By NEIL HARTNELL
Tribune Business Editor
A former finance minister yesterday praised the Prime Minister's bid to slash the Government's recurrent Budget by 10 per cent, but warned that structural impediments made it a hard target to hit.
James Smith, also an ex-Central Bank governor, told Tribune Business that the Minnis administration had "very little wiggle room" to achieve such cuts because so much of the Government's annual Budget was consumed by fixed costs.
These included civil service salaries, debt servicing and repayments, and building rentals and other contracts that were already locked in, which were "way up there" in terms of the proportion of the Budget they account for.
Suggesting that fixed costs accounted for up to 80-85 per cent of the Budget, Mr Smith added that fiscal consolidation targets were also frequently "thrown off" by unexpected events, such as Hurricane Matthew.
Due to these pressures, he suggested that the Government set a "rolling target" where it sought to cut expenditure by 10 per cent over a two-three year period, rather than seek to accomplish this in one Budget year.
Mr Smith also warned that civil service 'buy in' at all levels - from the top to the bottom - was vital if the Government's fiscal consolidation is to succeed, as he likened the public sector to "a big aircraft carrier that is hard to turn around".
The former finance minister, who held the post from 2002-2007, nevertheless praised Prime Minister Dr Hubert Minnis for setting out his government's intent, and warning the Bahamian people that fiscal turnaround will involve some pain.
"You have to establish targets. That's a good thing," Mr Smith said. "If it's 10 per cent, it's 10 per cent, except that each Ministry and Department is not homogeneous and contingencies tend to throw you off, such as hurricanes and the accident at the hospital, where the pipe burst.
"You have that sort of thing. You also have to strip out fixed expenditure first. If you have a budget of $2.2 billion and say 10 per cent, you think you're going to get a $220 million saving, but you sometimes have to strip out your fixed payments."
Mr Smith said that taking out civil service wages, debt servicing payments and other contracts often meant "you find out you have very little wiggle room" for cuts of the nature outlined by Dr Minnis.
The former minister said the civil service wage bill could be cut by reducing the number of public servants, but this would have the consequence of increasing social security spending as a result of increased unemployment.
Nevertheless, Mr Smith said the Government's efforts to restrain public spending were commendable, agreeing that the previous administration's efforts in this area had been "non-existent"
"It's really important, extremely important to try and hold the line on expenditure," he told Tribune Business. "Attacking the Budget has to come from two ends - increasing revenue and holding back expenditure.
"Most attempts to hold back expenditure in the last few years were non-existent, so it's a good place to start. How achievable it is is controlled by the number of fixed items in the Budget."
The Minnis administration has elected to target the 'low hanging fruit', implementing a public sector hiring freeze, not renewing contracts for emoluments exceeding $100,000 annually, and cracking down on the number and usage of government vehicles.
K P Turnquest, minister of finance, yesterday said the Government hoped to exceed its 10 per cent spending cut target which, if hit, would save Bahamian taxpayers $267.6 million based on the $2.67 billion recurrent Budget for 2017-2018.
He suggested there was enough fat, wastage and inefficiency across the public sector to make such cuts achievable, with all ministries and departments having to identify such savings by June next year.
Suggesting that reality might temper the Government's ambitions, Mr Smith told Tribune Business: "What should happen, the way our Budget is structured, is that we should have rolling targets where, after three years, you've cut spending by 10 per cent.
"It's much more manageable. In the first year, you might be able to get a 3 per cent cut, but in the second year, you could get 8 per cent."
Mr Smith said "rolling targets" would enable the Government's financial planners to properly assess when contracts were coming due, and did not have to be renewed, thus enabling monies to be saved.
Recalling how he tried to implement a similar 5 per cent across-the-board spending cut when in office, he added: "It always gets thrown out of whack.
"Government has something called Contingency Warrants. That's what throws every Budget out. They [ministers] got to Cabinet and make a case for hiring more people, building new buildings. That's kind of supplementary to the Budget, and you don't normally see that until the end of the year."
Mr Smith said the Government's response to increased ministerial spending demands should be "show me some savings". Dr Minnis on Wednesday night said he would seek to control this by pushing all increased spending requests through the Ministry of Finance first, rather than have them going straight to Cabinet.
Mr Smith, though, warned this might have unintended consequences. He recalled how, under his watch, the Ministry of Finance too over payment of all electricity bills after finding that individual ministries had been using their Budget allocations for other purposes.
But, when energy bills started to rise, Mr Smith said the Ministry of Finance's call for government-wide conservation measures, such as turning the lights off at night, went unheeded because ministries no longer had responsibility for paying the bill.
He added that the Minnis administration needed to drive its austerity and fiscal prudence message down to the public service's lowest levels if its strategy is to succeed.
"The public service is a large kind of aircraft carrier, but to turn it around, especially in the short-term, you really need a plan to be driven down straight to the clerical level," Mr Smith told Tribune Business.
"You need to change the attitude. Even from the 2008-2009 recession to now, the public service has never signalled that things are tight. The public service probably doesn't even know there was an international economic crisis, leading to a depression.
"It's straddled both administrations. They got their increments, they got their monies every year, and pretty much got a new car every Budget. It calls for a drastic change in attitude and culture of the public service to become much more aware of costs, and to try and contain them."
Mr Smith said managers also needed to be given the freedom to manage in the public sector, adding that too often "the tail starts to wag the dog" when civil servants are protected by upper management or ministers.
Still, praising Dr Minnis's address, he added: "It's not easy, but it's good for the leadership to say at least I'm aware of it and we need to tighten the belt.
"The soundbites are correct, saying that you as leader are concerned about it, and want to do something about it. You almost have to repeat it every day."