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Thursday, June 26, 2014

Why consumers in The Bahamas should care about trade and the World Trade Organization (WTO)

Why consumers should care about trade and the WTO

Everyone is a consumer at some point, even businesses, even government. So everyone should be concerned about the impact of wide-open trade on consumers, particularly in a small nation.

Any discussion on the pros and cons of open trade should be about more than just the option of having many more foreign products to choose from in your local market. Open trade discussions should be about more than having a bigger external market for products you don’t or can’t yet produce. Open trade discussions should be about more than the quality of products that enter the local market or the quality standards of the products that are exported.

All of these things are important, but consumers are affected by trade and the absolute free trade of the World Trade Organization (WTO) in much more profound and long-lasting ways than these, because of the inescapable general effects of trade on an economy.

One formula that explains the components of gross domestic product (GDP), which is the benchmark statistic for productivity in any nation, is referred to as the expenditure model. Though not perfect and under considerable review as the yardstick measurement of choice, especially for small countries, GDP prevails as the chosen statistic for evaluating the productivity of an economy.

The expenditure model, in particular, assumes that whatever a country makes is more or less equivalent to what that country spends, or rather what each constituent part of the equation spends. The rationale for this is that whatever is produced has to be bought by someone somewhere in the national economy, however long that process takes.

The economics behind productivity

The expenditure model for GDP in macroeconomics is defined as Y = C + I + G + (X-M), where ‘Y’ is GDP, or everything produced by a country.

‘C’ represents consumption by individuals in an economy, and the GDP equation accounts for all the salaries those individuals earn as being equivalent to the money they spend. The spending by average consumers in the economy accounts for roughly two-thirds of all economic activity. That is how important everyday people are in the success or failure of their economy.

“I” refers to spending by businesses, as opposed to individuals, and it includes (new) capital expenditures to start or grow a business.

“G” represents government spending, which includes spending on defense and other new or additional infrastructure or investment spending by the government. G does not include transfer payments, which is spending on social welfare, as such payments are simply a redirection of money already in the economy or already accounted for in another component of the GDP equation.

“X–M”, or “NX”, refers to net exports, if a country is engaged in trade. A negative number is a trade deficit, and a positive number is a trade surplus.

Now, anything done to the right side of this GDP equation, which assumes a state of equilibrium, ceteris paribus, increases or decreases the left side of the equation, overall GDP, i.e., the national measure of productivity.

To keep it very simple, with respect to trade and net exports (the balance of trade), if X = 700 and M = 400, then our trade surplus is 300, and overall trade, Y, GDP, is higher than if the export/import numbers were reversed, all other things being equal.

If X = 200, and M = 600, then our trade deficit is 400. And overall trade and overall GDP, are lower than if the export/import numbers were reversed, all other things being equal.

If X falls from 200, by 100, and M remains at 600, then our trade deficit grows by 100 to a total of 500, and overall GDP falls more, all other things being equal.

If X and M stay the same, and all other things are equal, there is no change in overall GDP, and productivity is relatively unchanged, which is not a likely occurrence.

If M increases to 800, while X is still just 200, and all other things are equal, then our trade deficit grows even more.

Now this example is oversimplified to emphasize the effect of trade, and there are other things to be considered in trade, for example the fact that trade also occurs in services. But to study the impact of each part of the GDP equation, we have to isolate them one at a time and assume that in the moment nothing else changes. Depending on how much time has passed or how extreme other conditions become, other factors in the equation can either offset the negative impact of a trade deficit, or they can worsen it. But, for the sake of emphasis, we keep our equation, our factors and our example very simple.

The point of this explanation is that without a productive domestic sector, which provides goods (not only or primarily services) for trade, our ability to trade freely with many countries is almost irrelevant.

The necessity of domestic goods

If we produce little to export, in comparison to larger countries, what is our bargaining power really going to be based upon in any trade agreement? And in trading wide-open on the level that larger member countries enjoy in the WTO, how are we really benefiting if we can’t provide goods to trade?

We have little in the way of goods to export, because we have not sought investment in local industry to the extent that could fully maximize our output.

One of the things we can expect by acceding to the WTO is that imports (M in our equation) will increase to a much higher rate, in quantity and frequency, than exists at present.

Our exports value, X, will remain the same or fall, because competition with foreign imports, at least in the beginning, will be too fierce for local producers/exporters to manage adequate or competitive production.

The hope for wide-open trade is that, eventually, the cost of manufacturing will decrease and our exports can rebound, but systems must be in place (product standards, consumer protection regulations, etc.) in order to facilitate this. Moreover, considerable investments in property and equipment, which together produce goods for export, will need to take place, but with current limitations on business capital expansion, there is a very narrow window of time in which to do this.

And how do you grow exports in the middle of fierce competition, especially without a proper framework, plan or government subsidies, which are, in fact, counter to the purpose and expected benefits of free trade as provided for in the WTO?

This is why many believe that WTO-type trade agreements really only give larger countries a place to dump their inferior goods while still making money off of them. And it is why many believe the possibility of domestic production of almost anything that would be imported for little or nothing under such a free trade arrangement will disappear or even cause domestic production to implode. Essentially, wide-open trade is combative against a small domestic market that is chronically undeveloped or underdeveloped.

But there is even greater cause for concern painted by the bigger picture of our GDP equation.

If the value of M increases and the value of X can’t increase, that translates into a falloff in I, where there is less investment in local business, less in available salaries to be paid and less people being hired, such that consumers lose jobs and job opportunities, or their salaries are reduced in order for businesses to remain open, which ultimately reduces the buying power and consumption of individuals.

