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Underspend Helps Hit Deficit Target

Deputy Prime Minister Peter Turnquest.

Deputy Prime Minister Peter Turnquest.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government yesterday forecast it will narrowly beat this year’s fiscal deficit target despite a $185m revenue shortfall caused by VAT, gaming and enforcement underperformance.

Deputy Prime Minister K Peter Turnquest, unveiling the 2018-2019 mid-year budget in the House of Assembly, said the Minnis administration was on track to limit the full-year deficit to around $230m - some $5-$10m less than the “red ink” target set last May.

He said the Government will be able to achieve this, and offset its revenue gap, through “significant spending restraint” projected to slash recurrent expenditure by five percent compared to initial forecasts.

This, based on Tribune Business’s calculations, amounts to a $130m cut to projections that it would spend some $2.589bn on its recurrent or fixed-costs - typically civil service salaries, benefits and rents - this fiscal year.

Mr Turnquest yesterday identified the 12 percent VAT rate’s delayed introduction in key sectors such as hotels and construction, coupled with the Government’s web shop taxation settlement and later-than-expected creation of the Revenue Enhancement Unit, as the key factors behind why revenues are now forecast to fall 7 percent short of Budget predictions.

This amounts to a $185.43m undershoot of the initial $2.649bn target, this newspaper has calculated, although Mr Turnquest implied that the VAT rate hike and other tax measures had still produced their desired effect because full-year recurrent revenues will be more than $400m ahead of 2017-2018.

However, he confirmed long-standing predictions that VAT collections will be “somewhat under the Budget forecast” for 2018-2019 as a result of the transition period granted to the likes of hotels and contractors, which enabled them to honour reservations and contracts that were in effect prior to the budget at the former 7.5 percent rate.

Mr Turnquest added that the revised web shop taxation structure, which has reduced the “sliding scale” levy from six to two lower rates, and the switch to taxing patrons on their winnings rather than deposits and ticket sales, was forecast to reduce the Government’s tax take from the sector by $18m compared to initial estimates.

And he revealed there will be a “dip” in the $80m that was forecast to be collected via enhanced compliance/enforcement due to the delayed creation of the Revenue Enhancement Unit, which is supposed to target tax evasion relating to VAT, Business Licence fees, Stamp Duty and real property tax.

The deputy prime minister did not provide a figure for the projected VAT shortfall, although based on the total undershoot - and the losses relating to web shops and the Revenue Enhancement Unit - this is likely to be around $90m or half of the $185m.

“All told, we now estimate that revenues will fall short of the Budget projection by some 7 percent, but still come in some $400m higher than the last fiscal year,” Mr Turnquest told the House of Assembly.

However, he said “significant expenditure restraint” had kept the Government on course to hit the $237.6m full-year deficit target, equivalent to 1.8 percent of Bahamian GDP, as mandated by the Fiscal Responsibility Act’s goals.

“Based on expenditure trends in the first half of the fiscal year, it is now estimated that both recurrent and capital expenditure will come in somewhat lower than had been projected at the time of the 2018-2019 Budget,” Mr Turnquest said. “That, in large measure, reflects the Government’s dedicated commitment to stringent expenditure restraint.

“Accordingly, recurrent expenditure is now projected at a level some 5 percent below the Budget forecast. Capital expenditure was particularly subdued in the first half of the fiscal year but, with our commitment to significantly invest in new and modern public infrastructure, we expect the pace of spending in this area to pick up appreciably in the second half of the year. The estimated outturn for capital expenditure is nonetheless now expected to come in below the amount budgeted for the entire year.”

The deputy prime minister did not produce a revised full-year estimate for capital spending, which was initially forecast to total just under $300m. Just $86.949m, or less than one-third of this sum, had been spent at the fiscal mid-year point of end-December 2018 - thus giving the Government enough room to increase this and still come in under projections.

Confident that spending controls will offset the revenue shortfall, Mr Turnquest said: “With the fiscal outturn in the first half and projected developments in the second half, we now foresee a fiscal deficit in 2018-2019 slightly under the Budget forecast by some $5-10m. Thus we project presently a budget deficit of somewhere near $230m, which means we remain firmly on target.”

A further indication of the Government’s optimism that it will not be thrown off-target comes from the fact that no new borrowing measures, above and beyond what was approved in May’s budget, were unveiled in the House of Assembly yesterday.

Pledging to maintain the Minnis administration’s cost-cutting focus, Mr Turnquest said it was “taking a hard look” at all government programmes and services “to see where we can cut spending, enhance value for money, improve services to make them more efficient and effective, and identify savings and reallocations to accommodate higher priority policy objectives”.

He added that the Ministry of Finance was poised to take its regular monthly meetings with government agencies a step further by “mandating the creation of monthly spending plans by agencies, so as to foster proper financial planning and cash management, and minimise the accumulation of further arrears”.

Mr Turnquest added that the Government was continuing to work on a Public Debt Management Bill to improve governance of its existing $8bn-plus national debt, and ensure its “prudent management”.

