The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A 37 per cent year-over-year fiscal deficit increase yesterday prompted the Opposition’s finance spokesman to warn that the next government will find itself “in a tight straitjacket with little room for manoevere”.

K P Turnquest told Tribune Business that the Central Bank’s latest economic report “portends nothing good” for the Bahamas’ short and medium-term fiscal future, given that government spending continues to outpace revenue growth.

The regulator, in its report on October’s economic developments, revealed that the deficit for the first quarter of the 2016-2017 fiscal year expanded by $23 million in comparison to the same period the year before.

The $86 million deficit for the three months to end-September 2016 is already more than 80 per cent of the $100 million worth of ‘red ink’ that the Government is forecast to incur for the 2016-2017 full year.

Referring to the three month period to end-September 2016, the Central Bank said: “Data on the Government’s budgetary operations for the first three months of fiscal year 2016-2017 showed a $23 million (36.6 per cent) worsening in the deficit to $86 million, relative to the comparable period last year.

“This outturn reflected a $35.8 million (7.2 per cent) expansion in spending, which outstripped the modest $12.8 million (2.9 per cent) rise in revenue.”

The Central Bank data confirms that the Government was incurring ever-widening deficits prior to the blow inflicted by Hurricane Matthew, which struck the Bahamas on October 5-6, 2016.

The figures suggest that the ‘benefits’ from Value-Added Tax (VAT), which has exceeded the Government’s expectations by generating $852 million during its first 18 months, are being squandered by uncontrolled expenditure.

They also imply that rather than being used - as the Christie administration had promised - to reduce the fiscal deficit, and ultimately pay down the $6.695 billion national debt, the VAT monies are instead being used to finance increased spending and social programmes.

“The VAT monies they have raised have far exceeded their expectations in terms of performance,” Mr Turnquest told Tribune Business, “but it is still not enough to cut the rise in expenditure.

“It again says this government is not serious about fiscal accountability and discipline, they’re not serious about their fiscal consolidation plan, and they’re serious about accounting for all the extra taxes they’ve collected.”

He added: “Expenditures are running far ahead of revenue projections, causing the kind of cash flow problems in government that we keep hearing about these days....

“None of this is a good portend for the future. The way we are managing this fiscal deficit and cash flow problem, whichever government comes in will find itself in a tight straitjacket with very little room for manoevere.

“It seems as if the Government is going for broke, and be damned with the future. That is very irresponsible.”

The Central Bank revealed that an increase in capital spending on roadworks and “a coastal protection project” had driven much of the year-over-year expenditure growth during the 2016-2017 first quarter.

“Underpinning the expansion in expenditure, capital outlays climbed by $25.5 million (64.2 per cent) to $65.1 million, as a rise in spending for road works and a coastal protection project contributed to a $19.3 million (63.3 per cent) increase in capital formation,” the report said.

The Central Bank said the Government also increased asset investments by $6.1 million or 67.1 per cent compared to the year before, reflecting the purchase of more Royal Bahamas Defence Force vessels.

This produced a “three-fold increase” in ‘other’ investments to $12.8 million, eclipsing a $3.2 million (62.2 per cent) drop in land investments.

“Similarly, current spending firmed by $10.3 million (2.2 per cent) to $471.2 million,” the Central Bank said, “due mainly to an $11.8 million (5 per cent) gain in transfer payments.

“This outcome reflected growth in transfers to both public corporations and non-profit institutions by $15.6 million and $6.1 million, to $31.2 million and $24.1 million, respectively, which overshadowed the $18.1 million timing-related fall-off in subsidies - mainly to the Ministry of Tourism - to $74.9 million.

Civil service salary payments increased by $4.8 million (2.8 per cent) year-over-year, but this was offset by a $6.3 million (10.7 per cent) fall in goods and services purchases.

On the revenue front, the Government’s tax receipts - at 88.5 per cent of its total income - grew by $6.3 million or 1.6 per cent year-over-year to $398.6 million.

This was despite a $5.2 million, or 3.2 per cent, drop in VAT revenues to $160.3 million compared to the same three-month period in 2015-2016.

The VAT fall was blamed on “timing-related issues”, with the Central Bank saying: “Taxes on international trade rose by $5.8 million (4.5 per cent) to $133.1 million, led by broad-based gains in excise, import and export taxes by $2.8 million, $1.5 million and $1.4 million, respectively.

“Further, selective taxes on services firmed to $3.2 million from $0.1 million—solely on account of inflows from gaming taxes, which were absent in the prior period. Similarly, business and professional fees advanced by $3.4 million (59 per cent), due to timing-related increases in general business fees.”

The Central Bank added that non-tax revenue increased by $6.5 million or 14.3 per cent, due mainly to gains in fines, forfeits and administrative fees, and income from ‘other sources’.

These rose by $4 million (12.8 per cent) and $2.4 million (18.8 per cent), respectively.”