If C, consumers, are responsible for two-thirds of the active economy, the problem is an even bigger one, because consumers can’t spend what they don’t have. With less spending, the economy then becomes (more) stagnant, or depressed, and it stays the same with respect to growth or it begins to regress into a recession, which, with the implementation of a value-added tax (VAT), will further slow the economy.

Government salvation

In this horrible situation, the only other part of the productivity/GDP equation that can be manipulated in an effort to resurrect the economy is government spending. The more depressed the economy becomes, the more dependent the people will be on the government to restore it, especially in a country where the people rely on the government as a savior and sponsor for all things. But this is a prospect that does not bode well for a country already neck-deep in debt.

Present economic conditions and anticipated economic conditions post-VAT, require the government to inject money into the economy, either through increasing the money supply by printing more money to keep the economy going, or by lowering the prime interest rate charged to banks to allow consumers to be able to afford bank loans and, more importantly, for businesses to be able to afford bank loans for the capital they require to run or grow their businesses which keep people employed and earning income.

Because printing more money, a path the government already seems to be traveling, is inflationary, the preferred method of recovery is to lower the prime interest rate. Too much money, like too much of anything else in the economy, creates a glut; too much money in circulation lowers its value over time.

And with a fixed exchange rate regime, the question of devaluation, forced or otherwise, is raised. The Bahamian dollar value continues to be pegged to the U.S. dollar value in order to facilitate trade, with reliably-valued currencies.

But the very trade agreement we seek to be a part of, in the long run, can become a reason we have to devalue our currency, as trade partners and foreign investors can spot a weakened dollar value inherent in all of our problems in banking, government spending and domestic production.

And all of the deficiencies outlined herein – revenue, taxation, spending and trade – point back to the failure of successive governments to plan an economy that could survive, with strength, into the future.

These deficiencies are both a result of and a cause for the weak condition of our economy which, without extreme overhaul on the most basic level, will only degenerate further.

Where the answer lies

For all the reasons given, the only real answer to all of our most challenging economic concerns is to allow the foreign direct investment our governments are so hell-bent on to occur within and only within partnerships between foreign enterprise and local enterprise in industries that are fundamental to building and sustaining the economy and therefore the country.

This unique and very specific type of foreign direct investment through joint local partnerships only in vital, productive industries will help to increase domestic investment (I), which encourages consumer spending (C) increases, and increases exports (X) by the domestic production sector, which in turn reduces the need for government interjection and intervention (G) in what should be a free market.

The joint foreign-domestic partnership model in key industries also helps support the pegged exchange rate/value of the Bahamian dollar with respect to the U.S. dollar and prevents the likelihood of devaluation because you now have real trade of real exports produced by a real domestic sector, which engages in real productivity. And all of this is better in every way for all consumers.

• Nicole Burrows in an academically trained economist. She can be contacted at:

June 25, 2014


Tuesday, June 24, 2014

How the 'beautiful game' eclipsed the chaotic World Cup preparations


The first round isn't even over yet but the verdict is in: Brazil 2014 is the best World Cup since Spain 1982, and may go down as the best ever if the superb level of play continues through the July 13 final.

The tournament has already given us the shock of seeing defending champs Spain humiliated by Netherlands and Chile; Mexican goalie Memo Ochoa's gravity-defying save against Brazilian star Neymar, and Uruguayan striker Luis Suárez's heroic takedown of England.

For those who need stats to validate a point (I'm talking to you, US sports-industrial complex), the first 16 games produced 3.06 goals-per-game – compared to a measly 1.56 at this point in South Africa 2010 – and six come-from-behind wins.

All of this is great news considering that FIFA recently feared this would turn out to be the worst World Cup since the tournament's inception in 1930. Even former Brazilian great Ronaldo, a member of the organizing committee, said last month that he was "appalled" at his country's woeful unpreparedness to host the event.

But does anyone remember now that stadiums and airports weren't completely finished in time? Or that the world's biggest party was going to be engulfed by protests – with Guy Fawkes-mask wearing, Molotov-cocktail throwing youth stealing center stage from Neymar and Argentina's Lionel Messi?

In the final run-up to the tournament – after FIFA president Sepp Blatter claimed Brazil was further behind than any other previous host nation and FIFA secretary general Jérôme Valcke said the country risked becoming the "worst organizers" – Brazilian columnist Vanessa Barbara said enough's enough.

"Well, if they wanted punctuality, maybe they should have chosen the Germans or the Swiss to host their events. We Brazilians are slightly different," Barbara said in a stinging retort published in The New York Times in May.

Brazil is not the first nation to stumble in organizing the event. Colombia ceded its right to host the 1986 Cup because it couldn't comply with all of FIFA's demands. Crime and lack of infrastructure were supposed to derail South Africa 2010, which went off without a hitch.

Even the always-dependable Germans had at least one snafu in the lead-up to their 2006 World Cup, when the retractable roof on the new stadium in Frankfurt sprung a leak during a rainstorm and showered the pitch in the warm-up Confederations Cup before a global audience.

Of course, once the official ball started rolling, nobody remembered the Frankfurt roof leak, just like no one seemed to notice that the Itaquerão stadium's roof was incomplete on June 12, when Brazil-Croatia kicked off this World Cup in São Paulo.

