The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s $1.823 billion recurrent spending Budget is “far greater than it should be” when set against the services it is delivering to the Bahamian people, a top accounting firm is arguing.

KPMG, in its review of the mid-year Budget, released yesterday, said the Christie administration had room to make “much larger gains” in expenditure reductions, describing the issue as the ‘elephant in the room’.

Acknowledging that the data released by the Government last week showed that it had controlled spending when measured against the 2014-2015 Budget, KPMG nevertheless praised its plans for public procurement reform and a formal consultation on introducing Fiscal Responsibility legislation.

“In our review of the full year Budget, we noted that the ‘elephant in the room’ was and remains Government expenditure, and questioned whether the measures being taken were sufficiently aggressive,” the accounting firm recalled.

“Performance for the first six months indicates that expenditure has been managed within budget. However, we continue to believe that the budget is far greater than it should be relative to the services actually being delivered.

“There are much larger gains to be made in reducing expenses and increasing transparency and accountability.”

KPMG also effectively backed the Government’s decision to implement Value-Added Tax (VAT), disagreeing with those in the private sector who had argued that the new tax was not necessary if the Government were to simply focus on enforcement and collection of its existing levies.

Taking on the naysayers, the accounting firm said: “Many argue that the introduction of VAT could have been largely avoided if there was an effective and efficient tax collection already in place.

“We are not of this view. The tax base of the Bahamas was very narrow, and needed wholesale reform, being no longer fully fit for purpose, not least due to trade and other constraints.”

Noting the Prime Minister’s pledge to extend VAT’s ‘broad base’ model to other government taxes, in a bid to lower rates and the burden on the Bahamian people, KPMG added: “One would certainly hope that if the Government is successful in its revenue and fiscal austerity efforts, the likes of import, Stamp and property taxes will be adjusted downwards in favour of the much broader-based VAT.”

The KPMG review said the Government’s faith in meeting its full-year deficit targets was not too much of a stretch, despite the half-year version standing at 95 per cent of the 12-month projection.

The Christie administration has forecast that the GFS deficit (stripping out debt principal redemption) will be $160 million lower year-over-year, falling from 5.4 per cent of GDP in 2013-2014 to 3.2 per cent this fiscal year.

“At face value it is worrying that the GFS deficit to December 31, 2014, is $273 million (95 per cent of Budget),” KPMG conceded, “but we do agree to some extent with the rationale that this is entirely revenue driven, as VAT was always projected to kick in on January 1.

“Also, a number of taxes do tend to be cyclical in the second half of the tax year, such as Business License and real property tax.”

And, while agreeing that the Bahamas was “on the right track”, and the Government “taking many of the right steps”, KPMG urged it not to let an improving economy slow down or interfere with its reform agenda.

“We caution letting an improvement in the economy slow down the aggressive measures that need to be taken to reform our national finances,” the accounting firm added.

Analysing the ‘mixed messages;’ on employment, KPMG said: “We agree with expectations that with the opening of Baha Mar, and a number of other projects around the country, the next six months will see a meaningful reduction in unemployment levels.

“However, it will take significantly more economic growth and diversification, as well as targeted training, to bring unemployment levels down to truly acceptable levels.”