The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Tax Coalition’s chairman yesterday described the increase in the Government’s recurrent spending for the 2014-2015 Budget year first half as “cause for concern”, reiterating that real cuts were necessary to achieve the desired fiscal turnaround.

Calling for the Government’s fixed-cost spending to take “a downward trek”, Gowon Bowe recalled the Tax Coalition studies showing that a 10 per cent cut in real public expenditure between 2015-2018 had to accompany a 7.5 per cent Value-Added Tax (VAT) rate for fiscal consolidation to be successful.

He also called for “a very hard push” to move the Government’s finances to accrual-based accounting, which would record the Government’s spending commitments when they are incurred - not when they are paid.

This, the Coalition for Responsible Taxation chief said, would enable better judgments over whether the administration was achieving its fiscal goals.

And Mr Bowe also called for more transparency on the reasons for beating/missing fiscal projections, otherwise it would be difficult to assess the returns from government social/infrastructure projects and “the prudence of any government”.

Mr Bowe’s comments came as some in the private sector blasted Value-Added Tax (VAT) as

“the biggest tax grab in the history of the Bahamas”, and alleged that it would only serve to “disguise” fiscal deficits without accompanying spending adjustments.

Rick Lowe, an executive with the Nassau Institute think-tank, described the Government’s spending as “the elephant in the room” that politicians and successive administrations were reluctant to tackle.

For the Government’s recurrent spending continued to grow at a faster rate than revenues during the 2014-2015 Budget year’s first half.

While total revenues for the six months to end-December 31 rose by 2.99 per cent or just over $20 million to hit $688.638 million, recurrent spending, which goes towards the Government’s fixed costs, such as civil service salaries and rents, grew by 5.65 per cent - a rate almost twice as fast.

“It always is one of the concerns,” Mr Bowe told Tribune Business yesterday of the increase in the Government’s spending. “We would all like to see recurrent spending take a downward trek, so any increase - regardless of how moderate it may be - is the wrong direction at this time.

“Any time we see upward movement is cause for concern.”

Mr Bowe, a PricewatwerhouseCoopers (PwC) accountant and partner in his ‘day job’, reiterated the Coalition studies showing that government spending over the next four years must be contained to an average 4 per cent nominal increase - in line with the normal national inflation rate.

This increase in the Government’s recurrent spending for the 2014-2015 half-year also appears to have breached its previously announced goal of matching the rate of expenditure growth to economic growth rates - one of the four objectives cited by the Christie administration as key to a fiscal turnaround.

The Bahamian economy’s growth over the last several years has barely breached 1 per cent - a rate well below that of expenditure increases, as total spending for the 2014-2015 Budget half-year jumped by more than $47.54 million - from $841.211 million the year before to $888.752 million.

“When you look at that, if you are going to use relative terms to describe how you will monitor and control spending, you want to see things move in that direction,” Mr Bowe told Tribune Business, “and if not, what are the reasons for not achieving that.”

He added, though, that it was difficult to assess the Government’s fiscal performance based on the half-year Budget, given that its finances were run on an ‘cash’ rather than accrual accounting basis.

“We have to push very much for an accrual basis of accounting, and that is not imminent; it won’t happen tomorrow,” Mr Bowe said.

“We have to push for revenue and expenditure to be posted in the period where they accrue, not paid, and then we will be able to make judgments on expenditure and revenues.

“It’s very difficult to make bold statements regarding the Budget as it’s still open to change. I’m more interested in the Government’s plans than the numbers right now, and the plans ought to include what you’re going to be doing to contain expenditure and not incur additional costs.”

No explanation had been given for the year-over-year first half spending increase, while the Government’s second half revenues should be higher due to seasonal factors and the increase in Business Licence fee income associated with Value-Added Tax (VAT) registration.

Taking real property tax as an example, Mr Bowe questioned how much of the $50 million-plus revenues collected in the 2014-2015 first half was arrears as opposed to current bills.

He added that the Government’s Budget was too often viewed as a “piece of paper”, rather than a way to measure whether the Government’s social and infrastructure spending were delivering the desired investment returns.

“If we are continuing to see increases in spending, be it 3 per cent or 10 per cent, if we don’t understand the returns, it makes it difficult to understand the prudence of any government,” Mr Bowe told Tribune Business.

Others, though, were less charitable. The Nassau Institute’s Mr Lowe said that at the political level, “the rhetoric and hyperbole are just out of control”.

He added: “You are relying on the biggest tax grab in the history to disguise your deficits. That’s what they’re counting on with VAT to not have a deficit in the second half.

“They [the Government] are not doing anything about spending. That’s the elephant in the room.

“All of us in the private sector have had to find ways to cut back and keep people employed. They feel for some reason that because there’s something called government, they can take revenues by force not trade, and they don’t have to be responsible.”