It's as if Brazil's tropical air and traditional jogo bonito, or beautiful game, inspired not only the spectators but the other 31 national teams as well. Whether it's the Dutch players casually strolling on the beaches of Copacabana, or the Costa Rican squad dancing samba during a visit to a Santos school, everyone seems more relaxed, which leads to more offensive-minded soccer.

And while 'black bloc anarchists' still haunt the margins of some small clashes with Brazilian police, we have not yet seen a replay of the massive protests sparked by a bus fare hike in São Paulo, with hundreds of thousands of demonstrators, that overshadowed last year's Confederations Cup.

Brazilians are most likely still angry that their country clamped down on demonstrations and spent about US$12bn at the behest of an organization as corrupt as FIFA; and tourists who landed in Rio de Janeiro on the eve of the Cup couldn't help but notice that airport workers were on strike and makeshift walls hid unfinished works. But nobody blames the beautiful game for it.

Since Japanese referee Yuichi Nishimura blew the opening whistle and then called a dubious penalty for the home team, all the talk has been about the great goals and the controversial calls – though that could change if Brazil makes an early exit from the tournament.

In the end, though, football itself does not have to answer for FIFA's misdeeds or the persistent inequality in Latin America's largest economy. As the troubled genius Diego Maradona said after retiring from the game, "The ball doesn't get tainted."

June 20, 2014

BN Americas

Tuesday, June 17, 2014

Human Rights Watch’s Revolving Door

Human Rights Watch’s edicts and positions have often been suspiciously in line with US policy

Jacobin Magazine:

Let’s pretend that we want to start an organization to defend the rights of people across the globe that has no affiliation to any government or corporate interest. Which of the following characters should we therefore exclude from intimate roles in our organization’s operation? (You may choose more than one answer.) 
  1. An individual who presided over a NATO bombing, including various civilian targets.
  2. An individual who was formerly a special assistant to President Bill Clinton, a speechwriter for Secretaries of State Warren Christopher and Madeleine Albright and a member of the State Department’s policy planning staff who in 2009 declared that, under “limited circumstances, there is a legitimate place” for the illegal CIA rendition program that has seen an untold number of innocent people kidnapped and tortured.
  3. A former US Ambassador to Colombia, who later lobbied on behalf of Newmont Mining and J.P. Morgan — two US firms whose track records of environmental destruction would suggest that human wellbeing falls below elite profit on their list of priorities.
  4. A former CIA analyst. 
If you answered “all of the above,” you’re one step ahead of Human Rights Watch, which has played institutional host not only to persons matching descriptions A–D but to many others with similar backgrounds.

Javier Solana, for example, was NATO secretary general during the 1999 assault on Yugoslavia, an event HRW itself described as entailing “violations of international humanitarian law.” Solana is now on the group’s Board of Directors.

Tom Malinowski, whose partial CV appears in description B, was HRW’s Washington Director from 2001 to 2013 and has now returned to full-fledged government activity as Assistant Secretary of State for Democracy, Human Rights and Labor. Myles Frechette, a former US Ambassador to Colombia, is a member of HRW Americas’ advisory committee, an entity that for many years also counted on the expertise of former CIA analyst Miguel Díaz, currently an Intelligence Community Associate at the State Department. 

It’s no wonder, then, that despite its claims of independence and objectivity, HRW stands accused of participating in a revolving door scheme with the US government.

The apparent conflict of interest is the subject of a recent letter to its executive director Kenneth Roth which was signed by Nobel Peace Prize laureates Adolfo Pérez Esquivel and Mairead Maguire, former United Nations Assistant Secretary General Hans von Sponeck, and more than 100 scholars. Their proposed solution? Shut the door.

The HRW seal of approval

Founded in the US in 1978 under the name Helsinki Watch to monitor human rights violations in the former Soviet bloc, HRW pledges in its mission statement to “scrupulously investigate abuses, expose the facts widely and pressure those with power to respect rights and secure justice.”

But scrupulousness and pressure can be selective at times. As the letter to Roth notes, during Venezuela’s 2012 candidacy for a seat on the UN Human Rights Council, HRW berated then-President Hugo Chávez for a human rights record that was allegedly “far short of acceptable standards.”

The letter continues: “At no point has US membership in the same council merited censure from HRW, despite Washington’s secret, global assassination program, its preservation of renditions, and its illegal detention of individuals at Guantánamo Bay.”

Given HRW’s trumpeting of fabricated and sensational claims concerning official press censorship in Venezuela, one can imagine the reaction that might ensue were Caracas to, say, inaugurate its own policy of torture-renditions, or its own independent human rights outfit to condone said policy “under limited circumstances.”

Washington, DC-based journalist Keane Bhatt, a one-man truth squad on the issue of HRW’s revolving door, has repeatedly drawn attention to the organization’s entanglement with US interests. In an email to me, he noted its propagandistic insistence on “hurling epithets like ‘authoritarian’” at the Venezuelan government following the late-nineties rise of chavismo, the left-wing political ideology developed by Chávez.

Over the same period, on the other hand, neighboring Colombia has been apparently immune from such labels, despite being the worst human rights abuser in the hemisphere. Bhatt notes that in 1997 HRW research associate Robin Kirk sent a memo to Congress stating that
We are not opposing [US] aid to the [Colombian] Anti-Narcotics Police because of their good human rights record … You’re fully welcome to refer to this as the HRW ‘Seal of Approval’ for police aid, if you wish. Hang onto it — it doesn’t come often!
Unfortunately, the police in question enjoyed high-level ties to the notorious right-wing paramilitary group Los Pepes, responsible for various acts of terrorism in the 1990s including a series of bomb blasts in Medellín.

