Raising your taxes with a smile

First Published: 2004-10-15

With the national debt fast approaching 2.5 billion dollars, the constant refrain is that the country’s present tax regime cannot fulfil all the obligations of the government. In addition, politicians, bureaucrats and scholars suggest that we must move away from the regressive duty structure to a no less regressive form of taxation…Value Added Tax.

The benefit…for the government…with this method of taxation is that it is applied to both goods and services. And judging from the smacking of lips and wrenching of hands, government is expecting to increase revenue in an effort to support a growing and omnipresent state.

The rhetoric from the government on this is impressive, as propaganda goes. It is designed to make the population believe that they will perform miracles with the economy and reduce debt levels by being able to charge each Bahamian and resident, more taxes. Of course it is patently clear, at least based on past results, that nothing will change with regard to government spending and waste. Add to this governments stated goal of a cradle to grave social security system and it appears that government is putting the best face on a bad situation.

Looking at the numbers, government debt has increased from a reported miniscule debt in 1966 to $500 million in 1986 and now to a projected $2.5 billion in 2004. That’s an average increase in the debt of around $11,000,000 per year over the past 18 years. When the government’s annual overdraft and contingent liabilities are included upcoming generations should prepare for an even more highly taxed future.

Although import duties, paid in advance, can raise prices, the present structure might be best for keeping government spending in check. In other words, there must be a concerted effort made to have the right policies to help investment (either foreign or Bahamian) to continue to expand the middle class or government revenue will appear to fall as government grows because they are spending and wasting more and more.

While smaller government has been found to be best for allowing the market to grow, it must be concluded that there is a vital role for government and therefore taxes, but they should both be kept to a minimum for a brighter and debt free future.

The disappointing aspect of this discussion is there are no attempts to reduce current levels of spending and waste. Also, the limited attempts at making the present system accountable or to ensure collection are feeble, to be polite. No promises are made to tie the level of taxation to the Gross Domestic Product or limiting it Constitutionally in some way. Unlike an entrepreneur, the government does not have to provide services at a level so that consumers want to do business with them. They simply take what they want by adding or increasing taxes.

While the present debate is important, the idea to push a new tax system without ensuring the viability of the present one is not very original. The only logical conclusion to be drawn is Parliament does not intend to restrain its spending and waste so it is happy to raise your taxes with a smile all the while promising a free lunch.

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