentals, mobile lunch meals, restaurants, grocery and supply stores, hotel occupancies, construction workers indirectly benefitting from BAMSI’s operations.
Other significant linkages will be developed in both north and central Andros as a result of the Master Plan being prepared by Stanford University with Inter-American Development Bank grant funding.
Well over $200 million in capital investments are planned in the Exumas by foreign investors who are awaiting environmental impact study approvals and other approvals which should easily translate into an additional half a billion dollars in economic activity, and even more jobs as these projects get underway and become operational.
At February Point in Exuma, since a restart last year, construction has begun on the property with over 100 employees and an additional 100 will be added over the next few months as construction ramps up and prep work begins for the Flamingo Bay property which is a joint-venture community development project with the Bahamas Government.
On the subject of employment resulting from the efforts of the National Training Agency, I wish to point to an example of cooperation with the agency by Sandals. With a current employment of 614 at the Royal Bahamian and 474 at Emerald Bay and ongoing training programs for staff at all levels, Sandals has a hospitality training program with the National Training Agency in which their interns get experience in their hotels. Sandals has reported that just over 50% of them are hired on successful completion of the program.
Bahamas Junkanoo Carnival
Our vision and plans to expand our cultural offerings, and maximize on the use of our artists in showcasing our nation to the world in our first annual Bahamas Junkanoo Carnival, will soon be realized over the upcoming five week period from April 6 to May 9.
The Bahamas National Festival Commission, drawn from a wide cross-section of our community, in conjunction with the office of the Prime Minister, the Ministry of Tourism and the Ministry of Youth, Sports and Culture, have been working assiduously, not only to ensure the highest quality and appeal of the Carnival but that the maximum economic benefit is derived there from. Indeed the mandate which was given to the National Festival Commission:
i. To stimulate sustainable economic opportunities from small and medium enterprises in the creative sector throughout The Bahamas;
ii. Bring to fruition a new Bahamian-style carnival;
iii. Stimulate year-round employment in the creative sector; and
iv. Positively and significantly impact GDP.
It is important to note that Carnivals are the largest income-generating festivals in the world, contributing significantly to increased economic expenditure in tourism and overall economic growth in cities such as Toronto, New York, London, Miami, New Orleans, Jamaica, Barbados and Trinidad which host these special events. Economic benefits are generated from the expenditures generated from increased stopovers, cruise passengers as well as local participation.
In fact, the Commission’s Chairman has reported that of the $9 million the Government has committed to the Bahamas Junkanoo Carnival venture, $1.7 million has been spent with 214 small and medium local businesses throughout the islands which has already had an estimated impact GDP of $7.6 million and an additional $5 million expenditure between January and May by the Commission is conservatively projected to yield a GDP impact of $21 million this year alone.
With proper execution of a national carnival-styled festival and expanded scope of cultural activities in the coming years the Government of the Bahamas can anticipate a potential GDP impact of $30 million from these initiatives.
The economic impact of the Carnival will be particularly beneficial to young people who comprise the bulk of the performers, artisans, designers and other local entrepreneurs.
Now, I will acknowledge again today, Mr. Speaker, as I did very clearly in the Mid-Year Statement that the recovery of our economy is still nascent and that progress in getting us to a significantly lower rate of unemployment has been modest. We are not unique in this respect as the entire world economy has had to struggle to pick itself up from the devastating global economic and financial meltdown. Indeed, contrary to the facile views expressed on the other side, my Government has in no way merely been lucky and benefitted from the global economic recovery. The successes that we have garnered on both the economic and the fiscal fronts to date have been hard-earned and won through our determined and dedicated efforts.
But I am indeed pleased to report that, because of our efforts, we are now poised to capitalize on the eventual resurgence in the world economy and, more importantly, the very evident strengthening that is now underway in the U.S. economy, our dominant trading partner.
We have also confronted the dire fiscal position that we inherited.
To that end, we have developed a medium-term fiscal consolidation plan to gradually reduce and ultimately eliminate the Government Deficit and put the burden of Debt on a downward path to lower and more appropriate levels.
We have set out our plan deliberately, transparently and consistently in both Budget Communications and Mid-Year Statements since our current mandate began. We have been determined, steadfast and unwavering in our commitment to putting the nationÅfs fiscal house in order.
