Devaluation not a reason for raising VAT, says Davis

Devaluation not a reason for raising VAT, says Davis
Leader of the Opposition, Phillip Brave Davis.

Stating that this is the worst budget ever brought to the House of Assembly (HOA) in the post-independence era, Cat Island, Rum Cay & San Salvador Member of Parliament (MP) Philip Davis Thursday, accused the government of inflicting pain on the Bahamian people by not giving them a logical understanding for the value-added tax (VAT) hike.

“… there are no credible explanations provided for the unconscionable increase in VAT, which is the flagship of this budget,” Davis said.

“The three principal personalities – the prime minister (Dr. Hubert Minnis), the minister of finance (Peter Turnquest) and the financial secretary (Marlon Johnson), have provided reasons such as, devaluation, downgrade, $400 million gap in revenue, gross domestic product (GDP)/Debt Ratio, the Progressive Liberal Party’s (PLP) fiscal mismanagement, and that we need to avoid the fate of Barbados.”

According to Davis, Dr. Minnis indicated that the VAT hike is intended to avoid a currency devaluation, while Turnquest boasted in Parliament that the country had a healthy 23 weeks supply of foreign reserves or about $1.5 billion at the end of 2017, effectively debunking the prime minister’s assertions.

“This is scaremongering, as the issue does not arise with a healthy supply of foreign reserves,” he blasted.

Davis also maintained that currency devaluation is a monetary policy instrument in the purview of the Central Bank, an independent financial regulator.

“It is not a fiscal policy instrument such as raising taxes. Further, the Bahamian dollar is pegged to the US dollar and is not a floating currency,” he said.

“Devaluation is a non-issue and proper advice from those who know can confirm this. Devaluation risk is not a reason for raising VAT.”

And, while Johnson has alluded that the VAT increase was designed to avoid a sovereign credit downgrade, Davis opined that that argument is far from the truth.

“We have been able to maintain our investment grade rating with Standard and Poor’s but not with Moody. Moody’s decision was based on increased expenditure in post-Hurricane clean-up and repair and their disbelief that Baha Mar would open.

“The country has recovered from the devastation of Hurricanes Joaquin and Matthew and Baha Mar is fully opened, therefore, the threats to a downgrade no longer exist. Given this non-issue, the risk of a sovereign credit downgrade is not a reason for raising VAT.”