The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is targeting a near-balanced Budget for the fiscal year’s second half, a target that one private sector executive yesterday described as “very ambitious”.

Prime Minister Perry Christie, in unveiling the mid-year Budget, said the GFS fiscal deficit (which strips out debt principal repayments) for the 2014-2015 first half was some $273 million - a figure equivalent to 95 per cent of the full-year deficit target.

The Christie administration is forecasting that the 12-month GFS deficit for the year to end-June 2015 will come in at $286 million - a figure just $13 million higher than the half-year figure.

Yet Mr Christie reiterated his government’s confidence that it would hit its 2014-2015 financial targets, telling the House of Assembly: “We expect the GFS deficit in 2014-2015 to decline to below $300 million, or around 3.2 per cent of GDP, from a level of $462 million, or 5.4 per cent of GDP, in 2013-2014.

“This represents a one-year improvement in the deficit of more than $160 million. I think we can all agree that in the historical context this represents a major improvement that we should all be proud of.”

He added that based on the Government’s first-half performance, “we are on track to achieve this projected improvement in the deficit this year”.

To hit such a target, both the Government’s recurrent (fixed costs and revenues) and capital accounts will have to near-balance for the six months to end-June 2015.

It is likely that the Government will rely heavily on the estimated $150-$175 million in half-year VAT revenues to achieve these targets, but many - especially those in the private sector - are likely to be sceptical the Christie administration will achieve its 2014-2015 fiscal goals.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, when informed of this, told Tribune Business: “Even with the VAT revenues, that may be a very ambitious target.”

VAT’s implementation was deferred six months beyond the Government’s initial July 1, 2014, target, and Mr Bowe said the Bahamas had “certainly not seen a lot” of the promised reduction in public spending.

He suggested the Government was “still going to be running considerable deficits in the first years of VAT”.

“If we keep the deficit below $300 million despite the delay with VAT, it will be very positive, but we will likely be somewhat exceeding GFS deficit projections for the first fiscal year,” Mr Bowe told Tribune Business.

The Government is projecting that it will collect between $350-$400 million in gross VAT revenues during the 2015-2016 fiscal year, the tax’s first year, with net revenues standing at $300-$350 million once Customs duty reductions are accounted for.

Mr Christie, meanwhile, said that at the fiscal year mid-point, the Government’s recurrent (fixed cost) spending stood at $889 million - a sum equivalent to 48.7 per cent of the full-year $1.829 billion estimate.

The Government’s recurrent revenues, meanwhile, stood at $689 million for the half-year - a sum equal to 38.9 per cent of the $1.77 billion projected in the Budget.

This leaves the Government with a half-year recurrent deficit of $200 million, while its capital spending (and deficit) for the six months to end-December was $135 million or 40.7 per cent of the amount budgeted for the full-year.

The Prime Minister said first-half revenue, as a percentage of the forecast total, appeared low because the Government traditionally earns the bulk of its income in the third and fourth quarters of its fiscal year. These coincide with peak tourism season.

However, the half-year GFS deficit, equivalent to 3.1 per cent of Bahamian gross domestic product (GDP), was higher than the 2.8 per cent achieved at the 2013-2014 Budget year midway point.

While revenues were $20 million ahead of the prior year comparative, recurrent spending was up $48 million year-over-year - making for a $28 million expansion in the recurrent deficit. Capital spending was also up by $29 million on the 2013-2014 half-year comparison.

The mid-year Budget statement in many respects sounded almost like an election campaign rally speech, as it was full of upbeat rhetoric and ‘political pot shots’ at the Free National Movement (FNM).

And, in some respects, it was more notable for what it did not say as opposed to what it did contain:

• No mention was made of using the VAT revenue ‘windfall’ to eliminate the fiscal deficit and pay down the $6 billion-plus national debt - something many in the private sector believed was the key objective for implementing the tax.

Mr Christie instead said that the Government’s revenue reforms would give it the funds to finance social programmes and infrastructure investments.

He said: “Through this plan, the Government will be infinitely better positioned to make the vital investments in healthcare, education, culture and public safety and security that our citizenry rightly expects of its government.

“Just as importantly, having access to sufficient financial resources to finance these vital expenditures will reduce the Government’s borrowing needs, thereby allowing savings to be directed towards to the private sector.”

Still, the Prime Minister pledged that the Government’s deficit elimination goal had not changed, and he promised “stringent expenditure goals” will remain to achieve this - while being vague on the details.

Mr Christie said the target was to eliminate “the primary deficit by fiscal year 2015-2016 and realise the targeted significant reduction in the GFS deficit to less than 1 per cent of GDP by fiscal year 2016-2017”.

• There was zero reference to energy reform and the Bahamas Electricity Corporation (BEC) restructuring process, which many in the private sector believe will act as a key offset to VAT’s impact and other austerity measures.

• Neither was any mention made of the increased revenues that the Government expects to earn from legalising, and taxing, the web shop industry.

This might have something to do with the current impasse between the Government and web shop industry over how the latter will be taxed, and the application/calculation of back taxes.

Based on his statement yesterday, the Prime Minister is again - as he did in his 2002-2007 administration - pinning all his hopes for economic revival and job creation on foreign direct investment (FDI) projects, some of which may not materialise or succeed. Such a trend also occurred under his previous government.