That, Mr. Speaker, is the true test of responsibility and accountability. We told the Bahamian public what we planned to do, we have faithfully followed up on those plans and we have reported our progress to date openly and transparently.
Our plan is balanced, measured and targeted to achieve steadily and gradually our overriding Deficit and Debt objectives over the course of our mandate.
The transition to these objectives is to be secured by the pursuit of a number of intermediate, operational fiscal targets in respect of Recurrent Expenditure, Capital Expenditure and Recurrent Revenue.
Specifically, we are aiming to:
_ to reduce the size of Recurrent Expenditure relative to the size of the economy;
_ to return Capital Expenditure to more traditional levels relative to GDP; and
_ to enhance the yield of our revenue system to more appropriate levels.
Let me repeat: our plan is balanced across all major components of the fiscal accounts, i.e. it is not solely reliant on raising more revenues but also features a significant restraint of spending.
Specifically, Recurrent Expenditure during our term will be returned to 19.6 per cent of GDP by 2016/17, down significantly from the peak level of 20.7 per cent achieved in 2010/11 under the stewardship of our predecessors.
Likewise, we will reduce Capital Expenditure to 3 per cent of GDP by the end of our current term, down from the high of 4.9 per cent in 2011/12 when Members opposite were at the helm.
Mr. Speaker, we have heard this week assorted vacuous statements by the Opposition about my GovernmentÅfs irresponsible and wasteful management of the nationÅfs public finances. In light of the Budget data that I have just cited, such claims are simply and most obviously unfounded.
In order to clear up any misconception that may have been engendered in the minds of Honourable Members and the public by such commentary, allow me to reiterate the plain and simple facts of the matter.
In the final year of our previous mandate, FY 2006/07, we left with Recurrent Expenditure at a level of 17.4 per cent of GDP. The administration that succeeded us in 2007 then proceeded to inflate the level of Recurrent Expenditure so blatantly that its weight soared relative to the size of the economy. That is a clear prescription for fiscal disaster as it is ultimately the size of oneÅfs economy that dictates the level of revenue that will be available to pay for public expenditure. In the event, we saw Recurrent Expenditure shoot up from the 17.4 per cent of GDP that we had left to the new high of 20.7 per cent of GDP in 2010/11 that I cited above.
Admittedly, Mr. Speaker, this was a time of economic distress in the nation as we were seriously buffeted by the Great Recession that originated outside our shores. However, one must question exactly how effective such a spurt of spending was in mitigating the impact of the recession on economic activity and workers in our small, open economy. The national rate of unemployment did rise from 7.9 per cent in 2007 to 14.2 per cent in 2009. Indeed, the effectiveness of the short-term, stop-gap programmes that were introduced may in fact, in and of themselves be brought into question.
Worse still, Mr. Speaker, not only did the previous administration go on a spending spree during its term in office, it concurrently lost sight of the determination needed to effectively administer the tax laws of the nation. In the midst of its spurt in Recurrent Expenditure, it allowed the revenue intake from the tax system to slip from 17.4 per cent of GDP in 2007/08 to 16.4 per cent of GDP in 2009/10. Then, in 2010/11, it realized the error of its ways and abruptly reversed course and imposed a bevy of new and higher levels of taxation on Bahamians. The spending spree, however, continued during that fiscal year and Recurrent Expenditure continued to soar.
Now, contrast the expenditure control performance of the previous administration with that of my Government since we came to office in 2012.
The numerous and varied reforms to expenditure control that we have implemented and which I set out in detail in the Budget Communication will continue to bear fruit as we move ahead. On the basis of our dogged pursuit of spending discipline, we expect the weight of Recurrent Expenditure to continue to decline relative to the size of the economy. By 2016/17, Recurrent Expenditure is expected to represent some 19.6 per cent of GDP.
Mr. Speaker, during the course of our mandate, we will have succeeded in reducing Recurrent Expenditure by 1.1 percentage points of GDP, from the peak level achieved by the previous Government. That, Mr. Speaker, stands in sharp and vivid contrast to the 2.8 percentage point increase in the ratio of Recurrent Expenditure to GDP during the term of our predecessors.
Members opposite have also floated claims that we have increased public borrowing by exorbitant amounts since our current mandate began. The implication is that the debt build-up during my GovernmentÅfs mandate will have far exceeded that incurred by our predecessors during their time in office.
