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New Fiscal Discipline Is 'No Magic Bullet'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Deputy Prime Minister is warning that today's long-awaited release of Fiscal Responsibility legislation is no "magic bullet" for The Bahamas' deep-rooted financial woes.

Confirming that the Government will unveil its signature fiscal reform within hours, K P Turnquest, pictured, told Tribune Business that the earlier introduction of its "disciplinary teeth" may have prevented previous administrations from running up a near-$8bn national debt.

With the Fiscal Responsibility Bill approved by Cabinet for public release, the Deputy Prime Minister confirmed that the private sector, civil society and other interested Bahamians will have just two weeks to influence the draft legislation by providing commentary and feedback.

This is because the Minnis administration wants the Bill's tabling in the House of Assembly to coincide with the 2018-2019 Budget, which Mr Turnquest is due to present on the last Wednesday this month.

He told this newspaper late Friday that while it was possible to achieve the Government's fiscal consolidation targets without such legislation, the Bill establishes a governance framework that "pulls this together" in a way that will hold present and future administrations accountable for their actions.

"It isn't the magic bullet but it does give us some parameters that, if we conform to it, it will help achieve the results we wish," Mr Turnquest told Tribune Business of the Fiscal Responsibility Bill.

Warning that "it takes discipline, it takes focus and it will take a bit of sacrifice" to arrest The Bahamas' fiscal decline, he added: "The Fiscal Responsibility legislation puts in a framework these patterns, these targets we wish to see and achieve.

"It helps you with a bit more discipline because everything is up front and transparent. That is the teeth in it."

Mr Turnquest promised that the Bill, once passed by Parliament, would have consequences for future administrations that chose to ignore its provisions at their peril.

"It has some requirements in it that are uncomfortable if you decide you wish to ignore it," he said. "It's [the Bill] certainly going to require some innovative thinking and it's going to require some operational changes, I suspect, in terms of the accountability aspects of it."

The Deputy Prime Minister conceded that earlier implementation of a Fiscal Responsibility Act by a former administration "certainly would have been helpful", given the downward spiral of the public finances - especially over the decade since the 2008-2009 recession.

"We can achieve the same results without fiscal rules," he added. "However, we have obviously lacked discipline, so it would have been helpful to have the codification, clarity and balance this Bill will put in place."

Budget data projects that in the 13 years between the 2007-2008 and 2019-2020 Budgets, some $4.375 billion will have been added to the national debt. This includes $1.5 billion under the last Ingraham administration, some $2.218 billion under its Christie successor and, potentially, $657 million during the first three years of the Minnis administration if projections hold true.

This means that more than half of the national debt incurred since independence will have been accumulated in just a 13-year period. The Christie administration, in particular, has come under fire from its successor, which has accused it of squandering Value-Added Tax's (VAT) $750 million net revenue windfall by running up more 'red ink' than the prior Ingraham-led government.

The Minnis administration appears to be on target to hit its $722 million borrowing requirement to cover fiscal holes for both the 2016-2017 and 2017-2018 Budget years, with the deficit for the former now projected to be nearer $600 million instead of the mid-year Budget's $350 million.

The 2016-2017 deficit overshoot has been blamed on the Christie administration's pre-election spending spree, as it went on a public sector hiring and contract issuance binge in a bid to secure votes. This is something the proposed Fiscal Responsibility Bill will likely seek to prevent current and future governments from doing.

Mr Turnquest would not be drawn on the Bill's specific contents prior to today's unveiling, although he indicated it would be sufficiently flexible to enable the Government to raise Budget-approved spending limits in the event of unexpected emergencies such as a major hurricanes.

"Talk to me on Monday afternoon. The Bill will reflect the reality of our situation," he said. Mr Turnquest has also previously indicated that the Government is seeking to balance 'set-in-stone' fiscal rules with the flexibility needed to respond to hurricanes.

Addressing the House of Assembly during the mid-year Budget debate earlier this year, the Deputy Prime Minister suggested the Bill's 'rules' could include "a ceiling on the deficit and a cap on the growth of expenditure".

He added that the Bill, which has been drafted with help from the International Monetary Fund (IMF), will also contain "consequences" should the Government miss its fiscal targets, and set out "adjustments" and other remedies that must be implemented to bring the public finances back on track.

Besides enabling greater scrutiny of the Government's financial management, Mr Turnquest said in March that the Bill will also set out a medium-term fiscal strategy to guide the crafting of annual Budgets.

Among the general 'objectives' contained in the legislation, he suggested, were the "achievement and maintenance" of a medium-term fiscal balance; maintaining "prudent levels of public debt"; and keeping tax rates and bases "predictable".

Fiscal Responsibility legislation tends to offer more flexibility than 'fiscal rules'. Such laws force a government to be more accountable and transparent in the management of the public finances, and require it to return to Parliament for approval to raise more money if it has to exceed the limits approved in the annual Budget.

'Fiscal rules', by contrast, set targets that the Government cannot breach, such as a maximum debt-to-GDP ratio. These go a step further than a pure Fiscal Responsibility Act, and it appears the Minnis administration is eyeing a combination of the two.

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