NASSAU, BAHAMAS — While the Davis administration’s decision to eliminate Value Added Tax (VAT) on unprepared food has been welcomed as meaningful relief for households grappling with rising grocery bills, former Financial Secretary Marlon Johnson is warning that the policy move raises serious fiscal questions that must be addressed transparently to avoid worsening the country’s debt position.
Prime Minister Philip Davis announced during a national address on Monday night that VAT on unprepared food would be reduced from five percent to zero, positioning the move as part of the government’s broader effort to ease cost-of-living pressures.
“There is no question that the reduction in the VAT on unprepared food will provide welcome relief for many families struggling with the high cost of groceries,” Johnson said. “It is particularly helpful for lower-income families who in the last five years have seen a significant increase in the cost of everyday items.”
However, Johnson in a social media post cautioned that tax relief, while politically popular, must be accompanied by clear and upfront disclosure of its fiscal impact, particularly at a time when government finances remain under strain.
“But we must at the same time demand of our elected officials that whenever they engage in tax cuts, that they quantify the anticipated loss in revenue,” he said. “The public must be aware of what any reduction will mean in money coming into the Treasury, and of course, how it will impact the very precious cash flow that the government needs on a daily basis to meet salaries, interest payments, and bills owed to vendors.”
Johnson questioned whether the government has provided any estimate of how much revenue will be forgone as a result of eliminating VAT on unprepared food entirely.
“Will the reduction in the VAT mean $20 million less annually, $30 million?” he asked. “Whatever the sum, there must be an explanation as to how the revenue reduction will be made up.”
According to Johnson, the issue is not whether tax relief is desirable, but whether it is responsibly financed. He said the government must clearly outline whether the lost revenue will be offset through spending cuts, alternative revenue measures, or higher taxes and fees elsewhere.
“Will there be spending cuts to compensate? Will there be an increase in fees and taxes elsewhere to compensate?” he asked.
Johnson also highlighted what he described as an irony in the timing of the announcement. One day after the Prime Minister outlined tax cuts and the resulting revenue announced that the government would borrow $30 million from the Caribbean Development Bank to fund critical water infrastructure improvements.
“There is no issue with this conceptually because we certainly need the necessary investment in our water infrastructure throughout the country,” Johnson said. “But given that as a country we have more than $2 billion in immediate public infrastructure needs, do we really want to be encouraging unfunded tax cuts?”
Johnson noted that the government’s fiscal position already shows signs of strain. For the period July to September, the government recorded a fiscal deficit of more than $140 million. If deficits persist for the remainder of the fiscal year, he warned, additional borrowing will be unavoidable.
“If we end up running a deficit for the full fiscal year, that of course will mean more borrowing and more debt,” he said.
He argued that tax policy decisions must be grounded in deliberate fiscal planning rather than political expedience.
“If and when we make the determination that a tax cut is desirable, we must ask ourselves how we are going to pay for it,” Johnson said. “Are we going to pay for it by cutting operating expenditure? Are we going to pay for it by cutting investments in infrastructure? Are we going to cover it by increasing taxes and fees elsewhere?”
Absent those decisions, Johnson warned, the country risks repeating a familiar pattern.
“When we do not make these deliberate decisions, we end up reducing revenue but we keep spending as before,” he said. “That just means running up the national credit card debt and leaving the bill for our kids and grandkids.”
Johnson called for what he described as a “sober and non-partisan adult conversation” on fiscal responsibility, emphasizing the need for a fair and progressive tax system, transparency in public finances, and accountability in government spending.
“We need to have a sober and non-partisan adult conversation regarding fiscal responsibility: how we create a fair and progressive tax system, how we ensure full transparency and accountability for the use of public funds, and how we all equitably pay our share for the necessary investments in infrastructure and people that would lead to sustained prosperity and broad-based improvements in our standard of living,” he said.
He cautioned that while the VAT reduction may provide short-term relief and political goodwill, the long-term cost could be far greater if not properly financed.
“These short-term policy moves for political expedience are going to end up costing us a whole lot more in the future,” Johnson said.
