Many of the proponents of increasing the tax burden on Bahamians through the implementation of VAT, with a few exceptions they're mostly government ministers and bureaucrats, suggest it's necessary that we all need to pay more for no greater cause than the government needs more revenue.
Some even cite the distorted statistic that government revenue, as a percentage of GDP, is low compared to other countries. I say distorted, and this has not been countered, our GDP is large because it includes the very high impact of hotels and banks, that are anomalies because of various tax breaks and incentives, while the automotive and ancillary businesses like, gasoline, parts etc are very highly taxed. In fact, I would suggest, every budget for the past two decades or more has increased taxes on these items.
Remove the associated activity of the incentivised industries from the GDP numbers, and I submit The Bahamas is highly taxed.
Taking the new car industry alone, and I must state my bias as I work in the automotive industry, they are businesses with a high turnover and low profits, and they're being taxed into losses, while other industries are given tax breaks and subsidies to beat the band. The effects of high import taxes, price control and business license taxes on the auto industry are real.
But I digress.
As Dr. Dan Mitchell points out at his blog, International Liberty, almost everyone agreed (left and right) that high tax rates are economically misguided and lower tax rates are better for higher economic growth, which in turn, increases government revenue.
He points to:
- "the academic evidence…" and "overwhelming support for the notion that lower tax rates are good for growth"
- "An economist from Cornell that found "lower tax rates boost GDP."
- And where "economists found lower tax rates boost GDP."
- As he says "Even economists at the Paris-based OECD have determined that high tax rates undermine economic performance."
In other words, with all the evidence against increasing the tax burden, our government thinks it can buck the trend and tax the country into prosperity.
Dr. Mitchell also highlights an article by John Hood in the March issue of Reason magazine entitled; Laboratories for Prosperity: A comprehensive study confirms that free-market principles work...
Hood summarises:
"In other words, in the great debate about how best to promote economic growth, North Carolina has come down clearly on the side of fiscal conservatism, competition in public services, and a more limited government. It was a bold choice based on the best available research about what makes economies prosper."
The argument that lower taxes bring more economic growth and government revenue is counter intuitive for the political and bureaucratic class, but what have we got to lose trying it considering the trajectory the country remains on?
Maybe the political class think that spending and taxing more will solve the problems they've created by spending and taxing?
Economic poison indeed.
