By NEIL HARTNELL
Tribune Business Editor
The Government "may be a little behind" its 2018-2019 fiscal projections, it was revealed yesterday, with the full VAT rate hike impact not felt until the New Year.
KP Turnquest, pictured, deputy prime minister, told Tribune Business that the Ministry of Finance was "happy with the overall results" of its first quarter fiscal performance even though it could have fallen short of expectations.
He explained that VAT collections, which were $32m or 19.1 percent ahead of prior year figures at $199.4m for the three months to end-September 2018, would take time to stabilise given the "zero ratings" and exemptions that took effect after July 1.
Mr Turnquest also pledged that the Government would guard against "excessive spending programmes" to ensure it did not squander the benefits of any fiscal gains such as the 52 percent year-over-year cut in the 2018-2019 first quarter deficit.
While public spending was expected to increase during the 2019 calendar first half, as infrastructure projects came on stream, the Deputy Prime Minister said the fiscal impact was forecast to be offset by rising revenue during a period when the Government traditionally earns the bulk of its income.
Mr Turnquest spoke out as he sparred with the Opposition's deputy leader, Chester Cooper, over the Ministry of Finance's first quarter "snapshot" - its first ever quarterly update to the Bahamian people on the Government's finances, which he sought to hail as the start of a new era in fiscal transparency and accountability.
Mr Cooper, though, argued that data showed VAT was underperforming because less than 20 percent of the $1.061bn projected for the full year had been collected during the 2018-2019 first quarter.
While careful to acknowledge that the fiscal year's first quarter is typically the slowest for government revenue collection, since it coincides with the traditional tourism season lull, the Opposition's finance spokesman argued: "The collections for the quarter are significantly under budget.
"This seems a clear indication that projections are not being met and the projected net increase for the year will not be met. Noting the potential for seasonality in revenues, this is still a major red flag..... On the current trajectory, we would likely see more tax hikes, more borrowing or massive recessionary cut backs at year-end."
Mr Cooper, though, seemed to contradict himself later in his statement by saying it was "much too soon to make empirical conclusions" based on the first quarter data, even though he appeared to be doing exactly that with the VAT figures.
In response, the Deputy Prime Minister argued that the full impact of the 12 percent VAT rate increase may not be felt until New Year 2019. He pointed to the 'breadbasket' food and medicines 'zero ratings', both of which took effect on August 1, and the extensions granted to hotels and the construction sector.
"Hotels and contractors that had projects in train, we have them until January to wrap up those projects at the old [7.5 percent] rate," Mr Turnquest told Tribune Business. "We were aware the full effect of the VAT rate increase would not come into effect until January, quite frankly."
He added that the 2018-2019 first quarter VAT take may also have been impacted by lower consumer spending as Bahamians adjusted to the new rate, and asserted that the Government is "pleased with where we are and on track" with its main revenue earner.
The Ministry of Finance's "snapshot" compares the 2018-2019 first quarter with the same period in the prior year, and does not include matching it to its financial projections to see whether performance exceeded, met or fell short of expectations.
"I don't have that in front of me," Mr Turnquest said, when asked about comparisons to the Ministry's forecasts, "but if memory serves we we may be a little behind where we anticipated we would be. But we're certainly happy with the overall results."
He added that the Government also hoped to obtain the extra revenue projected from the increased web shop taxation, namely the "sliding scale" structure and 5 percent Stamp Tax on patrons, during the fiscal year's second half.
The increased taxation is currently subject to legal challenge, and Mr Turnquest yesterday estimated this may have cost it around $8m in 2018-2019 first quarter revenues, although the Ministry of Finance's report put this at $12.6m.
Stamp Tax and trade taxes had also "outperformed" 2017 comparisons during the first quarter, and the Government was focusing on "judicious" management of its spending.
"The message is we have to continue to be disciplined.. so we don't allow any perceived gains to mean there is any extra funds to engage in excessive spending programmes," Mr Turnquest told Tribune Business of spending controls.
"Based upon where we are now and what we see for the rest of the year, we believe we would see improvement in the revenue results and, as we continue to monitor expenditure, there is likely to be some increase in expenditure in the second half of the year that will be more than offset by revenue. It we track where we are we should meet or exceed targets for this fiscal year."