Food Prices Soar
Based on the latest Central Bank Report on the Bahamian economy, prices for food and drink increased by 7.4% as the economic outlook for 2009 remains weak. This is supported by a further increase the inflation rate from 4.67% to 4.8%. Notwithstanding the external economic forces placing pressure on our economy, this condition was further exacerbated by the government’s tax policy which should be revisited.
As readers may recall, in its current budget, the government gave a generous tax concession to businesses on Bay Street. To offer relief on consumption items, I propose that part of the $131 million in tax concession given to businesses (as part of the revitalization act) should be repealed and part of the sweeping and precipitous customs duties increases and excise taxes should be rolled back. This will provide balance in priming the country’s economic pump. The PM did not say that the excise taxes and the current duty and stamp tax regimes will increase government revenue by 10% over 2007 figures or some $146 million. How is this possible when the economic growth for this fiscal year is pegged at 2% and the government only collects 20 cents out of every dollar generated in the Bahamian economy? At 2% growth rate the government should realize $28 million in revenue increase over 2007. This was possible only through sweeping tax increases that will amount to $250 million per annum or a cool $1 billion over the next four years (from June 2008). Now that the Bahamian economy is projected to contract in 2009, more pressure is being placed on government revenue and the need for greater deficit spending. If this tax burden is not eased, the social cost to the country will be too great as poverty, crime, the misery index, and general loss of hope will increase. Asking the taxpayers to cough up $1 billion over the next four years is a bit much. We must remember that the consumers represent the other half of the supply and demand equation and they need disposable income to support businesses. The government promised to review this tax increase, but this review has apparently not materialized.
At the end of March 2009, the official unemployment rate in the United States stood at 8.5% as an additional 663,000 American workers were dropped from the payroll. I use the US as a benchmark because our economy is intrinsically linked to theirs and as we Bahamians like to quip: “When the US coughs, the Bahamas catches a cold”. Further, we do not have the administrative mechanism to measure the rate of unemployment as frequently as necessary in order for the government to proactively make the necessary policy changes to buffer and minimize economic shocks.
This brings me to the policy measures implemented by the government as economic stimuli. Firstly, the focus is too narrow as some $360 million were allocated for road construction in New Providence. Secondly, the allocation of human capital to clean the streets is woefully underutilized. Thirdly, there is no clearly articulated vision to align the policies with; we have seen mostly reaction to crises.
What became of the Support Program for Transforming Education and Training (SPTET)? This was an invaluable program funded by the Inter-American Development Bank (IDB). What became of the partnership with the Daytona Beach Community College (DBCC) and the Academy for Education Development (AED)? This initiative was in response to the complaints by employers of major skills shortages among high school graduates.
There are a large number of college educated persons who have been displaced in this economy. There is a need in our education system for more individualized attention because of the sheer size of the classes. The student teacher ratio in Nassau is 1:35 and for the family islands the ratio is 1:16. These displaced workers can be contractually engaged by the government as teacher assistants in the public school system. For example, $30 million can easily engage 1,500 persons for one year. This is based on the starting salary of a certified teacher standing at $23,000. The benefits are as follow:
• Improved academic performance which creates a better educated workforce.
• Increased consumerism as $30 million will be pumped into the economy by 1,500 persons.
• Many of these persons will have bank loans so this initiative could reduce the default rate and level in the banking system, especially mortgage defaults. This is a win-win deal for the government and ordinary Bahamians.
• Takes some pressure off the government to provide unemployment benefits and mortgage relief. Government could kill as many as four birds with one stone.
There are a wide range of outstanding projects that can make more efficient use of our workforce, further reduce unemployment, broaden the capital flow within our economy, and advance our national development. A few examples are listed: Construction of a bridge to eliminate flooding on the Fishing Hole Road, Grand Bahama; refurbishment of Glass Window Bridge, Eleuthera; construction of the Legal Complex where supreme court and Court of Appeal to be located in same complex; complete South Street court complex; construct waste water treatment plant; refurbishment of existing satellite clinics; construction of polyclinics and mini-hospitals in the family islands; expansion and modernization of Princess Margaret Hospital; construct detention center on a family island; construct the RBDF base and immigration processing center in Inagua; construct a RBDF base in Grand Bahama. This will give us a northern and southern command Center in addition to the central command which is in Nassau. Complete the refurbishment of the foreign affair reception building on Blake Road. The $80 million expansion and upgrade of public should be completed. For eg. the Gymnasium at R.M. Bailey, block-by-block reconstruction of A.F. Adderley, and the refurbishment of Walter Parker and Eight Mile Rock just to name a few. Construct a new school in Exuma, two primary schools in Lowe Sound and Fresh Creek Andros, and a multipurpose school in Salina Point Acklins. Finally, construct seawall in Lowe Sound, Andros and construct roads in Acklins, Moore’s Island, and Crooked Island.
Yes, the economic storm is great, but there are alternative ways to weather such a storm and the above proposals are but a few in an alternative action plan. Think on these things.