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As Bahamians begin
to recover from the damage of hurricane Frances, a
storm that will be recorded as one of the most
devastating in Bahamian history, we now begin the
initial process of assessing damage: social economic
and structural, and determining the eventual final
costs to Bahamians and the public treasury. It is
speculated that these costs can spiral into the
millions. It is at this time we reflect on our
economy's outlook - an economy whose primary financial
base is Tourism - and we put forth the question: Can
the Bahamian economy survive a catastrophic blow to
our tourism industry?
We believe and
continue in our belief that our economic base is too
heavily dependent upon foreign capital and a
catastrophic natural disaster can deplete our foreign
reserves and consequently result in severe economic
stress to our financial coffers. We contend that
immediate alternative measures to increase our revenue
base must be explored.
While our foreign
reserves stand at an impressive 646 million, (in
actuality it is a little over $400 as we have to
deduct the payment for US$ 200 million bond issue) if
we were to analyze the source of this revenue, it will
be revealed as noted in the 2004/05 Budget
Communication that the funds are attributed to foreign
inflows.
We contend that the
structure of the economy remains such that it relies
heavily on new foreign investment and will continue
for many years to come. We have stated previously that
it is time to develop a non-partisan long-term plan to
reduce our dependence on foreign capital, devise and
implement a mechanism whereby long-term capital can
access the international market which will provide a
constant source of foreign reserve and provide
incentives for local capital to be deployed in the
development of our economy.
This dependency on
tourism related projects is highlighted in the 2004/05
Budget communication which outlined major economic
priorities that are linked to the development of
tourist related projects:
* Implementation of
the $1 billion Atlantis Investment
* Four Seasons/Crab
Cay Resort in the Exumas
* Carnegie
Club/Winding Bay Links Golf & Resorts &
Residential Resorts (Abaco)
* Bimini
Bay Resort
* Proposed $1
billion Cable Beach Development
* Increase in
meetings & convention business - introduction of
2006 US tax exemption - American corporate groups
While the Prime
Minister has announced that facilities have been
established with the International Development Bank to
aid in this crisis, how long are we going to continue
to borrow monies to facilitate such measures and
initiatives? Central Bank estimates record our 2003
national debt level at $2.3 billion, and our debt
ratio is currently at 13.6 (compared to 5.3 that was
recorded in 1999). Too much debt will ultimately lead
to the devaluation of our currency.
According to the
2004/05 Budget estimates, recurrent expenditure is
projected at $1,176 million, and capital expenditure
of $148 million, resulting in total expenditure of
$1,324 million. Recurrent Revenue is projected $1,052
million and capital revenue is estimated at $11
million and Total Revenue of $1,063 million, resulting
in a budget deficit of just over $200 million (see
Table 1). As can be viewed from the Table II a
significant proportion of our revenue estimates are
tourist related.
Income taxes
During his Budget
Communication, the Prime Minister, stated that the
Government's position in 2004/05 fiscal period is to
concentrate on strengthening revenue administration
with a view to generating additional government
revenues for essential services without any necessity
to raise the level of taxation. Additionally, the
Bahamas continues to be marketed for its reputation as
a tax haven/domicile. If Bahamians had to choose:
taxes or a national lottery system, most Bahamians
would in fact prefer a lottery. Given the current high
prices and cost of living, an additional tax burden
would certainly be a financial challenge to many
Bahamians. It is time for us to seriously consider a
flat tax structure. While no administration wants to
address this issue, it must be faced head on. We will
address this issue fully in a future article.
Foreign exchange
control policies
We have on numerous
occasions stated that our exchange policies must be
relaxed to allow local investment firms to participate
in foreign markets to increase our reserves and reduce
our reliance on foreign capital as our primary source
of foreign reserves. If the local investment companies
(or the NIB for that matter) had been allowed to
invest a mere $25 million in 1990. It is estimated
that our permanent reserves would have stood at
$37,951,720 an increase of $12,951,760. While this
figure may appear small, it is approximately $13
million we would have access to besides the other
benefits such as portfolio diversification. Again,
this issue warrants further development and will be
addressed as a separate issue in a future article.
A legalized
national lottery system
Let's face it, the
issue of creating a national lottery is really a
question of whether we want to harness the money which
is already being spent by the millions in underground
"numbers running" and through participation
in legal foreign lotteries. In the latter instance,
this is foreign currency which is leaving the country
on a regular basis. Conservative estimates state that
about $100 million is spent every year by Bahamians
playing the Florida Lottery alone.
As for the local
"numbers running" industry, by legalizing
such activities and properly structuring a system,
rather than only a few beneficiaries, the entire
nation can benefit from the resulting social programs
and public improvement projects that a national
lottery would fund. Using the most conservative
estimates (based on money spent on the Florida lottery
alone) the Government could raise approximately $15
million a year for public projects.
We reiterate that
should a national lottery be instated, it is of utmost
importance that:
1. There be a
non-partisan, non-political overseeing board to
control and ensure that the funds are earmarked and
deployed as planned.
2. All financial
information be kept completely transparent and
frequently disclosed to the public in detail.
3. The public
should have direct participation in determining how
the funds are earmarked. The most practical method of
doing so would be through a national referendum on how
the funds are distributed.
4. Selection of a
lottery management firm should be based on the
previous experience and proven success of said firm in
the management and marketing of large-scale lotteries.
Hopefully provisions would be made to allow Bahamians
to partner with such an entity with a view to
eventually taking over the reigns.
In our June 29th,
2004 column, The Pros & Cons of a National
Lottery, we outlined some of the primary benefits and
drawbacks of instituting such a system
We have highlighted
some of the major points;
As recent as 1963,
lotteries were banned in every state in America.
Today, approximately 40 states have legalized
state-run lotteries. Their revenues fund a variety of
initiatives, including education, economic
development, transportation, prison construction, and
youth service programs.
In our Caribbean
region, most of the major countries including
Barbados, Trinidad, Jamaica, and Guyana have national
lotteries. The lottery in Barbados was started in
1990. In its first year of operation, it made a profit
of $5 million and paid out $25 million in winnings to
local participants. The Jamaican Lottery Company has
contributed approximately US $40 million to its
Ministry of Health, Ministry of Education and other
youth development foundations.
Not all of the
benefits from lotteries are positive. Arguments
against its implementation range from those focused on
possible administrative corruption, to objections due
to moral and religious beliefs. Gambling itself,
however, also has the potential to cause personal,
family and social problems in the community.
While a national
lottery system does have its drawbacks, many are of
the opinion that if it is properly instituted it can
provide much needed assistance to support many of the
social and economic reforms in the country namely:
* Education and
technical training - assist Bahamians to receive
tertiary level education.
* Sports funding -
the sports community continues to make requests for
further spending to develop and promote our athletes
in the international sports circuit.
* Infrastructure
developments- underground utilities e.g. phones &
electricity to reduce downtime during catastrophes.
* Social awareness
programs - self-help programs to assist the substance
abuser, provide life skills training, etc.
* Civic
organisition initiative - Last week two of our leading
civic organizations announced that they are in dire
need of financial assistance.
For years,
Economists, and Analysts have stated that the fiscal
stability of the Bahamas is too dependent on Tourism,
and that policies should be implemented to ensure
diversification. While we submit that there is no
magic remedy, what we do believe is that a viable
solution requires careful strategic planning based on
a concrete targeted implementation date.
Whether or not the
solution lies in the creation of a national lottery,
or implementation of income tax or some other
alternative, the key to achieving success is for
immediate steps to be undertaken. We cannot continue
to ignore this issue.
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