Why such different treatment? It’s simple. Colombia is a critical US ally — particularly following the surge of left-leaning governments in Latin America — and Venezuela is not.

Honduras, another traditional pal of the US and a de facto US military base, offers a similar example. After a 2009 right-wing coup overthrew then – President Manuel Zelaya — who had grown a bit too chummy with Venezuela for the US’s taste — 90 international scholars published a letter urging HRW to end its month-and-a-half-long silence in the face of extra-judicial killings, arbitrary detentions, physical assaults and attacks on the press carried out by the new regime.

While HRW did initially denounce Zelaya’s overthrow, its six weeks of subsequent inaction contributed to the new regime’s consolidation. Elections held months after the coup served up the illusion of a return to democracy, which the US gleefully embraced, its political and corporate interests having been safeguarded from the threat posed by the overthrown government.

From Cuba to Ecuador to Syria to Ethiopia, HRW’s edicts and positions have often been suspiciously in line with US policy. Cuba is regularly demonized as a human rights offender, when the US’s own offenses — not least in Guantánamo Bay — are far more serious. In Ethiopia, a committed US ally, HRW has been disproportionately lenient on repressive government behavior.

Even in the run-up to the illegal 2003 war that devastated Iraq and spawned all manner of human rights violations, HRW demurred: “We avoid judgments on the legality of war itself because they tend to compromise the neutrality needed to monitor most effectively how the war is waged.” So much for the scrupulous and widespread exposure of injustice.

How to shut a revolving door

If HRW wants to rectify its compromised neutrality, it could stop granting prominent organizational roles to individuals with firm ties to the state and the corporate sector. As Bhatt documents, there’s no dearth of links to companies such as ExxonMobil, Coca-Cola, and Boeing — all of which have been accused of acute human rights violations. HRW’s board is co-chaired by investment bankers and its vice chair is a private equity manager.

This is not to argue that HRW is an inherently malevolent government puppet or that it is incapable of making valuable contributions to the field of human rights. But the much-needed reports and analyses it regularly produces are inevitably tainted by its institutional biases. HRW currently fulfills a function not totally dissimilar from that of the establishment media, which, while playing an important watchdog role, simultaneously provides a veneer of independent validation to destructive political endeavors. (Recall, for example, the retinue of Iraq war cheerleaders at the New York Times.)

Bhatt warns that if HRW wishes to “retain credibility,” particularly in Latin America, “it must begin to extricate itself from elite spheres of US decision-making.” He added that HRW must abandon its “internalization of US exceptionalism” (the idea that the US is inherently a force for good).

To stop the revolving door, the signatories to the letter to Roth recommended the following:
Bar those who have crafted or executed US foreign policy from serving as HRW staff, advisors or board members. At a bare minimum, mandate lengthy ‘cooling-off’ periods before and after any associate moves between HRW and that arm of the government.
It’s far from an instant remedy, but it’s certainly a step in the right direction that would help ensure that the rights of humans don’t get confused with the prerogatives of empire.

Jacobin Magazine

Thursday, June 12, 2014

OAS 44th General Assembly: U.S. increasingly alone in efforts to isolate Cuba

By Sergio Alejandro Gómez

The recent 44th General Assembly of the Organization of American States (OAS) held in Paraguay’s capital Asunción, clearly showed that the United States is increasingly alone in its efforts to isolate Cuba, a strategy unsuccessfully followed since January of 1959.

Although the issue was not listed on the official agenda, debate on Cuba’s participation in the upcoming Summit of the Americas, to be held in Panama next year, occupied a good amount of time at the June 3-5 gathering.

It is not, in fact, an issue to be decided by the OAS itself, but one made by the country organizing the Summit. It was clear that sister countries in the region are not disposed to live another 50 years with the unjust exclusion of Cuba and lost no time in making their position clear, reiterating that they will not accept another meeting without Cuban participation.

Cuba’s presence at these events, where heads of state from the Americas gather every three years, is a long-standing demand of the Latin American and Caribbean community, since the first Summit was held in Miami in 1994.


The issue emerged immediately during the opening of the 44th Assembly, when Nicaragua began the first round of statements and its representative Dennis Moncada recalled, “It is not possible to hold another Summit of the Americas without the presence of Cuba,” as many said during the 2012 Cartagena meeting.

Throughout the three-day gathering, statements were made by some 20 countries in support of Cuba. Roy Chaderton, Venezuela’s permanent representative to the OAS, insisted that “preconditions and vetoes” with respect to Cuba must end.

The delegation from St. Vincent and the Grenadines spoke for the Caribbean Community (Caricom), reiterating the group’s firm position in favor of Cuba’s participation, and St. Lucian Foreign Minister Alva Baptiste took advantage of the occasion to emphasize Cuba’s accomplishments in health and education as human rights, recalling that the majority of U.S. citizens now support a change in Washington’s policy toward Cuba.

Explicit rejection of the exclusion, along with statements indicating that countries would not attend the 7th Summit, if Cuba is not invited, were again expressed by representatives from Ecuador, Nicaragua, Venezuela and Bolivia. Argentina joined this group, with Foreign Minister Héctor Timerman summarizing the situation by saying, “If Cuba is excluded, we consider ourselves excluded, as well.”

OAS General Secretary José Miguel Insulza acknowledged, at the conclusion of the event, that the great majority of countries favor the attendance of all countries, saying, “If we talk about inclusion, we can not exclude anyone. All countries of this region and the Caribbean must be present.”