That, Mr. Speaker, is an implication that clearly merits proper context.
As I have stated, the fiscal record of the previous Administration was so lax that they succeeded in transforming a small surplus on Recurrent Account to huge and persistent deficits beginning in 2008/09. That year, the Recurrent Deficit amounted to $168 million. By the end of their term, the Recurrent Deficit was firmly entrenched in the fiscal accounts and it came in at a level of $200 million in 2011/12.
This, Mr. Speaker, is the grave structural fiscal imbalance that my Government inherited as it came to office in 2012. During its term, the previous administration had incurred deficits totaling over $1.7 billion, if one properly accounts for the proceeds of the sale of BTC shares in 2010/11. We had left them a Government Debt level of 30 per cent of GDP, widely considered desirable from a prudent fiscal point of view. In their five years in office, the burden of Government debt soared by some 61 per cent to stand at 48.4 per cent of GDP in 2011/12.
In contrast, over the course of our mandate, we project an increase in the ratio of Government Debt to GDP of 10 percentage points, to a level of 58.5 per cent. But, more strikingly and importantly, Mr. Speaker, is the fact that, in the second half of our mandate we will have succeeded in breaking the back of the relentless debt spiral; the debt burden will be on a clear downward path to yet lower levels.
Mr. Speaker, the fiscal structure that was created by our predecessors set in train a vicious and self-feeding spiral of deficits and debt that, left unchecked, could have had very damaging effects on confidence and the economic well-being of our nation.
Indeed, it is instructive to ask the question as to what might have occurred if my Government had simply done nothing in the face of this grave situation. What if we had recklessly accepted the gravely imbalanced fiscal structure of our predecessors? The answer to that question, Mr. Speaker, is I believe the true measure of the fiscal legacy of the former administration.
Had we chosen to leave Recurrent Expenditure, Capital Expenditure and Recurrent Revenue at their levels relative to the size of the economy as we found them after the 2012 election, simple arithmetic reveals that the level of Government Debt would soar to well over 70 per cent of GDP by 2016/17.
With such an onerous debt burden, the level of public debt charges would balloon that year to some $350 million, which would appropriate over 20 per cent of projected revenues that year. A deficit and debt spiral, once allowed to initiate, is insidious and vicious indeed.
Mr. Speaker, my Government of course came to office firmly determined not only to pursue its aggressive programme of economic and social renewal and growth, but also to decisively deal with the grave fiscal imbalance that confronted us.
Through our Medium-Term Fiscal Consolidation Plan, we are moving to eliminate the structural imbalance in our public finances by both reining in the growth of both Recurrent and Capital Expenditure and by enhancing the revenue yield of our tax system. I would also reiterate that we are pursuing the latter by both strengthening the collection of existing taxes and introducing new sources of taxation, of which VAT is the keystone.
Our plan is measured in that it is to be secured by judicious and visible initiatives in respect of both spending and revenue. We have accounted for the details of this plan to Parliament in as transparent a manner as possible. The facts are on the table for all to peruse and analyze.
Our plan is targeted with clearly identified objectives for the key components of the fiscal accounts, as well as the underlying fiscal actions that have been decided to get us to those ultimate fiscal objectives.
I acknowledge that I and my Ministers have made this point on repeated occasions, but it does bear repeating again today to ensure that Bahamians fully appreciate the import of the message.
My Government is pursuing an aggressive though measured fiscal plan over the medium term not for its own sake.
Rather, it is vitally important that Bahamians understand that redressing the public finances in a sustainable manner is a critical means to an end that we all desire.
By restoring confidence in our nation as a secure and lucrative destination for investment, we will set the foundation for yet stronger growth in economic activity and, more importantly, for much-needed new job opportunities for Bahamians.
Our plan will truly serve the national interest as we move to implement it gradually and steadily going forward. Mine is indeed a Government of responsibility.
We have judiciously crafted our growth and fiscal strategy to both pursue enhanced investment and growth as well as redress the public finances in a gradual manner over the medium term horizon.
By so doing, we have spared the nation of the rather dire straits confronting other countries around the globe.
As our decisive and responsible actions bear fruit, we are positioning ourselves such that Bahamians will not need to fear the types of short-term and drastic cuts in Government programmes and services and/or draconian increases in taxation that have been necessary elsewhere.
