The Chamber of Commerce’s chairman believes the use of “misnomers and deceptive indicators” are causing the Government to consistently miss unrealistic Budget and fiscal targets.
Gowon Bowe, in a recent interview with Tribune Business, said fiscal deficits were frequently larger than projected because the Government was not basing its revenues on “proper assumptions” and indicators.
He explained that revenue forecasts were heavily tied to economic growth, and determined as a percentage of gross domestic product (GDP), when a deeper analysis of the Government’s tax base was required.
Mr Bowe said that as a result, the Government’s revenues consistently under-performed despite the introduction of Value-Added Tax (VAT).
And, with spending often tied to revenue estimates, any ‘under-shooting’ on the latter inevitably led to wider-than-expected deficits and national debt increases, pushing the achievement of a GFS surplus “further out”.
Asked whether the Christie administration’s fiscal forecasts were too aggressive, given that it has been forced to push back projections of a ‘GFS surplus’ by three full years to 2018-2019, Mr Bowe said: “In the Bahamas we use the term: ‘Mouth can say anything’.
“The reason I make that statement is because in the first instance, politicians are hoping: ‘Who’s going to remember what I said three years ago?’
“And for the average man in the street, how many will remember this year is supposed to be the year for surplus? There will always be excuses as to why that objective has not been achieved.”
Tribune Business recently revealed that the Christie administration projected in its 2013-2014 Budget that the GFS deficit (debt principal redemption is stripped out) would be eliminated by the close of the recently-ended 2015-2016 fiscal year. However, it is now forecasting that this will occur in 2018-2019.
Mr Bowe, meanwhile, suggested it was a mistake for the Government “to go off GDP and percentages” in estimating its annual revenues.
He argued that it needed to dig deeper and analyse taxpayer numbers, combined with the level of taxes and account for inflation.
“We shouldn’t be making these key estimates on broad brush indicators,” the Chamber chairman told Tribune Business.
“All of these elements are what I would call misnomers and deceptive indicators.
“What we’ve found in the last two-three years, the primary reason for pushing out the Budget surplus is because revenues are under performing what has been projected.”
Prime Minister Perry Christie backed this up in his recent 2016-2017 Budget communication, disclosing that revenues for the 2014-2015 and 2015-2016 fiscal years had under-performed projections by $42 million and $37 million, respectively.
He attributed both misses to GDP growth coming in below forecast, with the $42 million revenue gap in 2014-2015 helping to produce a $381 million deficit for the year - almost $100 million greater than projections.
And the Inter-American Development Bank (IDB) recently criticised the Ministry of Finance’s budget estimates, pointing out that they were constantly too optimistic, and overly aggressive, under both the former Ingraham administration and the current government.
The last FNM government under-estimated spending in 2011 and 2012 by sums equivalent to 6 per cent and 4 per cent, respectively, while revenues in both years were over-estimated by 5 per cent of GDP.
While the Christie government was able to cut spending below projections by a sum equivalent to 6 per cent of GDP in its first year, this was more than offset by a revenue over-estimate equivalent to 12 per cent of GDP.
While it has done better since then, revenues have been over-estimated by 3-4 per cent, with spending under-estimated by 3-5 per cent.
As a result, the Government has always been dealing with a deficit of 5-10 per cent of GDP between its Budget forecasts and the actual outturn.
“The estimates indicate a systematic overestimation of fiscal revenues and an underestimation of expenditure in most fiscal years,” the IDB report said.
“Budget preparation and execution in the Bahamas could be improved. Prudence in budget preparation and execution are important determinants of the fiscal outturn, and can provide insights about the quality of institutions involved in the budgetary process.
“The adoption of fiscal rules, perhaps based on structural fiscal budgets, accompanied by institutional strengthening of budgetary institutions, may be in order. Such would increase the credibility of fiscal policy, and perhaps reduce the cost of financing.”
Mr Bowe told Tribune Business that the Bahamas needed to switch from “creating expenditure Budgets based on artificial revenue targets” to ones that were based on previous years’ spending and revenue outcomes.
“If you base your spending on what you hope materialises in revenue, for some reason we always over-estimate revenue and seem to spend what we earn,” he added.
“We should look at tying the numbers to spending what we had in the past, and if there are extra revenues, spend them later. We should not spend what we don’t have.”