The U.S. delegation, including Deputy Secretary of State for Management and Resources Heather Higginbottom and permanent OAS representative, Carmen Lomellín, were obliged to defend the indefensible U.S. position alone, with a brief, tepid statement of support from Canada. The two could only manage to repeat the overused U.S. refrain about the need for a “democratic Cuba,” before the country could attend a Summit of the Americas. Lomellín and Higginbottom were responding, surely unaware, to a question posed by Comandante en Jefe Fidel Castro 52 years ago, in the Second Declaration of Havana, when he asked, “How long will they be so shameless and cynical to talk about democracy?”

“If democracy means the people, if democracy means government of the people, then what is this?” he added, speaking before hundreds of thousands of Cubans gathered in Havana’s Plaza de la Revolución for a general assembly of the people, following the OAS decision made in Uruguay to expel Cuba.

Fidel was confident that Cuba would always have at its side “the solidarity of all free peoples of the world,” and “all honorable men and women of the world,” clarifying that what had been heard in Punta del Este was the voice of oligarchies, not that of the peoples.


It was precisely this new voice of the people which was heard in Paraguay, not only in support of Cuba, but during discussions of common positions on the region’s principal problems.

Based on the principle of unity within diversity, an agreement was reached to call on Britain to participate in talks with Argentina on the issue of the Malvinas, with speakers emphasizing their support for Argentine sovereignty over the islands, occupied by force to create a 21st century British colonial enclave.

The U.S. delegation could not have felt comfortable with the agreement, having violated the Inter-American Treaty of Reciprocal Assistance, to support the UK during the 1982 Malvinas War.

Those attending the General Assembly also voted to support the government of Venezuela, facing violence perpetuated by the right wing opposition and supported from abroad. Foreign Minister Elías Jaua described the attacks on the country’s constitutional order which has been fully documented and widely denounced.

The OAS body agreed to a resolution supporting peace talks between the Colombian government of Juan Manuel Santos and the Revolutionary Armed Forces of Colombia-People’s Army (FARC-EP) which have been underway in Havana since November of 2012. Colombia’s Foreign Minister María Ángela Holguín, thanked everyone for their support, especially guarantors Cuba and Norway, and companion countries Venezuela and Chile.


The future of Our America is to be found in integration, in regional organizations such as the Community of Latin American and Caribbean States (CELAC); Unasur, (the South American Union); the Bolivarian Alliance for the Peoples of Our America, Alba; and others. These groups have shown that it is possible to build unity within diversity, with respect for the histories and cultures of all, without discrimination.

These are the values recognized by the vast majority of the world’s countries, in the yearly UN vote against the U.S. blockade of Cuba. These are the values of those who demand that Cuba be removed from the spurious list of state sponsors of terrorism; and by those recently assembled in Washington demanding justice for the Cuban Five.

Now, as U.S. citizens increasingly favor a change in U.S. policy toward their neighbor to the south, it behooves the government to stop listening to a radical, right wing minority which supports continued aggression and subversive operations in Cuba.

How far will U.S. disrespect for Latin American and Caribbean countries go? How will the U.S. deal with this increasing isolation, given the process of change underway in the region? Will the U.S. boycott the Summit of the Americas which it created, for fear of being in the same room with a revolutionary leader? These are only a few of the questions which remain unanswered after the 44th General Assembly of the Organization of American States.

June 11, 2014

Sunday, June 8, 2014

The Bahamas collects an estimated 40% of its tax capacity

Bahamas Near Bottom At 40% 'Tax Capacity'

Tribune Business Editor
Nassau, The Bahamas

The Bahamas is currently operating at just 40 per cent of its tax capacity, the Government’s US consultants have warned, ranking this nation near-bottom of 98 countries.

The Compass Lexecon report, which the Government leaned on heavily to produce its restructured 7.5 per cent Value-Added Tax (VAT), also strongly backed the Bahamian private sector’s calls for greater enforcement and compliance with the existing tax system, noting that only 40 per cent of real property tax bills are being paid.

“The IMF has estimated that The Bahamas collects only 40 per cent of its maximum attainable tax-to-GDP ratio as determined by the economic structure of the country, a metric on which it ranks 92nd out of 98 nations,” Compass Lexecon said.

“In comparison, Sweden and Denmark collect 98 per cent of their tax capacity.”

This will likely add fuel to ongoing private sector, and public, suggestions that if the Government were to get existing tax compliance levels up to international standards, and combine this with targeted spending cuts/restraint, there would be no need for Value-Added Tax (VAT) or any other new taxes.

Robert Myers, the Coalition for Responsible Taxation’s co-chair, yesterday told Tribune Business that the Bahamas’ tax compliance rates and ratios were “skewed” by the fact the collective $285 million in annual investment incentives is treated as revenue foregone.

But, acknowledging that compliance rates with the existing system were “still lower than they should be”, he added: “Some of that is due to the fact we have concessions, so concessions are factored in.

“Compliance does take a hit because of the concessions given out to the hotel industry and other investors. These concessions are counted as revenue, but hurt our compliance.

“It makes it difficult to say what the true compliance is, but it’s still low; lower than it should be,” Mr Myers added. “It does skew the numbers.”

The Government’s restructured 7.5 per cent VAT appears to be a model produced from the amalgamation of Compass Lexecon’s report with that produced by the two New Zealand consultants, Dr Don Brash and John Shewan.

The private sector’s efforts further buttressed these reports, and the lateness of the Government’s decision is further highlighted by the date on the final Compass Lexecon report - May 27 - the day before the 2014-2015 Budget announcement.

