By NEIL HARTNELL
Tribune Business Editor
The Bahamas Institute of Chartered Accountants (BICA) president yesterday warned the government could miss its full-year revenue target by “as much as 20 percent” based on current data.
Gowon Bowe told Tribune Business that the government needed to determine the reasons for the virtually-guaranteed 2018-2019 revenue “shortfall” so that it avoided “repeating” this in the upcoming 2019-2020 fiscal year, thereby exposing itself to the risk of much higher deficits and debt than projected.
While acknowledging the government’s success in holding the deficit for the first nine months to $129.2m, a 51 percent year-over-year reduction that was aided by a $40m budget surplus for the January-March period, Mr Bowe said it would likely have wanted a better performance during that quarter to help carry it through to the June year-end.
With revenue intake likely to fall given that the Bahamian economy has passed the peak of the winter tourism cycle, and there are no projected fiscal fourth quarter boosts from the likes of business licence fee payments, the BICA chief backed the government’s caution and focus on spending controls to ensure it hits the year-end $237m deficit target.
“The only worrying element is the first quarter of the calendar year happens to be the one where you want to run as big a surplus as you can,” Mr Bowe told this newspaper of the government’s nine-month “fiscal snapshot” and performance report.
“The fact they did not run a higher one in that quarter means, as the deputy prime minister highlighted, that they have to control expenditure as revenue intake slows down in the fourth quarter. You don’t want that expenditure to balloon and push you to a higher deficit than anticipated.”
The government’s report showed it had collected some $1.689.1bn or 63.7 percent of its full-year target during the first three-quarters of the 2018-2019 fiscal year, providing further confirmation it is highly unlikely to meet the $2.651bn revenue goal by the end-June fiscal year close.
It would have to collect $962m between April and June to make up this gap, and trends for the fiscal year-to-date suggest it could come in as much as $300m below the full-year goal - a level much higher than the $185m underperformance flagged by K P Turnquest, deputy prime minister, during the mid-year budget in February.
The Government collected just 38.1 percent of the full-year revenue target during the first half of the 2018-2019 fiscal year, meaning that the “revenue rich” third quarter from January-March produced about 25.6 percent - or just over one-quarter - of the full amount.
This translates into $678.8m in revenue generated at the peak of the economic cycle - a sum almost $300m less than the “gap” between the nine-month collection and full-year objective. Mr Bowe told Tribune Business that the year-to-date performance “could come up as much as 20 percent short in revenue” based on trends so far.
Based on the first-half generating 38.1 percent of full-year revenues, a repeat of this performance in the 2018-2919 fourth quarter suggests it will generate between 19-20 percent of the full-year sum. This would bring government revenues to around 83-84 percent of target, or around $2.2bn, leaving them some $450m below budget projections.
Given the possibility of such a miss, Mr Bowe yesterday said there needed to be a “proper assessment of where we fell short and why” to avoid the same mistake being repeated in future Budget forecasts and prevent the possibility of larger-than-expected fiscal deficits that add further to the $8bn-plus national debt.
Calling for greater clarity and dialogue around the assumptions used by the Government to derive its revenue estimates and Budget model, the BICA chief acknowledged that the transition periods granted to the hotel and construction industries meant the Public Treasury had not received the benefit of a full 12 percent VAT year.
But, suggesting other factors were at work, Mr Bowe told Tribune Business: “While the VAT rate increased, [consumer] consumption decreased. While we’ve not had the full first year of VAT at 12 percent, collections have not been at the pace they anticipated. They were projecting significantly more.
“There’s no point in repeating the same mistake.... I believe there’s a lot of work to be done as to what estimated and assumptions were used in the current model, what is the reason for the shortfall and, more importantly, that is is not repeated in the next year.”
The government’s nine-month fiscal “snapshot” and budgetary performance report showed VAT was the poorest-performing revenue source when nine-month collections were measured against full-year targets. Just 55.6 percent of the $1.062bn forecast had been received by end-March, even though collections were up almost $100m year-on-year - a 20.2 percent increase.
But the rise, from $490m to $589m, was well short of matching the 60 percent hike in the VAT rate with just three months of the 2018-2019 fiscal period left.
Mr Bowe, meanwhile, also pointed out that the “$108m headroom” between the nine-month deficit and full-year target could easily be wiped out based on the 2018-2019 first-half performance.
A $169m deficit, equalling around $85m per quarter, was incurred over this period, and the BICA chief said it was entirely possible this could be repeated during the fiscal year’s final quarter.
“That sort of says we can run $85m very easily,” he told Tribune Business. “Even though we have $108m that could be eaten away very quickly.”
Turning to expenditure, Mr Bowe said the Government’s recurrent spending on fixed costs such as salaries and rents needed to stop rising even though the pace of increase had slowed.
“Recurrent spending, while slowing, is continuing to climb,” he added. “I’m not one to say it should be curbed by drastic measures, but we want to see that number stop rising as we want to see more efficient expenditure and use of existing resources. It’s not a case of cutting out expenditure; it’s more a case of maximising value for benefit.”
The Minnis administration has curtailed spending in line with its revenue underperformance to keep it in line with deficit targets, but Mr Bowe warned that it had to be “very careful not to wait too long” in meeting The Bahamas’ critical infrastructure needs.
“A little bit of medicine is better than waiting for major, more extravagant expenditure,” he added. “We don’t want infrastructure to deteriorate at the expense of saving money for tomorrow.”
Mr Bowe said the $14.6m spent to cover the Grand Lucayan’s operational costs suggested taxpayers are subsidising the resort to the tune of $2m per month given that it has been just over seven months since the acquired the property from Hutchison Whampoa.