The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Deputy Prime Minister yesterday warned that the former administration may have “hamstrung” the Government’s goal of delivering a balanced Budget, and meeting its VAT and inner-city tax breaks pledges, in the short-term.

K P Turnquest told Tribune Business he had already seen evidence that the former Christie administration was less than forthcoming with the Bahamian people about the country’s true fiscal position.

The newly sworn-in Minister of Finance, who was reviewing files and being given briefings over the weekend, said he had already “seen something I don’t like” in relation to the Government’s recurrent deficit.

Mr Turnquest did not go into detail or provide any figures, but warned that the new Government may have its “hands tied” for the 2017-2018 Budget year when it comes to balancing the books and delivering on its election commitments.

He repeated concerns that the Government may have to pick up numerous blank cheques left by its Christie administration predecessor as a result of all the pay rise, payment, contractual and other commitments entered into in the months and weeks leading up to the May 2017 general election.

And Mr Turnquest also described Bank of the Bahamas (BOB) as “a major issue” requiring the Government’s immediate attention, although he again did not go into detail.

Tribune Business sources close to the new administration, but speaking on condition of anonymity, told this newspaper that the new administration “might unfortunately have to” inject more capital into troubled BOB via yet another taxpayer bail-out.

Tribune Business last week exposed how the BISX-listed institution had taken legal action against the Central Bank, seeking Supreme Court protection from the regulator’s demands that it increase loan loss provisioning by $50 million and transform a $10 million government-funded bond issue into the true Tier 1 capital.

Many observers have interpreted BOB’s action as something initiated at the former Christie administration’s request, and a sign that the previous government did not have the available financing to inject into the bank and meet the Central Bank’s regulatory demands.

Meanwhile, Tribune Business was also told that measures to shore up the National Insurance Board (NIB) and its $1.6 billion reserve fund may be required from the new Dr Minnis-led administration.

“NIB is a major issue,” Tribune Business was told. “The fund is running down much faster than anticipated, faster than thought, so the Government may have to take corrective measures a lot sooner than perhaps thought.”

NIB’s actuarial reviews have frequently warned that the national social security system’s reserve fund will be exhausted by 2029-2030, and have offered numerous corrective policy options. Successive governments to-date, though, have preferred to ‘kick the can down the road’.

All this highlights the extent of the financial and fiscal challenges facing the newly-elected FNM administration as it seeks to deliver on its election pledges, and create an economic environment that facilitates faster GDP growth and job creation.

“The goal is to produce a balanced Budget, but we will not be able to do that this year,” Mr Turnquest told Tribune Business. “As we move forward, we hope to see some real reductions in the recurrent deficit and the overall debt.”

The Christie-led administration forecast that the Government was going to incur a $350 million GFS deficit for the 12 months to-end June 30, 2017, prior to being voted out of office, and Mr Turnquest was already sounding warnings yesterday.

“I saw something on my desk yesterday that I didn’t like,” he told Tribune Business. “The recurrent deficit. I saw something that I didn’t like at all. Our hands may be tied for this Budget cycle, but we have to work this out.”

The recurrent deficit measures the difference between the Government’s annual revenues (tax and fee income) and its fixed-cost spending, which includes civil service salaries, rents and debt servicing payments.

There are fears that the Christie administration’s numerous pre-election spending commitments, which included promotions and salary increases for Royal Bahamas Police Force (RBPF) and Royal Bahamas Defence Force (RBDF) officers; the payment of police officers; the ‘regularisation’ of hundreds of temporary civil servants as full-time; and numerous persons hired on three-month contracts in the public sector, may have blown a hole in this figure.

Mr Turnquest said it was “obviously our intention” to deliver on Dr Minnis’s promised VAT exemptions on breadbasket items, utility bills and education, plus inner-city ‘tax free zones’, in the upcoming 2017-2018 Budget.

He reiterated, though, that much depended on the Government’s current fiscal position, and said: “We’re sensitive to the fact that commitments were made in the last couple of months, the last few days really, that may hamstring us and tie our hands.”

Dr Minnis’s inner-city ‘tax free zone’ pledge ran into heavy criticism during the election campaign, but Mr Turnquest came to his defence, saying: “They [the PLP] have their view, we have ours.

“We understand how we’re going to do it, and know what benefits we are seeking to achieve by doing it, and that is to cause job creation and development in the inner city.

“Again, we have to see where we are in this cycle, a commitment was made to the Bahamian people, and it is a commitment we’re going to live up to.”

Mr Turnquest also promised to improve the ease of paying taxes, and pledged that the new government will “not tax businesses up the backside”.

“What we want to do is certainly see how we can streamline the process using technology that has been introduced, and streamline the various taxes we have to make the points of contact smaller, more co-ordinated and with less running around,” he told Tribune Business.

“We want to strengthen the collection effort so we collect the taxes already open to us and on the books.

“The whole idea is to raise enough revenues to meet the Government’s commitment to its citizens but not to make a profit, and to the point where we tax businesses up the backside.”

Mr Turnquest also pledged to tackle wasteful spending.

The Christie administration, in its last Budget, projected that the Government would narrow the GFS fiscal deficit (this measurement strips out debt principal repayments) to just $28 million, or 0.3 per cent of GDP, in its 2017-2018 Budget year.

This target, though, is extremely optimistic given that the extra strain imposed on the Government’s finances, as a result of the $600-$700 million damages inflicted by Hurricane Matthew, is likely to still be working its way through.

Simon Wilson, the financial secretary, earlier this year said the Government believes it can “achieve a balanced Budget” within the next four years, meaning the GFS deficit would be eliminated by 2020-2021.

This is less optimistic than the Christie administration’s last Budget forecast, which projected that the Government would run a $68 million GFS surplus in 2018-2019.