By NEIL HARTNELL
Tribune Business Editor
The Government’s deficit for the year to end-June 2016 was 123 per cent higher than projected because revenues, despite Value-Added Tax’s (VAT) arrival, came in $110.2 million below the Christie administration’s projections.
The Central Bank, in what the Opposition will likely view as a timely reminder of fiscal weakness on the general election’s eve, confirmed that the Government’s deficit for the 2015-2016 fiscal year totalled $310.4 million, compared to the initial $139.1 million forecast.
The Central Bank’s annual report, released yesterday, blamed the deficit overshooting on a combination of revenue under-performance and spending coming in $61.1 million higher than forecast.
While VAT revenues exceeded expectations at $627.9 million, the Central Bank said trade taxes, Business License fees and real property taxes came in some 21.7 per cent, 25.9 per cent and 31.4 per cent, respectively, below the Christie administration’s forecasts.
Acknowledging that the deficit was down $71 million compared to the prior year, the Central Bank said: “In the fiscal outturn for 2015-2016, the overall deficit narrowed by 18.8 per cent to $310.4 million, as the growth in total revenue outpaced gains in aggregate expenditure.
“This still contrasted with the deficit of $139.1 million that was anticipated, as non-VAT revenue fell short of projections, and some expenditure rose faster than budgeted.”
Prime Minister Perry Christie, in his recent mid-year Budget presentation, largely ignored the 2015-2016 fiscal year’s performance, concentrating solely on Hurricane Matthew’s impact on the six months to end-December 2016.
Tribune Business, though, used the data provided by the Government to calculate the 2015-2016 deficit at $310 million, a figure now confirmed by the Central Bank.
The regulator, breaking down a 2015-2016 performance that resulted in a deficit “more than double” Budget forecasts, said: “Supported by VAT receipts, aggregate revenue grew by 13.4 per cent ($228.1 million) to $1.93 billion; some $110.2 million (5.4 per cent) less than expected.
“Similarly, total expenditure rose by 7.5 per cent ($156.4 million) to $2.24 billion, also exceeding the provisioned value by $61.1 million (2.8 per cent).”
The Central Bank’s figures show that the Christie administration has made progress in narrowing the fiscal deficit, but painfully slowly, especially in comparison to its initial projections a year after taking office.
The deficit fell from $480 million, or 5.6 per cent of GDP, in 2013-2014 to $382 million a year later and $310.4 million in 2015-2016, a figure equivalent to 3.5 per cent of GDP (total Bahamian economic output).
The damage and economic disruption inflicted by Matthew has already blown the 2016-2017 forecast, with the half-year deficit already at $277 million or 3 per cent of GDP - figures that are almost triple the initial $97.6 million projection.
The Government is now projecting a $350 million deficit, for the 2016-2017 full-year, but the prior year’s performance - as detailed by the Central Bank - suggests its revenue forecasts are still far too aggressive and optimistic, while controlling spending remains an ongoing problem.
VAT revenues that “paced ahead of budgeted projections” ensured that tax revenue, at 86.9 per cent of the Government’s total income, grew by $175.8 million or 11.7 per cent to $1.676 billion during the 12 months to end-June 2016.
Adjustments to other taxes to ease VAT’s arrival, particularly the shift towards the 7.5 per cent levy on real estate sales, saw Stamp Duties in this sector fall by $90.8 million or 47.6 per cent to $100 million.
“Partly reflecting the decrease in several tariff rates on goods following the introduction of the new regime, taxes on international trade and transactions contracted by $71.2 million (12.3 per cent) to $506.4 million, as both import and excise taxes fell by 13.8 per cent and 12.3 per cent, respectively,” the Central Bank added.
“In addition, business and professional license fee receipts declined by $33.8 million (18.8 per cent) to $146.2 million. Selective taxes on services also decreased by $23.4 million (46.4 per cent) to $27 million, reflecting mainly the shift in hotel occupancy taxes to the VAT.”
Elsewhere, the Government’s fixed cost spending increased by $293.1 million or 17.1 per cent in 2015-2016 to $2 billion - a figure 3.5 per cent higher than Budget estimates.
The Central Bank blamed the increased outlays on a 43 per cent jump in subsidies to loss-making public corporations, together with rising interest payments on the $7 billion-plus national debt and a $25 million expansion in the civil service wage bill.
“Subsidies and other transfers expanded by $216.8 million (42.8 per cent) to $723.4 million, with transfers to public corporations placed at $116.3 million, as opposed to $6.5 million, exceeding budgeted estimates for these entities by $42.9 million,” the Central Bank said of the 2015-2016 fiscal year.
“Further, amid the rising stock of outstanding debt, interest payments firmed by $41.6 million (17.8 per cent) to $275 million, due to growth in both the internal and external components by $37.7 million and $3.9 million, respectively.”
The Christie administration has blamed its inability to hit its fiscal targets on hurricanes Joaquin and Matthew, a factor acknowledged by many, including Central Bank governor, John Rolle, in his annual report message.
However, the Central Bank governor effectively said the hurricanes were only part of the story, with increased subsidies and social programme spending also behind the continued $300 million-plus deficits.
“The fiscal performance was also constrained by increased subsidies for public enterprises and continued preparations for the introduction of National Health Insurance,” Mr Rolle wrote.
As a result of all this, the Bahamas’ national debt stood at $7.042 billion at year-end 2016, with the debt-to-GDP ratio at 77.9 per cent - a level well above the so-called ‘danger threshold’ cited by the International Monetary Fund (IMF) and others.
“At end-December, the direct charge (debt) on the Government stood at $6.313 billion, a rise of $399.2 million (6.8 per cent) over the prior year,” the Central Bank said.
“Similarly, the national debt - inclusive of Government guaranteed loans - rose by $373.1 million (5.6 per cent) to $7.042 billion at year-end, amounting to an estimated 77.9 per cent of GDP, up from 75.3 per cent at end-December, 2015.”