The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is targeting improved revenue yields equivalent to 4 per cent of Gross Domestic Product (GDP) as the centrepiece of its plan to generate a recurrent Budget surplus within three years, it was disclosed yesterday.

Prime Minister Perry Christie, in his administration’s Mid-Term Budget statement, disclosed that planned “structural reforms” would improve revenue yields from their current 17.6 per cent of GDP to 21.5 per cent of GDP by the 2016-2017 fiscal year.

Laying out, at least on paper, the medium-term targets designed to tackle the Bahamas’ top policy priority, Mr Christie said more than half this increase - some 2.2 “net” percentage points of GDP - would come from the introduction of a Value-Added Tax (VAT) in 2014-2015.

With VAT accounting for 55 per cent, or roughly $176 million, of this projected increase, the Government is banking on gaining a further percentage point (roughly $80 million) from enhanced real property tax administration and enforcement.

The remaining balance will be generated by Customs reform and modernisation, expected to generate extra revenues equivalent to 0.5 per cent of GDP ($40 million), and the $20 million projected from the implementation of Excise Stamps on tobacco products.

“All told, these measures will contribute to boosting the revenue yield of our tax system by almost four percentage points of GDP by 2016-2017,” Mr Christie said.

“That will bring our yield somewhat closer into line with that generally found elsewhere in the Caribbean, though still at the lower end of the range.”

If the Government hits its fiscal targets - and that remains a big ‘if’ - the Prime Minister said it would generate a recurrent account surplus of $127 million by its 2015-2016 fiscal year.

That would mean the Government’s revenues would exceed its recurrent spending (fixed costs), and the plan also involves generating a primary surplus (revenues exceed fixed costs minus debt principal and interest payments) by 2014-2015.

Mr Christie described the primary balance as “the key indicator of debt sustainability for the Bahamas”.

Meanwhile, the third indicator his government is targeting is reducing the GFS fiscal deficit (a measurement that strips out debt principal repayments) from a current 6.5 per cent of GDP to running a 0.8 per cent or $80 million surplus by 2016-2017.

And, describing the end product of all this, Mr Christie said: “Through these efforts, we expect to be able to arrest the growth in the debt-to-GDP ratio by 2014-2015, and to begin a gradual reduction in the ratio to just over 50 per cent of GDP by 2016-2017.”

All told, the Government’s plan for tackling its burdensome fiscal deficit and rising debt-to-GDP ratio focuses almost exclusively on the revenue side of its Budget, and generating more income to meet rising costs.

Little to no mention was made of reducing the size of government, or even eliminating waste and inefficiencies.

Once again, the Government appears to be relying on generating economic growth (expanding GDP) to keep its spending-to-GDP ratios in line.

The Prime Minister said his administration plans to lower its recurrent spending by the equivalent of 0.5 per cent of GDP per annum, starting in 2013-2014. Its ratio will thus drop from 21.1 per cent to 19.1 per cent by 2016-2017.

Based on the Government’s latest fiscal projections, it seems to be forecasting that the Bahamas will soon have a $10 billion economy, a $2 billion increase from the current $8 billion. It is unclear where this growth will come from, although Baha Mar is the leading contender.

As for the capital expenditure side, the Government is pushing for “a sustainable medium-term target of 3 per cent of GDP, which in today’s level translates into annual investments in the area of $250 million”.

For the 2012-2013 Budget year, the Government is targeting $363 million in capital spending, a sum equivalent to 4.4 per cent of GDP. It plans to reduce this to $300 million, or 3.5 per cent of GDP, in 2013-2014.

The Government’s revised Budget projections show that anticipates increasing its revenues by more than half a billion dollars - $660 million to be exact - over a four-year period.

VAT, of course, will play a large part in growing the Government’s revenue base from the projected $1.43 billion in the 2012-2013 fiscal year to $2.09 billion in 2016-2017. The biggest leap comes between the 2014-2015 and 2015-2016 fiscal years, when revenues are forecast to jump by $252 million - from $1.74 billion to $1.952 billion.

With recurrent spending forecast to increase by just $140 million over the same four years, hitting $1.86 billion in 2016-2017, the Government is aiming to move from the current $290 million recurrent deficit to surpluses of $127 million and $230 million in 2015-2016 and 2016-2017, respectively.

And, even earlier, it is projecting that it will move from the projected $325 million primary deficit for 2012-2013, equivalent to 4 per cent of GDP, to a $33 million primary balance by 2014-2015.

Further out, it is eyeing primary budget surpluses of $249 million and $326 million, equivalent to 2.7 per cent and 3.4 per cent of GDP, respectively, in 2015-2016 and 2016-2017.

When it comes to the GFS deficit, the Christie administration is projecting that this will drop from the $532 million projected this year to just $1 million in 2015-2016, with an $80 million surplus in 2016-2017. This would represent a $612 million turnaround.

As for the Government’s direct debt, the Christie administration is projecting this will peak at a 56.8 per cent debt-to-GDP ratio in 2014-2015, growing no higher than $5.047 billion the following fiscal year.

With the Government’s contingent liabilities already at $558.9 million come end-September 2012, the total national debt is thus forecast to peak at around $5.6 billion come the 2015-2016 fiscal year - a figure equivalent to 64 per cent of GDP.