This, he said, will lead to the creation of a Public Debt Management Office within the Ministry of Finance and, under it, a Public Debt Management Unit to co-ordinate strategy for minimising The Bahamas’ debt servicing costs.

“This development will eradicate the past practice of inefficiently managing the country’s debt portfolio, and will instead create a framework for actively managing the country’s debt, with the aim of achieving the overarching goal of the Fiscal Responsibility Act of reducing the debt-to-GDP ratio to a more sustainable level,” Mr Turnquest told the House.

He added that the Government was also set to complete its transition to its new Chart of Accounts by July 1 this year, bringing it more into line with international standards and setting the stage for accrual-based accounting come 2022.

“Last May, this government accepted the difficult decision of raising taxes and the tax burden on Bahamians,” the deputy prime minister said. “We did this knowing full well the political consequences and the harsh criticism that the Government would face, even from our own side.

“We realised that this sacrifice asked of Bahamians was not the politically popular thing to do, but it was the right thing to do. It was the right thing to do.”

Comments

Well_mudda_take_sic 5 months, 3 weeks ago

Turnquest continues to play with the numbers in a very selective and most deceitful way. Once the dust settles though, he will proffer his usual lame excuses for unexpected increases in the deficit. I'm not even going to waste my time punching holes in his deceitful (not wishful) forecasts, suffice it to say the holes are so damn big you can drive a Mack truck through each of them. LMAO

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Dawes 5 months, 3 weeks ago

Have they not thought that another reason for the VAT being under the estimate is they have maxed this area out. People are cutting expenditure now in order to deal with the VAT increase. Going forward any new increases in VAT, whilst increasing the overall amount brought in will bring in a smaller % increase then the % increase in VAT.

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TalRussell 5 months, 3 weeks ago

No apparently yes, yes and yes - how it has been arithmetical downhill for finance minister KP, since the very first budget he stood up in House to deliver was one he had not only never read until he stood read it - I swear on my turned transgender backyard Rooster Comrade Big Red "AKA" Big Rosy's family bible that it was 100% written by former PLP's finance minister and delivered on House floor by KP - word for word, and PLP arithmetically computations? You just can't make this up, yes, no?

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ThisIsOurs 5 months, 3 weeks ago

Big Red is now Big Rosy??? When dat happen. You post here every day and you never once mentioned a pending operation

I forgot about him not reading the budget.

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Economist 5 months, 3 weeks ago

No matter what he may be doing with the numbers, at least he is making quarterly reports to the people. This gives us the opportunity to challenge the validity of the numbers.

So if there is anyone of us who wants to provide some facts that show what certain numbers really are, let get to it, lets discuss it.

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TalRussell 5 months, 3 weeks ago

Yes, yes and yes ma comrade Economist, do I takes it you don't subscribe to the PeoplePublic's viewpoint. that Minnis, KP and Carl Wilshire are highly selective over what be transparent of and about. Yes, no mind if I mention Oban's fake signatory, and "rolls toilet paperless" purchase the Lucayan Hotel and their projections creating booming diversified commerce in about Freeport. Yes, no if the new Nassau Port deal pays same revenue level into PeoplesPublicPurse as being paid by the Container Port at Kelly Island - what revenue stream do you project Colony of Out Islands? Yes, no, are Imperial reds abiding by colony's laws in same quickness and fashion as they eagerly seek out new set PLP comrades to criminally prosecute after they're made do Bank Lane shuffle?

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bogart 5 months, 3 weeks ago

ALARMING...,!!!!!!!!!....Gubbermint underspending....!!!!!.......ONLY THE PORE...NEEDLY....SUFFERING...NOT POLITICALLY CONNECTED....NOT THE PORE HARD WORKED GETTING ONE PAY RAISE.....NO HIRED... ..PAVLOV EXERPIMENT/EXPERTS/EXPERTISE wid little or no money... *.EXCEPT FER DA POLITICALLY CONNECTED...FAMILIES..FAMILIES...FRIEMDS..Connected...elites...echelons.....PARTY SUPPORTERS.... THE PORE DEFENCELESS GON GETS LAID OFF...COERCED....MALLEABLE...depending on small paycheck to support family...imvalid family...chillren in school...working like 10 people increasing to working 15 people...thuggery to unethically....immorally... bully...workers....easy perks to snoothing others.screwed....ONLY THOSE WORKERS AINT TOEING DA LINE....TURNING BLIND EYE TO CORRUPTION....DONT... ROC DA BOAT..........ANY LIMITED SALARY INCREMENT...TOE DA LINE TO MANIPULATE...COERCE...SAY DA 'RIGHT' SAY....PORE PEOPLE LOOKS BEING GETTING....SHAFTED.....GETTING DA END OF GA STICK.......PORE NEIGHBOURHOODS....getting unhelped.....erryone knows documented....the pore gets living cruelly..but fer surd....fer sure....who will benefit...??????

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