Bahamas Government Incompetence on Taxes & Transport

by Larry Smith

For years there have been calls to restrict vehicle imports in order to reduce Nassau's traffic congestion and tackle rising fuel costs and environmental concerns.

Energy & Environment Minister Dr Marcus Bethel has drafted the country's first-ever energy policy, which is expected to address the transportation sector in terms of fuel conservation, alternative energy and pollution control. But it has yet to be publicly discussed.

Meanwhile James Smith, his colleague over at Finance, says little can be done about the rising number of vehicles on our roads that burn ever more expensive fuel because the public treasury relies on import taxes.

Critics say this conflict of interest underscores the government's astounding incompetence in failing to devise both a sensible long-term tax policy and an effective traffic strategy.

Let's take taxes first. For the past decade we have known that our outdated dependence on import duties and stamp taxes (they provide over half of government revenue, with the rest coming from fees, property rates and a small payroll tax) was likely to be doomed in the modern world of competitive economies and free trade.

The Bahamas has taken part in talks to create a Free Trade Area of the Americas since 1994, and both the Free National Movement and the Progressive Liberal Party have been going along with CARICOM integration since 1989. In return, our politicos and bureaucrats get to attend lots of regional meetings with flags and VIP protocol.

We applied to join the World Trade Organisation six years ago, but we are still working on the required documents. And we are even now (at the very last minute, actually) in the process of negotiating a reciprocal trade agreement with the European Union that will involve duty-free access for goods.

The plain fact is that our politicos are fully aware that all of these initiatives require a major overhaul of our tax system and business structure.

In 2005 State Finance Minister James Smith said the completion of feasibility studies then underway would be followed by a two-year phase-in period of a value-added tax to replace import duties. Well, those studies (by the IMF and CARICOM) have already been done, but the government is making no visible effort to pursue a new tax regime.

The CARICOM study says we will need a 14 per cent value-added tax to compensate for the elimination of duty revenues - and warns that this shift of gears will be a momentous undertaking. That's because import duties are easy to collect: a small staff of agents can ensure that nothing leaves the dock until duty is paid. VAT, on the other hand, will be levied on both goods and services, requiring an entirely new and more complex system of book-keeping throughout the economy, as well as a newly trained force of tax inspectors to oversee the change and catch the inevitable evaders.

According to financial analyst Dick Coulson, of RC Capital, "What has government done to prepare our economy for this radical, and supposedly inevitable, change? Essentially nothing. Minister Smith merely says that the CARICOM figures are not 'hard and fast' and refers vaguely to others that would derive different results."

Coulson, 76, is a corporate lawyer and investment banker with dual American and Bahamian citizenship. He is a director of three offshore banks and his firm, RC Capital, has been involved in a number of public offerings and private placements and acquisitions.

"One is entitled to ask why," he told Tough Call recently, "the government has not chosen one of these studies over the last five years, given it rigorous analysis, adopted it as official policy, and begun to implement the new training, education and legislation that will be essential to make it work successfully?"

Well, that’s not the way the public sector responds when faced with the prospect of difficult and revolutionary transformations in the way we do business. Our politicians and bureaucrats obviously think it is better to muddle through until the last possible moment (as with the European Partnership Agreement), and then make hasty and confusing adjustments under the gun of new international rules imposed on an unsuspecting public.

As Chamber of Commerce Executive Director Philip Simon acknowledged recently, "There's a lot of work to be done...Any number of laws, regulations, institutions and agencies need to be created, disbanded or adjusted. There are reforms in just about every single area that need to be considered. This is a place we have not been before."

And consider our approach to traffic congestion and air pollution. Nowhere does it seem to be recognized that limiting the number and type of imported vehicles is not the only, or even the best way, to solve these problems. Pollution, for example, can be reduced by adopting and enforcing controls on exhaust emissions - and no vehicles should be allowed into the country without emission control equipment installed.

As for traffic, what kind of congestion do we actually have? On this 80-square-mile island there are some 116,000 registered vehicles in a population of about 210,000. This produces a ratio of 552 vehicles per 1000 inhabitants, compared to 775 per thousand in the US and about 500 in Japan and Europe.

By comparison, the island of Manhattan, with about one third the acreage of New Providence, has a population of 1.5 million and 247,000 vehicle registrations. Yet, with certain frustrations, traffic manages to flow. This is partly due to an extensive public transport system as well as to fairly rigorous enforcement of traffic rules in a compact urban environment.

In Nassau we suffer endless traffic jams down-town, and at the various “choke points” at the edge of town - such as the notorious merger of Bay and Shirley Streets onto Eastern Road. But these localized problems exist only because of government inattention during the many years that Nassau evolved from a sleepy village into a bustling urban community.

With few exceptions, our planners (if that’s the right word) ignored the visible explosion of commercial buildings and subdivisions that have made Nassau an exciting place to live but a nightmare to navigate by car. Adjustments to roadways and land use controls - such as avoiding the siting of a commercial boat ramp, marketplace and slaughterhouse in a public park at a major traffic intersection) either did not occur or came too late to be of much help.

There is, of course, much official hand-wringing about our traffic gridlock, but little is ever done to improve matters. For example, when the Christie government came to office they embarked on a project to rationalise the island's chaotic bus system, but there is nothing to show for it after five long years.

In fact, Dick Coulson can recall attending meetings in the prime minister’s office in mid-2005, with officials from the Road Traffic Department and the Ministry of Works, as well as American traffic planning consultants who had conducted detailed studies of our road network and made a series of specific recommendations.

"Some were too visionary," he recalled, "such as a light railway from the airport to the Paradise Island bridge. But most were eminently practical and sensible. Plans were clearly laid out, for example, for extending Collins Avenue further north to Bay Street. And there were proposals for covered taxi-parking restrictions, parking meters, parking garages, re-routing of bus lanes, and so on.

"All present seemed favorable to these improvements, but to date virtually nothing has been done in the key central area of the city. The only exception is the modestly improved intersection of Mackey and Shirley Streets, which was undertaken by Atlantis. Again, public sector procrastination seems the rule of the day," he said.

Dealers import about 3,000 new cars and trucks a year at an average retail price of $22,000. These are price-controlled and taxed by the government at more than 50 per cent of their cost. There is also a huge grey market for pre-owned vehicles, with unlicensed individuals and used car lots bringing in an estimated 7,000 vehicles a year.

All these imports produce tens of millions of dollars a year for the government from tariffs and stamp taxes – not to mention business license fees, payrolls and overheads funded by the dealers. So clearly - as the finance minister said - the auto industry is a major pillar of the economy and a key contributor to the national budget.

But the other side of the coin is that traffic congestion causes us to lose tens of millions of dollars a year in added fuel costs, lost productivity, and accidents. Our work day is continually expanding because we must spend more than 20,000 hours in traffic jams each day. Officials estimate that if traffic continues to grow at the current rate, an average 30-minute commute will take three hours by 2020.

Experts say the main factors contributing to traffic congestion are the growth of vehicle ownership, poor or non-existent land use planning and a lack of investment in public transport. Our options include building new roads and possibly fly-overs (which would change the nature of the island completely), imposing strict limits on vehicle size and ownership (following Bermuda's lead), or implementing the kinds of improvements that have been kicked around by the private and public sectors for years.

Last June yet more foreign consultants launched a new island-wide traffic congestion study for the Ministry of Transport. They reported in January, and "public consultations" are now said to be underway. But our body politic just seems to drift along in rigour mortis.

As Transport Minister Glenys Hanna-Martin said recently (in all seriousness): "there is only so much talking we can do on this subject."