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Turnquest Queries Budget’S ‘Trickery’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s deputy leader yesterday questioned whether there was “some trickery” in the Budget numbers for the current and future fiscal years, noting that recurrent spending actually exceeded projections for 2014-2015.

K P Turnquest likened the Budget to “a nice little gymnastics exercise”, telling Tribune Business he was surprised to hear Prime Minister Perry Christie announce that the Government’s 2014-2015 spending was set to come in below forecast.

This newspaper’s inspection of the Budget documents shows that the Government’s fixed cost (recurrent) spending for the 12 months to end-June 2015 is now pegged at $1.844 billion, a $21 million increase over the original $1.823 billion projection.

However, the Prime Minister did not break down the Government’s spending categories in his Budget communication, lumping recurrent spending together with its capital equivalent.

Given that capital spending is set to be off-forecast by almost $30 million, at $292 million compared to $331 million, this allowed Mr Christie to state that total spending would be below projections at $2.136 billion compared to $2.154 billion.

The recurrent deficit, which measures the difference between government revenues and fixed-cost spending, is now projected to be slightly worse than forecast - $74 million as opposed to $53 million.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, yesterday told Tribune Business that lower recurrent deficits were the most important indicator when it came to getting this nation’s house in order.

“The recurrent deficit is the principal one that you want to see come down, because that leads to fiscal deficits and borrowing,” he told Tribune Business.

Putting the expected 2014-2015 deficit in context, in fairness to the Government the projected $74 million represents a major improvement on the $237 million incurred in 2013-2014 - a drop of 68.8 per cent.

Mr Christie also made much of the GFS fiscal deficit, which strips out debt principal redemptions, likely coming in below projections at $198 million or 2.3 per cent of GDP, compared to $286 million or 3.2 per cent.

Tribune Business revealed yesterday that this improvement, apart from the almost-$30 million fall in capital spending, was largely due to a 68.4 per cent, or $68 million, increase in debt principal redemptions above forecast to $165 million.

Without the increased principal redemptions, the GFS deficit would likely have been relatively flat against expectations. This is shown by the fact that the total deficit (GFS plus debt principal repayments) is likely to come in at $363 million, compared to the initial $384 million projection.

The Government gave no explanation for the increased principal repayments, and whether they were early repayments and where the monies to fund them came from.

Mr Christie would only say: “We now estimate that total Government debt at the end of 2014-2015 will amount to $5.356 billion, down $88 million from last year’s Budget forecast of $5.444 billion.”

The GFS deficit measures the increase in ‘new’ government debt, and no one could oppose the Government’s achievement in beating its target, or lowering the national debt by paying down more of what it owes.

However, questions are likely to be asked as to whether the Government reallocated funds from elsewhere in its Budget to deliberately accelerate the pay down of debt principal, thus enabling it to beat the GFS deficit target and thus show a more favourable outcome to Bahamians.

It may also have restrained capital spending for that reason and Mr Turnquest, for one, is suspicious.

“I know there’s some trickery in that Budget. There has to be,” he said, adding that this newspaper’s analysis of the 2014-2015 figures “certainly makes sense”.

“I was surprised yesterday when the Prime Minister said spending had come down,” Mr Turnquest added. “It’s a nice little gymnastics exercise. It’s a cash basis, so you can do that. The issue is what is being sacrificed to bring down that GFS deficit?”

A financial industry source, speaking to Tribune Business on condition of anonymity, backed Mr Turnquest’s position, telling Tribune Business: “Smoke and mirrors is a good headline.

“It’s a feel good type of thing, but I don’t know if the optimism is correct.”

Mr Turnquest, who is also the party’s finance spokesman, added that the Christie administration was one of the few governments seemingly celebrating the fact that VAT had been extracted from the incomes of Bahamian consumers and businesses.

“This has got to be one of the only governments to celebrate the revenue profits while the population becomes poorer,” he told Tribune Business. “They’re celebrating their success at the expense of middle income and poor Bahamians.”

Further revenue growth, combined with holding recurrent and capital spending flat, is vital to the Government hitting its deficit and other fiscal targets over the next three years.

The Christie administration is projecting a $277 million or 15.6 per cent year-over-year increase in revenues for the 2015-2016 fiscal year to $2.047 billion, breaching the $2 billion mark for the first time.

“That is some $100 million higher than we were projecting at this time last year,” Mr Christie said, and further revenue rises - to $2.153 billion and $2.195 billion - are forecast for the 2016-2017 and 2017-2018 fiscal years respectively.

This will enable the Government to turn a projected $51 million recurrent deficit into surpluses of $26 million and $24 million during those two fiscal years.

And, with capital spending held flat, the Government is forecasting that the GFS deficit will fall from $141 million to $70 million and $31 million in 2016-2017 and 2017-2018, respectively, thus almost eliminating this form of ‘red ink’.

Mr Turnquest, though, questioned whether the Government and its overall short-term projections were “over-optimistic”, given that it seemingly had not adjusted its economic growth forecasts to account for the Baha Mar delay.

He added that the Bahamas had yet to fell the “full impact” of VAT, and questioned whether all the investment projects unveiled by the Prime Minister would come to fruition in terms of jobs and economic impact.

As for the Government’s projections, Mr Turnquest said: “Quite frankly, I see them as meaningless and a nice distraction.”

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