The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is “nowhere near out of the woods” with its fiscal woes, the deputy prime minister admitted yesterday, with the government still confronting several “ticking timebombs”.

KP Turnquest told Tribune Business that issues with the potential to “throw us out of whack” include the presently-unknown Bahamas Telecommunications Company (BTC) pension liability plus the unfunded retirement obligations owed to civil servants generally.

While acknowledging that the government had expected to be “a little further ahead” at this point in eliminating the persistent annual fiscal deficit, he added that it was “on the right path” to correcting the country’s finances and setting them back on a sustainable path.

The 2019-2020 budget, unveiled by Mr Turnquest in the House of Assembly on Wednesday, effectively sent the message that the government intends to hold its present fiscal course and faithfully stick to its three-year consolidation plan despite the ongoing domestic and foreign pressures.

It deliberately avoided any further shocks or disruption to the Bahamian economy following last year’s VAT hike and other revenue-raising measures, seemingly recognising that businesses and consumers cannot shoulder any greater burden, with the government instead targeting untapped revenue streams already on the books together with greater compliance and administrative efficiency.

Mr Turnquest yesterday withdrew a suggestion that these measures alone could yield an extra $100m in annual revenue for the Public Treasury, but conceded that the government had reached a stage where it needed to “plug all the holes” before introducing any new taxes.

Voicing optimism that the government will hit its 2019-2020 revenue targets despite the $238m under-shoot projected for the current fiscal year, Mr Turnquest described the budget projections as “reasonable” due to the Bahamian economy’s growth forecast and the number of foreign direct investment (FDI) projects set to kick-in.

Acknowledging that he does not possess “a crystal ball”, he added that budget estimates were based on the best available information at the time they were made. Responding to Opposition criticism of the missed revenue target for 2018-2019, Mr Turnquest retorted that the narrowed fiscal deficit - currently projected to beat its initial forecast - is “the number that counts”.

Tribune Business reported on Thursday how the 2019-2020 Budget projections show the Government now believes it will take a little longer than initially thought to eliminate the annual GFS deficit, which measures by how much government spending exceeds revenue (income), a conclusion confirmed yesterday by Mr Turnquest.

“Dynamics change,” he told Tribune Business. “This year we expected to be a little bit further ahead, but the reality is we were not able to do that, and we had to push back a bit. There’s a little bit of softening, but we’re going to be working very hard to bring those numbers in.

“There are still a few ticking time bombs out there from the sins of the past. Until they can be resolved one way or the other we’re nowhere near out of the woods, but are on the right path assuming we can manage those little bombs so they don’t throw us out of whack.”

Those “ticking time bombs” include the Government’s failure to fulfill its commitment to inject $39m into the now-closed BTC defined benefit pension plan to fill its deficit - something it agreed to in 2011 when Cable & Wireless Communications (CWC) bought a controlling interest, and is still not settled some two administrations and eight years later.

Comparing the Government’s Budget projections to the prior year shows it feels fiscal consolidation will be achieved more gradually. The Minnis administration had last year forecast it would eliminate the deficit and run a $10m surplus by 2020-2021, but the revised estimates project modest deficits of $73m and $19m for that year and 2021-2022 respectively.

An $85m deficit, rather than yesterday’s $137m, had also been projected for the upcoming 2019-2020 fiscal year. The projections indicate the Government is making slower progress than desired on eliminating the deficit, but it is nevertheless heading in the right direction, although it is also conceding that revenue yields will not reach the previously forecast 20.1 percent of GDP.

Mr Turnquest yesterday revealed that the Government cannot introduce any new or increased taxes until it maximises existing revenue sources, although he walked back a projection that planned enforcement measures alone can yield an extra $100m annually.

“The truth of the matter is we are at the point where we need to maximise and plug the holes for all taxes before we contemplate any additional taxes,” he told Tribune Business.

“If all goes well we can recognise $100m from getting real property tax fully compliant and correct, and the revenue from yacht charters and cruising permits, and compliance issues with VAT and Business Licences. I wouldn’t say $100m, but we can make some significant progress.”

Considerable scepticism surrounds the Government’s 2019-2020 revenue projection, which at $2.628bn - a $215m increase upon the prior year - takes the Public Treasury’s income back close to the level originally forecast for the current fiscal year. That is now projected to come in at $2.413bn, some $238m or 9 percent below target.

Mr Turnquest, though, expressed confidence that the 2019-2020 revenue target will be achieved because the factors that caused this year’s under-performance are no longer present. He added that the “VAT impact shock would have started to dissipate for consumers”, while the transition periods afforded the hotel and construction sectors ended earlier this year.

The Revenue Enhancement Unit’s (REU) creation, which was supposed to have occurred for last fiscal year, will now kick-in for 2019-2020 and potentially generate $80-$100m in revenues, while the Government has also concluded settlements with web shop operators.

Pointing to the anticipated increase in economic activity through FDI projects either approved or in the pipeline, Mr Turnquest said: “Between these projects, the improvement in compliance ratios hopefully, as well as collecting those taxes on the books that are not being paid, we will be able to catch up to that goal.

“I think it is reasonable,” he added of the 2019-2020 revenue estimates. “There were some factors that would have stymied revenue collection last year, and those factors have gone away. The VAT impact shock would have started to dissipate also, so we should see some real rebound this year.”

Mr Turnquest added that the 2018-2019 revenue under-performance should have been no mystery to anyone, as he had revealed in February’s mid-year Budget that the Government’s income was likely to miss its target by $185m or 7 percent.

That gap has now further widened to $238m or 9 percent. Based on the Government’s nine-month fiscal “snapshot”, it has to collect some $724m worth of revenue during the fiscal year’s final quarter to hit the lowered $2.413bn goal.

Based on Mr Turnquest’s revelation that revenues for the first 10 months stood at $1.9bn, it appears the Government collected almost $211m in April given that end-March’s figure stood at just over $1.689bn. However, the Opposition has seized on the figures to argue that the Minnis administration faces a tall order to collect the $500m needed over May and June to hit the revised 2018-2019 figures.

Mr Turnquest accused the Opposition of “making hay” and failing “to understand that projections are just that; projections”. Pointing out that revenue estimates could easily be blown off course by hurricanes, international economic developments and internal factors, he said this aspect of the Budget was often subject to adjustments because it lay outside the Government’s control.

Arguing that revenue estimates are “not an exact science”, the deputy prime minister said The Bahamas was “on tap for another year of solid economic growth” and, should forecasts not materialise, the Government always retained the option to reduce its discretionary spending to match income - as it has done in 2018-2019.

Mr Turnquest said the Opposition’s focus on revenue also ignored the halving of the fiscal deficit, year-over-year, to $122m for the first 10 months of the 2018-2019 fiscal year despite the income shortfall.

“At the end of the day that’s the number that counts,” he told Tribune Business, although the full-year 2018-2019 forecast of a $229m deficit suggests the “red ink” will increase by more than $100m in the final two months of the year.