By NEIL HARTNELL
Tribune Business Editor
The Minister of Finance yesterday declined to specify how much of the Government's 2018-2019 Value-Added Tax (VAT) revenues will be used to pay down the $7 billion-plus national debt, saying he did not want "to give false hope".
K P Turnquest, in a bid to demonstrate that the Minnis administration will deliver where its predecessor had failed, told the House of Assembly that the Government will "allocate a percentage of the VAT revenue" generated in the 2018-2019 fiscal year to paying down the Bahamas' growing debt burden.
However, he did not detail the actual percentage, explaining to Tribune Business that this depended on the success of the Government's efforts to control and review public spending during the upcoming fiscal year.
"That was on purpose," he told this newspaper, when asked to give a specific percentage. "Until we do these financial assessments and dig through those numbers, it's difficult to commit to a percentage.
"We need to go through and scrub the accounts to see what programmes are providing benefits to the Bahamian people and, in keeping those programmes, scrub the accounts to see we are getting value for money.
"Until we finish that programme, it's difficult to say what portion is available in discretionary funding to put on the debt. I don't want to give false hope."
Mr Turnquest's Budget debate presentation sought to underline the Christie administration's failure to deliver on the rationale for implementing VAT, namely that the additional tax revenues would be used to eliminate the annual fiscal deficits and, ultimately, pay down the national debt.
Describing this as "another failed promise", Mr Turnquest said: "I would submit that Bahamians did accept the VAT, perhaps grudgingly, but with the full expectation that its proceeds would be utilised to reduce the debt load that so burdens and hamstrings the Government."
Despite collecting $1.1 billion in gross VAT revenues during the tax's first two calendar years, the Christie administration continued to run more than $300 million in annual fiscal deficits, prompting Royal Bank of Canada's (RBC) chief regional economist to warn that the Bahamas was in danger of squandering the benefits of tax reform.
Ex-prime minister Perry Christie, in late March, said 40 per cent of the $1.1 billion had gone to reducing the fiscal deficit, suggesting that the national debt would have been some $500 million higher had VAT not been implemented.
Mr Turnquest yesterday said that instead of using VAT as promised, the former administration had instead used it to finance increased spending and social programmes such as National Health Insurance (NHI) - confirming what Tribune Business has been saying for years.
The Minister of Finance described these programmes as having "a lot of mistakes" and "not well thought-out because they lost money", setting out the evidence to support his case that VAT's revenue windfall was squandered to finance the former government's bad habits.
Mr Turnquest said the recurrent revenues had increased by $530 million per annum during the Christie administration's term in office, growing from $1.43 billion in 2011-2012 to $1.96 billion for the 2016-2017 fiscal year.
Yet recurrent spending, which finances the Government's fixed costs, such as salaries and rents, had increased by $826 million over the same period - rising from $1.632 billion in 2011-2012 to $2.458 billion in 2016-2017.
While conceding that $245 million of the increase related to higher debt principal repayments, Mr Turnquest said the widening gap between recurrent revenues and expenditure showed the Christie administration had been borrowing to cover Government's ever-rising operating costs.
"You are paying more taxes, which were intended to pay down the debt, but instead you increases expenses by $826 million," he added. "How could the debt come down with that kind of uncontrolled spending?
"If you go out every year to borrow money to pay off a loan to prevent default, you don't default, but it doesn't lower the debt burden. If the last administration [got back] into office, this country would be in trouble given the path they were going.
"You can't borrow to pay your loan. It's a vicious cycle. You're putting a burden on our children and grandchildren."
Mr Turnquest said the Government's annual interest (debt servicing) costs had increased by $107 million this fiscal year compared to 2011-2012, the year before the former Christie administration took office. "Every time you refinance, interest costs go up," he added.
The Minister of Finance said the former administration had increased the Government's operating costs, excluding interest and debt principal redemptions, by $474 million during its five years in office.
"As such, fully 89 per cent of the revenue increase during their term was swallowed up by increases in spending over which they had direct control, including over $20 million to one set of foreign consultants alone."
Mr Turnquest did not identify the consultants, but added: "I leave it to the Bahamian people to determine whether we got value for money."
The new government is seeking to eliminate the $31 million primary deficit projected for 2017-2018 by identifying significant cost savings, which the Minister said would "hopefully stop some of the bleeding we've had over the last five years".
Emphasising that the Government could not continue living beyond its means while 'kicking the can down the road', Mr Turnquest warned that further delaying fiscal reform would only make the correction "more drastic and painful" - with greater tax increases and spending cuts.
"To be quite blunt, the Government's fiscal position is untenable and simply not up to the task of modern governance," he added. "We cannot go on mortgaging the future of our children to finance the day-to-day running of government."