Returning to the poor compliance/enforcement theme, Compass Lexecon said: “At present, taxes in the Bahamas are regressive, inefficiently administered, and apply to a very narrow base.

“The Bahamas is not realising anywhere near its potential revenue on property taxes. The Government presently exempts the first B$250,000 on owner-occupied housing and does not means test this exemption, while it also gives breaks to hotels, timeshares, and other tourist-related investments.

“In addition to having a narrow tax base, the Bahamian property tax is inconsistently applied. Government property rolls have a coverage rate of about 70 per cent, and the Government receives payment on only 40 per cent of the property tax bills it issues. Enforcement against non-compliance has been weak to non-existent.”

The Government has repeatedly pledged to address this issue, and Michael Halkitis, minister of state for finance, on Monday said another 1,000 properties had been added to the tax roll following the latest amnesty programme’s conclusion.

As for Customs, the Compass Lexecon report said it was investing $6.745 million over three years to re-engineer its business processes.

“Reforms include the development of a new computerised system for the processing of transactions, training for staff in the implementation of the new trade agreements, the introduction of a new K9 unit, and the enhancement of the existing marine unit,,” Compass Lexecon said.

“These measures are expected to improve enforcement capabilities, decrease fraudulent activities, and reduce the cost of collecting revenue by 15 per cent.” To comply with World Trade Organisation (WTO) requirements, the Bahamas is looking to reduce the weighted average tariff rate to 10 per cent - a drop of 15 percentage points.

The US consultants also disclosed their belief that the original 15 per cent VAT model, and estimates that it would generate a net revenue increase equal to 2 per cent of GDP, “may not be necessary to put the Bahamian Budget on a sustainable trajectory”.

“Furthermore, immediate implementation of a VAT at this rate would substantially reduce economic growth over the short and medium terms, which would result in even higher unemployment,” Compass Lexecon said.

“In combination with other fiscal reforms, a VAT raising less revenue than initially proposed - in the range of 1 per cent of GDP in incremental revenue rather than over 2 per cent - should be sufficient to address the long-term fiscal challenge, and would be substantially less of a drag on short-term economic growth and employment.”

The US consultants said this pointed to the option ultimately chosen by the Government - VAT in the range of 5-10 per cent - with the “greater flexibility” to increase this if more revenue was needed.

Compass Lexecon said that with VAT raising revenue equivalent to 1 per cent of GDP from 2015-2016 onwards, debt would start to fall by one percentage point, growing to almost a two percentage point drop the following fiscal year.

“But, this is only the case if all other deficit reduction measures are fully implemented and achieve the targeted savings, and the economy grows as expected,” Compass Lexecon said.

“Notably, the most recent IMF projection shows debt-to-GDP falling by smaller amounts than in the Government’s official projections. The IMF’s pessimism largely results from the IMF assuming that the Government’s other revenue measures (like property tax reform) raise significantly less than the government projects.

“In sum, the target is achievable based on the Government’s current projections and without a VAT of 15 per cent, but there is a real risk that the extant measures discussed so far prove insufficient in achieving the fiscal targets and a higher VAT will be needed.”

June 04, 2014

Friday, June 6, 2014

The Bahamas does not need another tax!

VAT model a recipe for disaster?

VAT on top of customs duties ‘a dangerous proposition’

Managing Editor
Nassau, The Bahamas

Dissecting the 2014/2015 budget

The logical impact of the government’s new model for value-added tax (VAT) is that it would likely result in less consumer demand and therefore less spending, according to Professor Gilbert Morris, an economist, who chairs the Turks and Caicos Resort Owners Economic Council.

In response to strong opposition from the business community to the originally planned 15 percent VAT rate, Prime Minister Perry Christie announced in the House of Assembly last Wednesday that VAT will now be implemented at a rate of 7.5 percent on January 1, 2015 and customs duties will essentially remain unchanged.

The previous plan called for a lowering of customs duties and an implementation date of July 1, 2014.

According to the 2014/2015 budget, the government projects that it will collect more under the 7.5 percent model than it projected under the previous 15 percent model.

The government had projected to collect $200 million under its old VAT plan. It now says the 7.5 percent would result in a collection of $300 million.

While on the surface the 7.5 percent rate sounds more palatable than the 15 percent, the fact that there will now be very few exemptions and unchanged customs duties (at least in the near term) may not produce a more desirable outcome for businesses and consumers.

But it is a painful measure the government says makes more sense to bear than cataclysmic repercussions within two to three years in the absence of reforms.

Morris predicts the 7.5 percent on top of customs duties will lead to substantial burdens for consumers who must shoulder the weight of current costs along with the new tax.

“My understanding also is that mortgage arrears are very, very high and in that situation if you’re going to add 7.5 percent VAT you’re just piling another cost on top of things and what will happen, because as you know, businesses don’t pay taxes; they pass taxes on to the consumers.

“But the taxes won’t simply be the 7.5 percent. Whatever it costs businesses to comply with the tax, it would be more like 8.5 percent...all of that will be passed on to the consumer.

“Here’s what this does. Consumers may then, and this is a theoretical point, but the logical follow through is that consumers may consume less. The economy may shrink. Black markets may emerge.”

In his budget communication, the prime minister was non-committal on when customs duties will be lowered.

“Moving to a single rate of VAT, other than zero for exports, with very limited exemptions would enormously reduce the compliance costs of the private sector and the enforcement costs for the public sector,” he said.

