By NEIL HARTNELL
Tribune Business Editor
The government was last night said to be confident there will be “no deviation” from its $237m full-year deficit target despite incurring almost three-quarters of this sum in the first six months.
Marlon Johnson, the Ministry of Finance’s financial secretary, told Tribune Business that the Minnis administration “feels comfortable” it will hit its 2018-2019 goals despite racking up $174.2m in “red ink” during the six months to end-December.
With the bulk of the government’s revenues traditionally earned during the second half of a fiscal year that coincides with the peak winter tourism season, business license fees and the bulk of real property tax payments, Mr Johnson said it “remains confident” that the 12-month deficit target - mandated by the Fiscal Responsibility Act - will be hit.
“We feel comfortable,” the Ministry of Finance’s top official said. “We’ve done some revenue analysis and expenditure projections. Based on our forecasts we remain confident that the target budget deficit of $237m is still very much attainable, and we don’t anticipate any deviation from that.”
Reiterating that the fiscal year’s first half was historically the weakest part of the government’s revenue cycle, Mr Johnson added: “We’re managing expenditure growth quite judiciously. We remain confident Budget targets will be met.”
The Government’s six-month “fiscal snapshot”, released late last night, focused more on the 31.4 percent year-over-year reduction in the deficit compared to the 2017-2018 performance than the fact that it was equivalent to 73.3 percent - almost three-quarters - of full-year projections.
This means the Government has just $63m of deficit “wiggle room” during the six months to end-June 30 if it is to achieve its target of both meeting the Fiscal Responsibility Act’s mandate and achieving a substantial reduction in the prior year’s $410m deficit.
The 2018-2019 half-year deficit, though, would likely have dropped to $149.2m - some 62.9 percent of the full-year target - had it been able to realise some $25m in expected revenues from the new and increased web shop taxation.
This sum, split into $10m generated by the five percent Stamp Duty levy on patrons, with the $15m balance coming from the “sliding scale” imposed on operators, has not been realised due to the web shop industry’s Supreme Court challenge to the new tax structure.
The sector has since been involved in long-running talks with the Government, led by Carl Bethel QC, the attorney general, to resolve the matter without resorting to litigation, but it still remains unclear when the Public Treasury will receive any revenue and how much.
Mr Johnson, though, said the Ministry of Finance remains confident that a major portion of the expected web shop revenue increase will still be realised. “Some $25m in total has not been collected as yet,” he confirmed to Tribune Business.
“Obviously there’s concern, but from what we understand there’s progress in discussions with the gaming industry, and that progress is substantial, so we remain confident a substantial part of that will be collected.”
“Gaming taxes, at $9.8m, remained below the year-earlier intake of $14.6m,” the Government’s six-month “fiscal snapshot” conceded. “The ongoing delay in the implementation of the new schedule of taxes on gaming houses contributed to a $15m shortfall in budgeted receipts, and placed receipts at only 14 percent of the $70m anticipated annual yield.
“General stamp taxes increased to $5.9m from $1.8m a year ago, although attaining only 20.9 percent of the budget. This outcome was primarily explained by an estimated revenue loss of $10m due to the delayed introduction of the new 5 percent stamp tax on gaming patrons.”
Still, the Government’s half-year revenues increased year-over-year by 14.7 percent or $129.5m to hit $1.01bn even though the full impact of the VAT rate increase to 12 percent had yet to be felt because of the transition periods afforded to the hotel/tourism and construction industries.
VAT revenues rose by $81.2m or 25.5 percent to $399.5m for the six months to year-end December 2018, representing just 38 percent of the full-year target. That is likely to be seized upon by the Government’s political opponents, who have repeatedly argued that the 60 percent VAT rate increase will not produce an equivalent 60 percent revenue expansion - as suggested in May’s budget - because consumers have cut back on consumption.
The “fiscal snapshot”, though, dismisses such concerns thus: “At 38 percent of the budget target, this outturn included only one quarterly VAT filing (October 2019) at the 12 percent rate, which became effective July 1, 2018, and was also tempered by the Government’s accommodation to hotels and resorts and development projects to honour business booked/secured prior to September 30, 2018, at the old rate.”
Summarising the Minnis administration’s half-year performance, it added: “Revenue increased by $129.5m in the first six months of fiscal year 2018-2019, representing a 14.7 percent year-on-year improvement when compared to the first half budget performance in 2017-2018.
“Overall expenditure increased by $49.9m, accounted for by a $93.9m increase in recurrent expenditure and a $44.1m decrease in capital expenditure. The settlement of payment arrears contributed $65.1m of the recurrent expenditure increase.
“In 2017-2018, the capital expenditure was inflated due to the extraordinary booking of $55.2m for the $100m Bahamas Resolve promissory note to the Bank of The Bahamas.”
Mr Johnson last night told Tribune Business that the payment of previously unfunded arrears accounted for much of the 9.3 percent year-over-year increase in the Government’s total first half recurrent spending, which goes on its fixed costs such as salaries, benefits and rents.
Despite the increase from $1.004bn to $1.098bn, he added: “A significant portion of that, $65m, of expenditure growth is paying down on arrears. If you take that out you will see the expenditure growth is modest.”
Leading the arrears payments was some $11m paid to CTF Holdings, the owner of Baha Mar, with a further $8.2m settling bills owed to the Public Hospitals Authority’s (PHA) medical suppliers and $5.4m allocated to garbage collection vendors.
Another $6m was used to pay down the arrears owed to the Water & Sewerage Corporation’s major supplier, Consolidated Water, while the University of the West Indies received $5.4m and the cruise lines, Carnival and Norwegian, gaining $6m and $1m, respectively.
“Employee compensation was lowered by $27.6m, primarily due to the timing of the execution of planned recruitment exercises,” the Government’s “fiscal snapshot” added. “In addition to the settlement of budgeted arrears, higher payments were recorded under goods and services for utilities and communications (up $3.7m), operational and other expenses (up $1.9m), and services (up $6.7m). Rent expenses also increased in the year-over-year comparison (up $11.8m) due to the Government’s enhanced efforts to keep current with its obligations.”
Mr Johnson told Tribune Business that the Government’s capital spending was expected to “ramp up” during the six months to end-June 2019 as major public works projects are initiated.
“We expect to see a bump up in capital expenditure in the second half as a lot of projects get into stride,” he said. “We expect the level of capital expenditure to go up materially in the second half, and we’ve accounted for that.”