By NEIL HARTNELL
Tribune Business Editor
The government has narrowed its $185m revenue gap, the deputy prime minister has revealed, as it “keeps a close eye” on its agencies’ spending as the 2018-2019 fiscal year-end looms.
KP Turnquest told Tribune Business that the traditionally revenue-rich first quarter of the calendar year had helped “tighten” the difference between the government’s actual and projected revenue collection ahead of the upcoming 2019-2020 budget.
Suggesting this had further boosted confidence that the year-end $237.6m deficit target will be achieved, Mr Turnquest said the Ministry of Finance was closely scrutinising all ministries, departments and agencies to ensure there are no last-minute spending binges “where there is no legitimate need”.
He added that there were unlikely be to any “major” changes to expenditure allocations in the 2019-2020 budget, with the Minnis administration aiming to be “faithful” to a three-year consolidation plan that targets elimination of the fiscal deficit and payment of $360m in total unfunded arrears.
The International Monetary Fund’s (IMF) recent visit to The Bahamas for the annual Article IV consultation had also “confirmed a lot of our thinking”, Mr Turnquest said, with the concerns it identified already on the government’s agenda to address.
He revealed that the Deloitte & Touche (UK) study of the Bahamas’ tax structure, and potential reforms to make it more efficient and equitable, had effectively been placed on hold by the need to enact reforms to meet the European Union (EU) and Organisation for Economic Co-Operation and Development (OECD) demands.
With The Bahamas having addressed their anti-tax evasion concerns, Mr Turnquest said the Government would seek to “restart” the Deloitte effort although he gave no dates for when this would happen.
The Government, meanwhile, had been counting on early 2019 to compensate for the revenue slippage experienced during the 2019 first half, and Mr Turnquest indicated that the period had not disappointed.
“I don’t have the final numbers yet,” he told Tribune Business of the three months to end-March 2019, “but I know that what we’ve seen is a tightening is a tightening of the actual versus the projected.
“I’m feeling good. We are still feeling confident that we will make our budget based on our forecast for the end of the year, and will continue to work towards that. The revenue numbers are tightening, which is positive, and we continue to keep a careful eye on expenditure through the end of the fiscal year.
“We feel pretty good about where we are, and unless something completely unforeseen happens we feel comfortable we will be able to bring it on budget.”
Mr Turnquest, in unveiling the mid-year Budget at end-February, revealed that full-year revenues were due to come in $185.43m or seven percent below the $2.649bn target due to a shortfall caused by VAT, gaming and enforcement underperformance.
He attributed this to the delayed introduction of the increased 12 percent VAT in key sectors such as construction and hotels, where concessions were granted to enable them to honour existing contracts and bookings at the old 7.5 percent rate for several months.
The anticipated increase in web shop taxes also failed to materialise due to the sector’s resistance and legal action, while the delayed creation of the Revenue Enhancement Unit (REU) threatened the collection of $80m in projected revenues from enhanced compliance/enforcement.
However, the first calendar quarter - the third in the Government’s fiscal year - is traditionally the most “revenue rich” period for the Public Treasury and appears to have cut the projected $185m shortfall.
Besides coinciding with peak economic activity related to the winter tourism season, the period features monthly and quarterly VAT filing/payment; Business Licence fee payments; the bulk of real property tax payments; and commercial vehicle licensing months.
Mr Turnquest, meanwhile, said the Ministry of Finance was guarding against long-established practices where government ministries, agencies and departments - possessing a surplus they had no need for - simply spent it before fiscal year-end to ensure they received no reduction in allocation in the upcoming budget.
“During this period agencies sometimes feel they have a need to spend the money even though they don’t have a legitimate need to do so,” he told Tribune Business. “If we’re not careful things happen, but we’re keeping a close eye on it and will closely manage it through the end of the year.”
Mr Turnquest added that the impending 2019-2020 Budget will be “faithful” to the Government’s fiscal consolidation plan of trying to achieve a balanced budget/small surplus by 2020-2021 and paying off all unfunded arrears.
“I expect the upcoming Budget to be faithful to that with some minor changes to reflect circumstances that happened in the year, and some additional priority items that arise as a result of the Government’s plans,” he said.
“I wouldn’t expect any any major changes to line item allocations in the next Budget. We’ve projected three years out and want to be faithful to that as best we can, making the necessary tweaks to to reflect current circumstances and priorities.”
The IMF recently maintained The Bahamas’ 2019 GDP growth projection at 2.1 percent, and Mr Turnquest said of the recent Article IV consultation: “We’re very pleased with the IMF visit; they’ve confirmed a lot of our thinking.
“Generally speaking, their thinking is in line with ours. They’ve pointed out areas where there is concern and improvements have to be done, which is in line with our agenda.”
The deputy prime minister, though, confirmed that the Deloitte UK taxation study - which was supposed to assess options and alternatives to the Business Licence regime among other issues - had been delayed as a result of the need to address EU and OECD concerns.
“We hope to restart that project at some point,” Mr Turnquest said. “We have our three-year plan already and will continue to work that. However, as we’ve already said, the Ministry of Finance has to be armed with the relevant research and forward-looking facts, and have the relevant options looking into the horizon.
“While not a priority today, it’s important to have all the tools available to us to address a situation that may arise.”