“Based on the revenue performance of VAT early next year, the government may be in a position to consider tariff and excise reductions at the time of the 2015/2016 budget.

“More general tariff rebalancing, however, is still a requirement that will need to be implemented once The Bahamas concludes the ongoing WTO negotiations.”

But Morris told National Review the new model is simply not a welcomed proposition.

“Adding 7.5 percent to the consumer spending bill to me is a dangerous proposition because you’re just going to lump that, essentially with duties remaining unchanged,” he reiterated.

The 7.5 percent VAT will come as disposable income and savings for many Bahamians remain virtually non existent.

The following year, January 1, 2016, the government plans to introduce National Health Insurance, which is expected to be financed by way of a payroll tax. This will further stretch the incomes of many Bahamians.

As it relates to VAT, the government has not yet revealed what products or services would be exempted, but the prime minister stressed that these will be “limited”.

Christie said VAT exemptions are a costlier method of trying to help the poor, because more revenue is sacrificed to those who are not poor.

“Having the means to provide direct assistance to low-income families is thus a far more efficient mechanism than exempting necessities from VAT,” he said.

The government is introducing VAT in response to what it says is a critical need to act.

Christie announced that government debt at the end of 2013/2014 is projected at $5.1 billion, or 60 percent of GDP.

This is up from the projected 59.4 percent of GDP in last year’s budget.

At the end of 2013/2014, the GFS deficit is expected to stand at $462 million, or 5.4 percent of GDP.

That compares to the budget estimate of $443 million, or 5.1 percent of GDP.

To cover its projected shortfall in revenue in the coming fiscal period, the government plans to borrow $343 million, pushing to $1.5 billion its total borrowing since coming to office.

Public debt interest is draining around $260 million of the annual budget and would likely trend even higher if the government fails to act, Christie noted.

With our finances at such a critical point, few would doubt the need to act. Just what action the government ought to be taking is the point of contention.

Morris contends, “You can’t add costs to an economy which shrinks consumer demand and project higher income. That’s basic economics.

“It’s just not possible because you make no provision for the increased costs of goods for businesses that won’t be able to cope, for businesses that have to add costs. If someone has to hire an accountant and pay out a certain amount every month that’s one staff person gone.”

Economic reform

The prime minister said economic developments in 2013 have had very clear implications for the evolution of public finances this fiscal year.

In particular, the tepid rate of growth of our economy, along with weak consumer demand and imports, impacted recurrent revenues directly, he reported.

Christie also laid out a series of investment projects he said would have a beneficial impact on the Bahamian economy.

“We are diligently striving to strengthen the foundations of the economy to secure steady growth and private sector employment creation,” he said.

“In particular, we are continuing our push to develop new and expanding private sector investment projects across the breadth of the nation.”

But Morris sees no serious effort at transformative economic reform.

“I see all these governments across the Caribbean talking about tax reform and again, as I always say, it’s not that these people are any less smart than anybody else,” he said.

“They went to the same schools with the people whose countries are doing very well, but they are stuck in a system and have adopted the priorities and prerogatives of that system, and appear to advance all that that system permits.

“A first-year economic student would not come with a concept of tax reform except it was embedded in economic reform, and so when I see governments of the Caribbean talking about tax reform and merely adding taxes this is a rather sad occurrence, unfortunate occurrence.”

Morris added, “Economic reform would reveal where that $300 million is going, whether it’s waste, whether there are outstanding taxes that you ought to have collected that you didn’t collect, what the reasons are for not collecting them, and it may be well in excess of the $300 million that you are about to add in taxes to the economy.

“So, the government has the power to tax and the power to impose penalties when people don’t pay taxes, but governments are refusing even to look at their own incompetence, the inability to collect taxes, and instead of reviewing those policies through economic reform and taking responsibility for them, they’re coming out with additional new taxes to make up the shortfall.

“This produces a sense and a habit of aversion in people because eventually people will begin to say why should I pay any more taxes?”

“They’re just going to waste it anyway, so people lose faith. They begin to resent the taxing power of the government and they lose faith in the judicious decision making of the government to spend tax dollars wisely.”

Christie claimed, however, that the government is addressing “deficiencies” in its “grossly deficient” system of tax administration.

But these reforms have clearly done little to change the course of public finances.

Morris is far from impressed.

“We should have had a comprehensive economic review and comprehensive economic reform and that would have revealed where our true direction should be,” he said.

“The Bahamas does not need another tax.”

June 02, 2014


Monday, June 2, 2014

Do Jamaicans support abortion in Jamaica?

Abortion ... let’s get rid of those ancient laws

By Dr Dayton Campbell:

Abortion ... let’s get rid of those ancient laws

THE World Health Organization (WHO) estimates that over 22,000 abortions are performed in Jamaica each year.

Complications arising from unsafe abortion are among the top 10 causes of maternal death in the island, especially among teenagers. Review of legislation governing abortion has been 30 years in the making. Efforts by various governments to address these concerns have been halted by conservative religious groups not sensitive to the reproductive rights and realities of women, girls, their families and partners.

In Jamaica, Sections 72 and 73 of the Offences Against the Persons Act (1861) reads:

* Criminalise women who chose to terminate a pregnancy, who, if convicted "shall be liable to be imprisoned for life with or without hard labour."

* Criminalise medical professionals who facilitate a woman's exercise of choice to have her pregnancy terminated, and the parents and guardians who facilitate termination of pregnancies of girls under the age of 18. If convicted, they "shall be liable to be imprisoned for a term not exceeding three years with or without hard labour."

