The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A 17.3 per cent increase in total government spending drove a $125 million jump in the national debt to almost $6.8 billion at end-March 2016, the Central Bank has revealed.

The regulator, in its economic review of the 2016 first quarter, said the continued rise in the national debt came despite Value-Added Tax (VAT) collections “more than doubling” year-over-year to $157.1 million.

While the Central Bank attributed the VAT increase to a larger number of registrants, a significant chunk of the rise was due to the 7.5 per cent levy largely replacing Stamp Duty on real estate transactions.

And, with the 10 per cent hotel room occupancy tax, and numerous import tariffs either eliminated or reduced to create room for VAT, the Christie administration’s revenues were “relatively flat” at $488.3 million for the first three months of 2016.

“The fiscal position shifted to a deficit in the third quarter of 2015-2016 from a small surplus in the prior year, due mainly to gains in current spending, while the revenue performance stabilised - with the relative shift in dependence on the VAT,” the Central Bank said.

“Reflecting a 17.3 per cent rise in total expenditure to $563.2 million, and a relatively flat revenue performance at $488.3 million, the fiscal position registered a $74.9 million deficit during the third quarter of 2015-2016, in contrast to an $8.6 million surplus recorded in the comparable 2014-2015 period.”

Assessing the implications for the Bahamas’ national debt, the Central Bank said the Government’s direct debt rose by $128.7 million or 2.2 per cent during the 2016 first quarter, hitting $6.027 billion.

On an annual basis, the Government’s direct debt was up by $448.6 million or 8 per cent. And, while its contingent liabilities were down by $3.9 million during the 2016 first quarter, they were up year-over-year by $31.3 million at $751.3 million.

“ As a consequence, the national debt - which includes contingent liabilities - advanced by $124.8 million (1.9 per cent) over the three-month period, and by $479.9 million (7.6 per cent) relative to the prior year, to $6.778 billion,” the Central Bank said.

The data will likely prompt renewed calls for the Government to rein in its recurrent (fixed cost) spending, which remains the main driver of the persistent fiscsal deficits and national debt increases.

While VAT’s implementation has undoubtedly helped to ‘narrow’ the deficit, and reduce the rate of growth in the national debt, it has not proven to be a ‘panacea’ or cure-all for the Bahamas’ fiscal woes.

The Central Bank report showed that recurrent (fixed cost) spending was up 24.3 per cent year-over-year at $513.3 million, driven by increased goods/services purchases and a rise in civil service “emoluments”.

“On a functional basis, current expenditure for economic services increased by $27.9 million (48.5 per cent) to $85.3 million, due in large measure to a rise in spending for promotional-related tourism expenses ($11.8 million) and public works and water supply ($7 million),” the report added.

“In addition, the shifted subvention for the Public Hospitals Authority and health sector strengthening initiatives elevated identified costs for health services by almost half to $77.6 million, and outlays on general public services rose by 14.5 per cent ($18.6 million) to $146.7 million, respectively.”

Increased subsidies to the Broadcasting Corporation of the Bahamas (BCB) appear to have been another factor, the Central Bank revealing: “Spending for education rose by 17.4 per cent ($10.7 million) to $72.5 million, while increased transfers to a local broadcasting station led to other community and social services advancing by $7.9 million to $12.1 million.”

On the revenue front, the report said: “Reflecting a larger number of registrants, VAT collections more than doubled to $157.1 million from a net intake of $74.9 million in the corresponding introductory quarter of 2014-2015.

“Meanwhile, enhancements to the collections regime boosted business and professional license fees by 13.5 per cent to $89.4 million, and similarly, property and motor vehicle taxes by 21.8 per cent and 8.4 per cent to $40.2 million and $9.1 million, respectively.”

Stamp taxes, though, were down by almost two-thirds or 61.5 per cent to $24.8 million, reflecting the shift to VAT on real estate transactions.