The Tribune

By NEIL HARTNELL Tribune Business Editor THE next Government cannot "ignore the need" for tax reform and moving towards a sales/Value Added (VAT" tax regime, the minister of state for finance telling Tribune Business there was still "a reasonable enough gap" between 2011-2012 revenue estimates and actual performance. Speaking after the Central Bank of the Bahamas disclosed a modest year-over-year improvement during the first half of the Government's 2011-2012 Budget year, with the total fiscal deficit down by $50.6 million or 23.6 per cent, Zhivargo Laing said the Ingraham administration had "without question" laid the foundations for setting the Bahamas' national debt-to-GDP ratio back on a more sustainable path. Shrugging off criticism about the national debt increase to around $4.25 billion, Mr Laing said the Government had moved from the 2010-2011 Budget to bring the debt-to-GDP ratio - and persistently high fiscal deficits - back to sustainable levels. The slowly-improving economy, and revenue collection/enforcement mechanisms adopted by the Government, were likely responsible, he added, for the $50.3 million or 8.7 per cent revenue gains experienced for the 2011-2012 fiscal first half. "We determined from 201o-2011 to begin putting our fiscal circumstances on a trajectory that was sustainable, and that was not at the pace we had to endure at the height of the crisis," Mr Laing told Tribune Business. "I believe that in terms of the things we have sought to do, we have put ourselves on the path to bring our fiscal circumstances back into line with reality. The reality is the economy of the Bahamas is growing, and as a consequence there are marginal gains to be had to our fiscal circumstances." Total revenues of $628.9 million for the six months to end-December 2011 were said by the Central Bank to have been "boosted mainly by capital receipts from investment-related securities", although Mr Laing said he was unaware of what these securities were. Still, these still caused non-tax receipts to rise by 18.5 per cent to $78.8 million for the 2011-2012 first half. Acknowledging that this represented a modest bit of good news, especially given the continuing economic uncertainty both in the Bahamas and internationally, Mr Laing told Tribune Business: "Our year-over-year revenue performance is tracking ahead, but on the forecast front we are not tracking ahead of that. "From year to year, we are performing better. If it were the other way around, we'd be concerned. If it's the way it is, it does provide some comfort that we are not tracking behind last year." Asked by Tribune Business how large the difference was between the Government's 2011-2012 revenue estimates and actual performance, the minister said that while he had not seen the latest figures: "There's a gap for sure. It's a reasonable enough gap." He was quick to add, though, that the 'revenue gap' had to be put in context, as the Government was still in the third quarter of its fiscal year - the period that traditionally generated the highest tax inflows due to it containing the peak tourism season. And, rather than monitoring monthly or seasonal fluctuations, Mr Laing said the Government always focused on its year-end accounts and performance to "know where we stand". Still, the Central Bank report noted some modest improvement in the Government's recurrent revenues. Unlike the past two fiscal years when it was buoyed, in the first one, by some $64 million in revenue associated with Statoil's South Riding Point purchase, and in the latter by the $206 million Bahamas Telecommunications Company (BTC) privatisation, plus BORCO and Baha Mar deals, the Government is this year not earmarking any extraordinary one-time gains - at least not publicly. As a result, it will have to rely on traditional income streams. And these seem to have performed moderately well during the 2011-2012 first half, the Central Bank placing excise taxes up $22 million, international trade taxes ahead by $8 million year-over-year, and business and professional services fees up by $7.3 million. Asked to explain the increases, Mr Laing said: "I think it's a combination of things. I think there's some buoyancy gains from an improved economy, and I think there's some gains from the efforts on revenue collection. "We've indicated that it will take a combination of things to improve our fiscal circumstances - better economic growth, improved tax administration and some adjustment in our fiscal regime to capture more of the tax base." Asked by Tribune Business whether tax reform would be a key item on the next government's agenda, regardless of who was elected, Mr Laing replied: "I'd be surprised if any administration ignores the need for fiscal adjustment in that regard in the next five years. "Everything suggests we need to find greater yields in tax revenue, and that will have to come from such adjustments in the fiscal regime." Asked whether the focus would be on a VAT or sales tax, the minister added: "That's the most viable option, and something to be looked at." Asked whether the current Ingraham administration was leaving a solid fiscal foundation for its successor, Mr Laing said: "Without question. "Whether it's on the regulatory front, on the operational front, the procedural front, on the reform front, on the practical issues, from any angle you look at it, we have laid a solid foundation for future growth and development of the fiscal affairs of the Commonwealth of the Bahamas, and we've done that in an environment that was absolutely challenging." The Government's capital revenues for the 2011-2012 first half, meanwhile, hit $17.7 million due to the sale of government-owned property. That is likely Baha Mar's purchase of the Cecil Wallace-Whitfield Building. Import/excise duties were some 2.36 per cent ahead of the fiscal 2010-2011 performance, standing at $288.1 million compared to $281.4 million. The 2011-2012 first half fiscal deficit of $163.6 million compared to $214.2 million a year ago, while this year's $628.9 million in revenues was an upgrade on last year's $578.5 million. On the Government spending front, the Central Bank report said total expenditure for the 2011-2012 first half fell slightly by $0.2 million, or 0.03 per cent, to $792.5 million. This was largely due to a $42.1 million reduction in net lending to public corporations, as one repaid its debts. Yet recurrent spending on the Government's fixed costs grew yet again by $25.2 million or 3.7 per cent to $712.2 million, due largely to a 36.6 per cent rise in goods and services costs. Wages and salaries rose by 3 per cent. Meanwhile, capital spending was also up by $16.7 million or 20 per cent to $99.9 million. "Expenditure has always been one of the elements we've been able to control, more so than anything else," Mr Laing told Tribune Business. "The bulk of what we've been doing is investing in physical infrastructure. We've not done any drastic increases in recurrent expenditure, and that's helped to achieve the results we've seen."