The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet Minister yesterday backed the need for greater Government transparency and accountability over its finances, and pledged that it had “not abandoned” consultation on Fiscal Responsibility-type legislation.

Michael Halkitis, minister of state for finance, told Tribune Business that the Government would have to revive its planned policy paper on Fiscal Responsibility-type legislation for the Bahamas in time for the upcoming 2016-2017 Budget.

Acknowledging that the Government could not afford to be perceived as resistant to fiscal transparency and accountability, Mr Halkitis said the Christie administration was “still committed” to improvements in this area.

“We don’t want people to say we just don’t want to do it,” he added of greater fiscal responsibility. “We’re still committed to it, and we’ll have to do this in time for the next Budget.

“We’ll have to get it moving. We haven’t abandoned it; we don’t want to abandon it...... We must address it. We’ll need to revisit that again by the time the next Budget comes.”

The Christie administration has come under from several quarters in the private sector for failing to follow through on promises made in the 2014-2015 mid-year Budget to initiate a public consultation on introducing so-called ‘fiscal rules’, or Fiscal Responsibility-type legislation, in the Bahamas.

Prime Minister Perry Christie promised to release a policy paper on the issue by summer 2015, with recommendations supposed to be submitted for the Government’s consideration by year-end.

Neither deadline was met, and many in the private sector have interpreted this as evidence that the Government was never serious about improving fiscal responsibility and transparency.

They are also likely to view the Prime Minister’s February 2015 statement as an effort to merely ‘dampen down’ the increasing concerns over how the Government planned to use its VAT revenues.

Value-Added Tax’s (VAT) implementation prompted private sector calls for greater fiscal transparency and accountability, and for the Government to disclose how its net $300-$350 million annual revenue increase is being spent.

This was seen as the Government’s side of the ‘fiscal bargain’ that needed to be implemented in return for the private sector agreeing to VAT.

Mr Halkitis acknowledged that it was important for the Government to deliver on its end, both to ensure continued private sector and public ‘buy-in’ for the tax and other fiscal reforms, and to prevent disillusionment from setting in.

He added, though, that ‘checks and balances’ on the Government’s fiscal actions already existed in the form of Bahamian voters and the international credit rating agencies, Standard & Poor’s (S&P) and Moody’s.

“There’s a discipline imposed on the Government by the rating agencies, and then by the voting public, because they’re going to judge you,” Mr Halkitis told Tribune Business. “You can’t go wild because you have other judges, even without fiscal responsibility legislation.”

He added that the likes of the International Monetary Fund (IMF) had confirmed there were “pros and cons” to implementing Fiscal Responsibility-type legislation in the Bahamas,

And it had also suggested that the Government’s own financial management systems were simply not ready for ‘fiscal rules’ or similar impositions.

The IMF’s Caribbean Regional Technical Assistance Centre (CARTAC), in a March 2015 ‘discussion paper’ on implementing a ‘fiscal rule’ warned that the Bahamas would see its credibility “quickly destroyed” if it attempted to do this in the near term because the Government’s financial management systems will be unable to cope.

It lambasted the “lack of quality data” produced by the Government’s own financial management and reporting systems, and said the slow pace of reform” in government accounting and information systems would stymie such an initiative for now.

Mr Halkitis, though, said the Government’s own Treasury systems now stood to be upgraded by the $33 million Public Financial Management project financed by the Inter-American Development Bank (IDB).

While this will move the Bahamas closer to being able to withstand Fiscal Responsibility-type legislation, the Government has received mixed advice from its own consultants, including over whether it should adopt the former or so-called ‘fiscal rules’.

Fiscal rules’ commonly set numerical targets and restraints on government spending, “so as to ensure fiscal responsibility and debt sustainability”. Such rules often seek to limit the government’s debt to a certain percentage of GDP, or involve ‘balanced budget’ requirements that prevent or restrain deficit spending.

Yet the Government previously rejected advice from its own US consultants, Compass Lexecon, that it should adopt a ‘fiscal rule’ to boost credibility with the international rating agencies and capital markets.

The private sector’s Coalition for Responsible Taxation, though, had been seeking a Fiscal Responsibilities Act, rather than the ‘hard and fast’ fiscal rule that CARTAC and Compass Lexecon focused on.

Such legislation would bolster Government transparency and accountability for how the public finances are managed, requiring it to return to Parliament and obtain approval for any extra spending over what was approved in the Budget. Yet it would also provide greater flexibility in the event of emergencies, such as Hurricane Joaquin.

Mr Halkitis yesterday said calls for greater fiscal transparency were “absolutely right”, acknowledging that the Bahamian people were now taking a greater interest in the Government’s finances, especially since the implementation of VAT.

“I agree more transparency will give people more confidence,” he added. “The critical thing we want to avoid is that people stop buying in and become disillusioned.”