My GovernmentÅfs approach to fiscal matters is responsible. We are moving in a measured way to implement fiscal consolidation through the medium term.
Our gradual and measured approach will serve to mitigate the near term impacts on the economy, while setting the stage for stronger and durable growth through time.
Indeed the International Monetary Fund in its latest World Economic Outlook is projecting, with the measures in our fiscal reform plan, a rebound in the growth of our economy in 2015, with a rate of real growth of 2.1 per cent, up from 1.4 per cent last year and 0.7 per cent in 2013. Real growth this year will be at a rate not seen in this country in almost a full decade.
While that is indeed encouraging news, I will reiterate again that we must do much better than that if we wish to create the numbers of jobs needed to absorb the growth in our labour force and to get us to a significantly lower rate of unemployment.
That is evident from the latest labour market data published by the Department of Statistics, to which I referred directly and explicitly in the Mid-Year Statement. These data revealed that, while employment had increased between May and November of last year, the growth of the labour force, including the return of workers who previously had been discouraged but were now encouraged enough to return to the labour force, had outstripped the growth in jobs. As a result, the national unemployment rate increased.
Mr. Speaker, my abiding confidence in the future and in the success of our growth strategy is such that I am confident that we are turning the corner and that employment prospects will brighten significantly in the quarters and years to come.
Mr. Speaker, the efforts of Members opposite to belittle my GovernmentÅfs progress to date on the jobs front is pitiful indeed when gauged against their own track record during their last term of office. As was clearly set out in Table XII of the 2014/15 Budget Communication, between 2007 and 2012, the number of unemployed persons in The Bahamas virtually doubled, from some 14,000 to almost 27,000. The rate of unemployment soared from the 7.9 per cent level at the end of our previous term to 14.0 per cent at the end of their term.
Mr. Speaker, during their last term, the number of employed persons across the country fell by over 6,000.
As all will know, my GovernmentÅfs programme of tax reform is one of the core components of our fiscal consolidation strategy.
I would remind Honourable Members that the issue of tax reform and its need is one that has a very long history in this country, across political parties of very different stripes.
The FNM, for instance, in their last Budget spoke of the need to reform and modernize tax administration and stated that the then tax structure was deficient in terms of producing a more buoyant stream of Government revenues.
In its election platform ÅgManifesto 2012Åh, the FNM spoke of the need to accelerate reform of the tax system to reduce dependence on border taxes and broaden the tax base.
However, despite much repeated talk about the vital need for tax reform, it was left to my Government to finally assume responsibility for the much needed and indeed overdue fundamental reform in the way Government raises revenue to properly and adequately finance the programmes and services that are cherished by Bahamians.
Indeed, we all deeply value our public health and education services, our social assistance programmes, as well as the basic public infrastructure that Government provides across the vast breadth of this archipelago.
My GovernmentÅfs actions will ensure that it will be positioned to continue to offer its wide range of public programmes and services in a fiscally responsible way, without further mortgaging the future of this and the next generations of Bahamians.
Now in opposition, members opposite flippantly cast aspersions about my GovernmentÅfs implementation of VAT. They have focused, in particular, on a purported reduction in buying power for Bahamian consumers by a full 7.5 per cent, i.e by the entire amount of the VAT rate.
Mr. Speaker, I would wish to place those types of arguments in their proper contextual framework, on the basis of the cold hard facts. For one thing, The Bahamas is not unique in implementing a VAT as a secure source of revenues. VAT is in fact in place throughout our region and in well over 140 nations around the globe.
Secondly, we have chosen to introduce VAT at the significantly reduced rate of 7.5 per cent, in comparison to the earlier proposed rate of 15 per cent. Members should note that, in contrast, this rate compares to a range in the region of 10 per cent in Haiti to 18 per cent in the Dominican Republic. Elsewhere around the globe, VAT rates range as high as 20 per cent in France and the U.K and up to 25 per cent in Denmark.
Third, it is expected that VAT in The Bahamas will result in a one-time increase in consumer prices on the order of 4-5 per cent, definitely not the full 7.5 per cent. The aggregate price impact of VAT will be muted by the targeted, though limited, exemptions that have been decided as well as by the reductions in tariff and excise rates that have been implemented.
And, as has been done elsewhere in the world, we have enhanced our various social assistance programmes to mitigate the impact of VAT on the poor.