Too often we enjoy the comfort of opinion without the discomfort of thought.

Think! Does the illegality of abortion prevent its practice?

Is pregnancy only unwanted because the woman has been sexually reckless?

The answer to these questions is NO. The current law frustrates THOUSANDS of Jamaican women, the poor especially, who are in desperate need of abortion services. Nearly half of all pregnancies -- 41 per cent -- are unplanned (2002 Reproductive Health Survey); only 50 per cent of pregnancies were planned (2008 Reproductive Health Survey) In 2009, some 7,612 live births occurred to mothers under the age of 20 - a decrease from the 7,680 recorded at the end of 2008 (data obtained from National Family Planning Board - NFPB).

Eighty-one per cent of recent births reported by women aged 15-19 were unplanned. Nearly all of these unintentional births were mistimed (occurred earlier than desired) as opposed to unwanted (no children or no more children desired). The information is also obtained from the NFPB.

Who is affected?

According to the WHO, "abortions and complications thereof are the eighth leading cause of maternal deaths in Jamaica, affecting adolescents primarily". Between March 1 and August 31, 2005, there were 641 patients at Ward 5, which deals exclusively with abortions at the Victoria Jubilee Hospital.

All patients were from inner city communities, single, and nearly half were Christians, while a third were teenagers. About 40 per cent admitted to having had a previous termination of pregnancy and 30 per cent had two or more previous abortions.

Do Jamaicans support abortion?

YES!!!!!! Many of us support efforts to make services for the termination of pregnancy legal, safe and affordable. A 2006 public opinion survey conducted by Hope Enterprise found about "60 per cent of respondents support the legalisation of termination of pregnancy" under "special conditions" such as "incest, endangerment of the woman's physical or mental health and/or life".

From the public health perspective, we need to address these women who burden the public health system after botched abortion attempts. Evidence in Italy, the Netherlands, Romania, South Korea, Guyana and Barbados shows that where abortion is legal, maternal morbidity and mortality rates fall. Rates may initially seem to rise because of the previous under-reporting.

For women in the middle and upper income groups, the law can be circumvented by access to financial resources to pay for private medical services to procure a safe abortion. The law is restrictive and unjust to women in the lower income groups who cannot afford private medical services and therefore resort to the illegal informal market. In both instances, the quality of the service that the woman receives is entirely determined by the ethics and integrity of the individual practitioner. There are no minimum standards and no norms. Legal provision of abortion by qualified practitioners in both the public and private health care systems as recommended will ensure that safe abortions can be accessed by all women thus protecting their lives and health.

While debates on when life begins and ends may persist along the continuous range of religious perspectives, the realities surrounding this public health matter which affects so many women will not disappear unless addressed based on existing, objective realities. It is a woman's right to have all the options available to her, to be provided with information that allows her to make an informed decision, and not be persecuted for this decision. The State has a responsibility to ensure that the rights of all its citizens are protected.

The current illegal status of abortion in all circumstances exposes women to stigma and discrimination when they are faced with this choice. Women should not be punished for what is a difficult decision about their body, life and future. It is a misuse of Government power to take that right from them. Denying women access to medical services that enable them to regulate their fertility or terminate an unwanted or dangerous pregnancy amounts to a refusal to provide health care that only women need. Women are consequently exposed to health risks not experienced by men. Repealing the prohibitive provisions under the Offences Against the Persons Act concerning abortion, as recommended by the Policy Review Group would restore this right to women and prevent further stigmatization and gender discrimination.

Let us consider cases where:

- Contraception was used but it failed and the woman is not in a position to go through with the pregnancy and adequately support a child.

- The pregnancy resulted from rape or an abusive relationship.

- The pregnancy places them at severe mental, emotional and/or physical risk.

- The compromised development and health of the foetus.

To abort or not to abort is an extremely difficult decision for any woman.

There is not only the financial cost to consider, but risk to her mental and physical health as well. Adequate access to appropriate counselling services to help her consider all the options, strengthening of sexual and reproductive education at all levels, and the strengthening of family planning services, help women make the best choices.

Regrettably, pregnancy is often not a question of choice for women, not only in cases of rape and incest, but also in the everyday dynamic of gender relations where many women are subject to domination and/or the threat of violence from men.

We as a nation need debate this issue and lay the facts bare without shrouding them in misconceptions, prejudice and religious absolutism. It is about time such an important issue be dealt with once and for all, the women of Jamaica deserve no less.

What of the bright young 16-year-old girl in the inner city who is getting ready to do CSEC examinations and who is the only option to lift that family out of the abyss of poverty, who is sent for by the "don" in the community, then abused and subsequently takes the morning after pill but still ends up missing her period and later diagnosed as pregnant? Should she be forced to carry that child? Or to seek abortion on the black market? As a man of faith, I humbly suggest that we allow common sense to prevail.

Let me make it abundantly clear that I am not proposing abortion as a means of contraception, nor am I suggesting that mere poverty should be a reason for it, as I stand as a true example that it is possible to break the changes of poverty and rise from poverty to prosperity.

Of paramount importance is also the need to revise our adoption laws so that we can provide this service to those persons who are in need. I anxiously await a vigorous debate on this matter, as we seek to establish a new paradigm: to dispel myth and to embrace a true sense of liberty and prosperity.

Dr Dayton Campbell, a medical doctor and lawyer, is member of parliament for St Ann North West. His views do not necessarily represent those of the government.

June 01, 2014

Jamaica Observer