Completed by Mr. Jorge F. Baca-Campodonico, it makes the case quite well that these are economic models that are simply tools and must be used with great care. In fact it says "There are no substitutes for good judgement." … And the results should be interpreted with great care."
On pages 7 and 127 the IDB clearly state that this is a wealth transfer from the private sector that is not "fully" compensated by the reduction if tariffs.
Doublespeak for this is not going to be good for anyone.
In other words, for the models to be correct, businesses in the sale of goods specifically, are not expected to raise their mark ups to compensate for this loss.
Also, taxpayers should expect to pay more for goods and services.
Businesses, many of whom are struggling today, will have to adjust and increase prices where they can and remain competitive with direct imports.
Consumers will also adjust, as their income will buy less, possibly slowing the economy further.
As it relates to services, logic says the increase in prices will be substantially more that the 5 to 6 percent they indicate will happen overall, so on net, inflation should be higher than projected.
How it will actually play out? My crystal ball is not telling me :0) But I do understand that businesses require profit to keep their doors open, hire associates and pay salaries, benefits and other related costs so they will have to adjust somehow. Consumers pay cheques will not go as far, so they will have to change their purchasing patterns. At least that's the way it works all over the world and no one has convinced me we're any different yet.
They go on to tell us of need to implement a safety net for the less fortunate in society. It; "is a clear message that transpires" from their simulation efforts we're told.
This emphasises that the increased burden on taxpayers will be quite severe in my view. Something the taxpayers and business community have feared all along based on evidence from the experience of other countries in the region.
Overall, this is not a pretty picture, and to use the IDB's words; "There are no substitutes for good judgement." And the results of this study "should be interpreted with great care." Is our political directorate up to the task?
In other words taxpayers and businesses, fasten your seat belts for a bumpier ride.
Fiscal and tax reform need to be done together or Bahamians will be no better off at the end of the day as only more tax policies will follow. Not to mention more downgrading etc when revenue targets are not met as a result of the deficit spending and the possible negative economic impact of VAT.
Look at most of our neighbours, including the US.
The evidence of success of decades of spending deficits and borrowing in relation to improving the lot of most Bahamians is very limited. And I'm not referring to the lack of handouts. I think they are a dangerous policy for any government.
But, look at education for starters and the billions of dollars that have been pumped into it for the results our people are getting.
The list goes on and on.
I contend, we are being given more pottage - sold a bill of goods - with this VAT discussion to date. Much of what we're being told is disingenuous.
Without economic growth, jobs just do not happen. And continual roadblocks to legitimate business and taxing them beyond their ability to pay does not help with economic growth.
I recently picked up a copy of Bill Bryson's, A Walk in the Woods: Rediscovering America on the Appalachian Trail, and so far it is fascinating. Although it was first released in 1998, I've only recently come across it.
Actually, having had the pleasure of hiking through some of the trails on the Bruce Peninsula in Ontario Canada with friends of ours, the sub title really piqued my interest.
The synopsis of the book from his web site says;
"The longest continuous footpath in the world, the Appalachian Trail stretches along the East Coast of the United States, from Georgia to Maine, through some of the most arresting and celebrated landscapes in America.
"At the age of forty-four, in the company of his friend Stephen Katz (last seen in the bestselling Neither Here nor There), Bill Bryson set off to hike through the vast tangled woods which have been frightening sensible people for three hundred years. Ahead lay almost 2,200 miles of remote mountain wilderness filled with bears, moose, bobcats, rattlesnakes, poisonous plants, disease-bearing tics, the occasional chuckling murderer and – perhaps most alarming of all – people whose favourite pastime is discussing the relative merits of the external-frame backpack.
"Facing savage weather, merciless insects, unreliable maps and a fickle companion whose profoundest wish was to go to a motel and watch The X-Files, Bryson gamely struggled through the wilderness to achieve a lifetime’s ambition – not to die outdoors."
And Mr. Bryson's sense of humor is simply fantastic, just adding to the pleasure of his extraordinary descriptive style.
"Referring to the Government's proposal to levy VAT on all commercial electricity bills, and residential bills over 200 kilowatts per hour, … explained that totally 'exempting' this area would have tax-related consequences for other sectors of the economy." The Tribune Business December 4, 2013.
In other words, they will have to rob Peter to pay Paul. And so far Paul hasn't objected. It's just that the coffers have run dry.
But isn't that a policy that the politicos have been using for years? And of course many of us willingly take the mess of pottage.
"Whenever the Government is involved there is an element of compulsion, and the effect of compulsion is always to strip the virtue out of a transaction. ...
"If you and I are walking on the beach and I am hungry and you have a sandwich. And I say ... I'm hungry give me your sandwich, and you say, yes, here it is. I say thank you. Now that's a moral transaction. You feel good about having done something good, I feel a sense of obligation.
"Maybe someday if I'm doing well I'll share my sandwich with somebody else.
"But now here's a third situation. You and I are walking on that same river bank. I'm hungry, you have a sandwich, and here comes (the government) on a horse. He gets off the horse, puts a gun to your head and says ... turn over the sandwich ... and so you do. Then he puts the gun back and rides away.
"Now the out come is the same. I mean, I have the sandwich, but the moral content of that transaction is completely different.
You deserve no moral credit. You didn't give willingly. I don't even feel a sense of gratitude. I feel a sense of entitlement. I feel that you actually owe me seven sandwiches but you only gave me one.
"So you can see how the whole thing is confused when you bring in the element of coercion."
This quote was in reference to forced health care, but the element of coercion is no less prevelent in the case of the power to charge VAT on electricity bills or not.
Most Bahamians work damn hard for their money and it is not the right of government or any of its employees to assume they can simply take money from them at their desire, without accountability. And to think they actually sit a room and discuss that they are being "generous" by not taxing us is ridicuolous in the extreme.
People are willing to be taxed when they think there is value for money. Otherwise dissention is created.
The country is in a financial bind as a result of the over spending and borrowing of successive governments for decades now, and to presume that to not tax citizens at the point of a gun is the same as being generous, is, to repeat, displays a mindset that is ridiculous in the extreme.
The Bahamas government faces a gargantuan task to get its fiscal house in order, but placing further strain on an economy with higher taxes just might make matters worse for all consumers, businesses and the government. Something no Bahamians need at this stage.
We live under the false illusion that we are not taxed, but in reality we are, but our taxes are hidden from the average consumer/citizen.
All costs associated with a given economic concern are passed onto the final sale/consumer, a truth the world over, but the consumer in this case, while accepting sales tax in Florida without question, are quick to accuse the Bahamian business of gouging, skimming, or not paying taxes (traditionally duty/excise taxes)!
Wait till the first big retailer sale events post VAT implementation occur, and VAT is not within the discount offered. While the VAT total will be based on a lesser amount, it won't add up for the average Bahamian consumer. Accusations will fly, Consumer affairs will be called in, confuse everything in their ignorance and leave a bad taste in everyone's mouth.
Anyone being forced to collect and remit VAT should be considering educational posters and be ready for some remedial education efforts which will fail initially, for the most part.
Old Dog, unfathomable new tricks!
Already I've read comments belittling the "greedy Merchants" only concerned with their own profits.
The problem for the merchants is fighting back economically. A tax free week, with all businesses cooperatively shutting down, would send a serious message but would also be self immolative.