The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is getting further away from its $141 million full-year deficit estimate, the Central Bank revealed yesterday, with the ‘gap’ to its target standing at more than $100 million at end-February.

The regulator, in its report on monthly and economic developments for March, revealed that the year-over-year deficit reduction for the first eight months of the 2015-2016 Budget year was just $26.9 million - a 10 per cent improvement.

And, despite $423.7 million worth of Value-Added Tax (VAT) revenues, the total fiscal deficit for the eight months to end-February 2016 stood at $242.7 million - more than $100 million away from the Christie administration’s full-year goal.

Given that the Central Bank’s February 2016 report showed that the fiscal deficit stood at $210.1 million at end-January, the Government appears to be moving further away - not closer to - its end-June deficit goal.

The numbers imply that the fiscal deficit increased by a further $32.6 million during February 2016, and the growing ‘gap’ between reality and objective raises fresh questions over the Government’s optimism that it will hit its key 2015-2016 fiscal targets.

The Central Bank’s previous backing for the Government’s position may also come under scrutiny, given that last month it lent credibility to the Government’s assertion that it will ‘catch up’ to its fiscal targets.

“A seasonal acceleration in VAT and Business License collections over the rest of the fiscal year - particularly during March and April - should produce a more marked consolidation in the overall fiscal year deficit,” the Central Bank said,

Its assessment supports that given by Michael Halkitis, minister of state for finance, who previously pointed out that the bulk of the Government’s revenues are traditionally earned during the second half of the fiscal year.

Given that the data is for the period to end-February, Mr Halkitis and the Central Bank are likely anticipating that the revenue boost from Business Licence fees and ‘commercial vehicle licensing month’ at Road Traffic - both of which take place by end-March - will help close the ‘gap’ to the deficit target.

Besides coinciding with the peak winter tourism season, the second half of the Government’s fiscal year is also the period when the majority of real property taxes are received.

However, that $100 million ‘gap’ now effectively represents the size of the surplus that the Government must achieve over the final four months of its fiscal year to hit the deficit target.

And the year-over-year reduction in the size of its deficit, which shows the Government is spending more than it is earning, also shrank between January and February 2016.

In January, the fiscal deficit had narrowed year-over-year by $83.3 million (28.4 per cent). Come the following month, it had shrunk by just $26.9 million or 10 per cent.

Starting off on a positive note, the Central Bank said: “Buoyed by a VAT-led $198.7 million (20.2 per cent) expansion in total receipts to $1.185 billion, which eclipsed the $171.8 million (13.7 per cent) upturn in expenditure to $1.427 billion, the fiscal deficit narrowed by $26.9 million (10 per cent) to $242.7 million during the eight months of fiscal year 2015-2016, relative to the corresponding period last year.

“This improved outturn reflected the impact of the Government’s fiscal consolidation plan, which resulted in tax revenue growing by $210.4 million (24.6 per cent) to $1.066 billion, with VAT inflows totalling $423.7 million.”

The Central Bank emphasised that the tax eliminations, reductions and reclassifications enacted to make way for VAT’s introduction meant the net revenue impact from the latter was at least $142.8 million less than the gross figure.

“The adjustment in several tariff rates to compensate for the introduction of the VAT resulted in broad-based declines in most of the remaining revenue categories,” the Central Bank said.

“Specifically, taxes on international trade fell by $48.1 million (12.8 per cent) to $328.8 million, as import and excise taxes reduced by $29.4 million (14.5 per cent) and $20 million (11.9 per cent), respectively.

“In addition, receipts from ‘other taxes’ contracted, by $74.4 million (21.9 per cent) to $264.7 million, owing mainly to a shift in Stamp taxes from property sales to VAT,” it added.

“In the same vein, the elimination of the hotel occupancy tax resulted in a two-thirds ($20.3 million) decline in selective taxes on services to $10.3 million, while revenue from business and professional fees narrowed by $35.9 million (43.5 per cent) to $46.7 million, due to a differed payment-related reduction in ‘other miscellaneous license’ inflows.

“Similarly, non-tax revenues declined by $8.8 million (6.9 per cent) to $118.7 million, owing to a $9.6 million (10.4 per cent) reduction in fines, forfeits and administrative fees.”

On the spending side, the Government’s ‘fixed cost’ or recurrent spending increased by $219.1 million (20.2 per cent) to $1.305 billion over the eight months to end-February 2016.

This was driven largely by the reclassification of subsidies to the likes of Bahamasair and the Water & Sewerage Corporation, which now show up in recurrent - as opposed to capital - spending.

“Transfer payments firmed by $170.3 million (34.9 per cent), as the reclassification of public corporations’ subventions from ‘net lending’ to transfers contributed to a $157.5 million (47.7 per cent) rise in subsidies and other transfers to $487.8 million,” the Central Bank said.

“In addition, interest payments firmed by $12.7 million (8.1 per cent) to $170.7 million, reflecting the increase in the Government’s debt obligations.

“In addition, gains were also noted for spending on goods and services and wages and salaries by $34.9 million (20.7 per cent) to $203.3 million, and $13.9 million (3.2 per cent) to $443.5 million, respectively.”