Exchange Controls in The Bahamas
The issue has arisen as to whether or not The Bahamas should consider the abolition of Exchange Controls. That is a course we must continue to pursue deliberately, gradually and in a cautious manner.
I would like to inform Honourable Members that as a member of the International Monetary Fund, The Bahamas has agreed not to impose restrictions on overseas payments for non-investment related transactions or as is known in the language of the profession, current account transactions such as imports of goods and services. While the Central Bank might seek to manage the timing of some of the more current account outflows, it does not withhold approval for individuals and businesses being able purchase foreign exchange to meet legitimate outside expenses.
When we speak of Controls Mr. Speaker, it is therefore in respect of the ease of funding investments into and out of the Bahamas, and more so, capital markets transactions.
The Central Bank of the Bahamas has clearly delineated the principal objectives of the exchange control regime. As a central tool of economic and monetary policy, it serves among other things to:
ÿ manage the flow of foreign fixed exchange needed to support our commitment to maintaining the Bahamian dollar on par with the US$;
ÿ limit speculative investments that would undermine the value of the Bahamian currency or the soundness of the financial sector; and
ÿ provide a statistical framework to monitor the flow of foreign currency through our economy.
The pursuit of these objectives through exchange controls is understandable and justifiable in light of the structural nature of the Bahamian economy as a small, very open, export-oriented and still developing economy. This regime also supports the Government’s objective of further diversification of the economy and the financing requirements of such diversification, by being biased towards approval of foreign direct investments that spur growth and contribute to our capacity to earn foreign exchange.
The maintenance of the peg to the US dollar is particularly important for a small, developing economy such as that of The Bahamas in that it promotes a more stable exchange rate environment for domestic and foreign direct investments allowing investors to concentrate on other project costs, without having to worry about currency fluctuations.
The IMF Executive Board, in its assessment and conclusions of recent Article IV Consultations with The Bahamas, has asserted that “the exchange rate peg has served The Bahamas well, and should be further supported by efforts to restore budget and external stability”. The latter, of course, are clear and ongoing priorities of the Government.
The IMF’s Article IV Report also concluded that the peg has delivered a low inflation performance in line with that for the Bahamas’ major trading partners and has also assisted in promoting financial stability.
In line with experience around the globe, the further easing of foreign exchange controls is an objective to be considered in due course when the Bahamian economy reaches a more diversified and mature level of economic development.
And, when considered appropriate, the relaxation of the regime should, as we have done in the past, be gradual and measured, to avoid any unwarranted speculative focus on our currency or the health of the financial sector.
The IMF has always advised that in removing the controls of the nature which we maintain, we must proceed cautiously. For one thing, it behooves us as a Government to first build up a credible track record of responsible fiscal policy, in which public sector debt evolves in a sustainable fashion—a direction in which we are headed.
It also requires significant progress in having local savings be the source of financing for more of our investments and to having a domestic financial sector that can withstand the ebbs and flows of potentially volatile short-term portfolio investments.
More so, a greater level of resilience is needed in how we are able to earn foreign exchange from more varied sources.
It will take more time for us to advance in the latter two of these directions.
I would not want the Bahamian people to believe that if we arrived at the point of the removal of exchange controls–even with the pre-requisites above–that we would be able to leave the currency fixed at one-to-one with the US dollar. Indeed, we must also accept the possibility that our dollar would have to float. This in itself will require more maturity in-terms how we manage our fiscal affairs on a daily basis, and a greater willingness to submit to the forces of the market.
Mr. Speaker, while we are indeed advancing towards a more transparent and mature system of economic management, I must stress therefore that we are not yet therefore at the stage to take on the issue of outright removal of exchange control. We must be prudent about how we approach this subject, given our present state and be mindful what such a decision will entail, when the Bahamas is matured enough to make such a decision.
Mr. Speaker, in closing, I will simply reiterate my central message that fiscal consolidation and tax reform, in tandem with our focused growth strategy, are critical to our future growth prospects and the well-being of our nation.
My Government has acted responsibly in developing its core programme of reforms to get us to our key economic and fiscal objectives, while making taxation more equitable.
Through the Mid-Year Statement, we have given a transparent accounting of where we are at with our plan.
We are clearly on track.
This is the hallmark of responsible, accountable and transparent Government.