The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government’s recurrent spending continued to grow at a faster rate than revenues during the 2014-2015 Budget year’s first half, with the Opposition yesterday arguing that the Prime Minister’s optimism “doesn’t jive” with the fiscal reality.

Financial data for the six months to end-December 2014 shows that total revenues for the period rose by 2.99 per cent or just over $20 million to hit $688.638 million.

Yet 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.

The increase in the Government’s recurrent spending 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.

K P Turnquest, the Opposition Free National Movement’s (FNM) shadow finance spokesman, told Tribune Business that the mid-year Budget data “doesn’t jive” with Prime Minister Perry Christie’s economic optimism.

“Spending appears to be out of control,” he said. “It’s advancing more than revenue growth. It’s further proof, if you will, that the position the Government portrays is not as they would have us believe.

“We continue to have an imbalance in recurrent revenue and expenditure, the latter of which is growing faster than the revenue.”

The mid-year Budget did contain some revenue bright spots for the Government, as its total tax revenues were up by 6.99 per cent or $38.64 million to $535.513 million - compared to $498.649 million in 2013-2014.

Non-tax revenues, including fees, service charges and dividends, were down by 8.67 per cent from $169.969 million to $155.125 million. The $14.843 million decline was entirely due to a $17.41 million year-over-year fall in the Government’s interest and dividend income.

The FNM focused largely on the negative, targeting the 6.2 per cent and 10.5 per cent year-over-year declines, respectively, in mid-year Customs (border) duties and real property tax.

Michael Halkitis, minister of state for finance, though, said real property taxes - which declined by $5.9 million to $50.178 million - were up against tough comparatives, given the $30 million raised via the amnesty programme initiated during the 2013-2014 Budget year.

That raises questions over what would then appear to be a relatively paltry sum raised in ‘current’ real property taxes for the 2013-2014 fiscal year first half, but Mr Halkitis said the Government’s revenue figures should be assessed collectively, not by individual line items.

And he pointed out that Excise Taxes, which are also collected at the border, were ahead year-over-year by $26.686 million or 24.2 per cent at $136.734 million. Combining Excise taxes with import duties, and the Government’s border revenues actually increased year-over-year for the 2014-2015 first half.

Mr Halkitis could not be reached for further comment. However, Mr Turnquest yesterday expressed doubt that the Government would hit its fiscal deficit reduction targets for the full year by running an almost-balanced Budget for the 2014-2015 second half.

Tribune Business reported last week how 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.

A similar picture is presented by the Government’s borrowing figures, which for the 2014-2015 half-year stood at $375.53 million - a figure equivalent to 98.6 per cent of the full-year projection of $380.689 million in new public sector debt.

This suggests that the Christie administration will borrow just $5 million more net in the 2014-2015 fiscal year’s second half, even though it is due to go out for another $47.5 million in new BGS bonds in June 2015.

“The Government’s overall goal of reducing the deficit comes into question,” Mr Turnquest told Tribune Business, arguing that it while it may be waiting on Value-Added Tax’s (VAT) revenue performance, it would have to borrow again during the fiscal year second half.

“I think the Government has placed a significant amount of hope on VAT, and that it comes in higher than what they’re projecting, and they’re hoping Baha Mar will open on March 27,” Mr Turnquest said, “because any further delay to that will be disastrous to us as a country, and to our economy. Any slippage in that will have a devastating effect.

“There is some potential upside to VAT if there is full compliance.... I don’t know.”

The FNM’s finance spokesman suggested that the Government was relying too heavily on VAT and Baha Mar to produce fiscal and economic turnarounds, respectively.

“If you look at all the other economic indicators, it doesn’t appear on the surface that the economy is rebounding as quickly as the Government would have you believe,” Mr Turnquest told Tribune Business.

Referring to the persistent problems associated with non-performing loans, mortgage and commercial debt defaults, and tight lending conditions, he added: “Government revenue is one thing, but the situation on the ground with respect to business and consumer confidence is a totally different thing.

“One cannot operate without the other, and with VAT and all the other taxes, they’re taking capital out of the private sector and placing it with the Government. It’s not a good sign for future growth and development.”