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$141m Deficit Increase ‘A Tremendous Warning’

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Matt Aubry, executive director of the Organization for Responsible Governance. Photo: Shawn Hanna/Tribune Staff

• Governance chief says ‘no silver bullet’

• Urges ‘unwavering’ structural reform resolve

• ‘Shore up’ gaps to maximise COVID rebound

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The $141m increase in the Government’s forecast 2021-2022 fiscal deficit “is a tremendous warning” that The Bahamas’ must urgently address long-standing structural woes to maximise COVID recovery.

Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, yesterday told Tribune Business that this nation must be “unwavering in shoring up” workforce skills gaps and other deficiencies that have restricted GDP output for decades.

He added that the Government’s mid-year Budget, unveiled in the House of Assembly yesterday, had reinforced the reform drive given that it indicated COVID-19’s economic and fiscal devastation is much deeper - and will last longer - than originally anticipated.

For the Ministry of Finance is now forecasting that the fiscal deficit for the 2021-2022 budget year, which begins in just over four months on July 1, will increase from the $813.4m projected last May to some $954.6m - a 17.4 percent rise.

Marlon Johnson, the Ministry of Finance’s acting financial secretary, told this newspaper that the $141.2m increase in the upcoming fiscal year’s projected deficit was directly tied to “the rebound from COVID-19 taking longer than anticipated”.

Tourism, which drives more than 50 percent of economic output and 60 percent of Bahamian employment, is predicted to recover only gradually during 2021 as the vaccine roll-out in key visitor source markets helps to rebuild traveller confidence. While the sector’s rebound has been weaker, and slower, than expected, Mr Johnson said the revised deficit was consistent with the Fiscal Strategy Report.

Mr Aubry, though, said yesterday’s fiscal data - which shows the Government could take on over $3bn in gross new debt over a three-year period - further highlights that there is “no silver bullet” for curing the economic and fiscal ills created by COVID-19.

With vaccine distribution proving a challenge in many of The Bahamas’ key source markets, Mr Aubry said that “recognising it’s going to be an even more difficult time” rebounding from the pandemic than first thought” sounds reasonable.

With the Government’s fiscal forecasts matching prior recovery predictions given by the Central Bank and International Monetary Fund (IMNF), he told Tribune Business: “I would love that there is a silver bullet, but I don’t think there is one.”

The ORG chief, though, argued that the Government needed to maximise income from its existing revenue source prior to entertaining new and/or increased taxes to fill the fiscal holes and $10bn-plus national debt blow-out created by COVID-19.

“It’s spending the money in the most efficient way, and cleaning up areas where revenues have not been maximised; those outstanding payments and taxes on the books,” Mr Aubry said, referring to the $600m in unpaid real property tax recently referenced by the Auditor General.

“There needs to be much more effort to draw those in. This discussion on other types of revenue needs to be had, but we need assurances that what is being done with monies owed is a priority.”

Improving the ease of doing business, increased economic diversification, enhancing the workforce’s depth and closing skills gaps, and facilitating the growth and development of Bahamian businesses were all key to “helping us be better prepared for when things start up”.

“The ‘wait and see’ model is a tough one, and we’re challenged by that because we don’t have full control of our destiny. But keeping ourselves sharp and doing what we can to address long-standing skills gaps can be very beneficial,” Mr Aubry said.

“What are we doing now to prepare them to be a viable workforce? We know 2021 and 2022 will be the start of the uptick in tourism and other spaces. These are all to make sure we come out of this as prepared as possible. Many businesses and families are struggling to get by, but if we’re going to shore up these long-standing issues this is the time to do it.”

Suggesting that the Government’s increased short-term deficit forecast represented another alert for The Bahamas and its economy, Mr Aubry told Tribune Business: “This is the time to act. This is the time to move forward, and not to waver in that direction. This confirms that change really needs to happen for sustainability.

“That the Budget has been revised creates a warning that things are going to be harder than anticipated. It’s a tremendous warning that we need to be unwavering in addressing these long-standing issues. We must make sure everything is flush so that we don’t see wastage or a missed opportunity.”

The Prime Minister, in unveiling the mid-year Budget, said the Government will cut spending to match missed revenue projections with its overriding objective being to hit the record $1.327bn deficit target set for the 2020-2021 fiscal year.

“While we are indeed facing unprecedented times and incredible challenges, we are remaining true to our pledge of fiscal probity,” Dr Minnis told the House of Assembly yesterday.

“While times are indeed tough, we have sought to manage the country’s finances in a responsible manner to ensure that where there are revenue shortfalls we have made - and will continue to make -reductions in expenditures. The goal is to ensure we maintain the originally budgeted deficit position of $1.3bn throughout the fiscal year.”

With revenue now forecast to be $104.3m off the original 2020-2021 Budget forecast, at $1.656bn, the Government has trimmed its recurrent or fixed cost spending by $18.3m to $2.556bn according to the projections unveiled yesterday. Capital spending has suffered a deeper $86m cut to compensate for the remaining revenue under-performance, having been slashed to $429.5m.

The $736.1m fiscal deficit for the six months to end-December represented 55.5 percent of the full-year estimate, although the size of the ‘red ink’ was worsened by the lockdowns and other restrictive measures implemented early in the 2020-2021 fiscal year to curb COVID-19’s so-called “second wave”.

Total revenues, though, contracted by $415.3m from the prior fiscal half-year’s $1.089bn, falling to $673.4m as the lack of economic and tourism activity continued to bite. The latter figure amounted to 38.1 percent of the full-year forecast, although the three months to end-March are traditionally the richest for the Government due to tourism’s winter peak, Business Licence fee payments, real property tax and commercial vehicle licensing month.

Rick Lowe, an executive with the Nassau Institute think-tank, yesterday said the Government’s bare fiscal cupboard is “creating a real dilemma”. He told Tribune Business: “We should all be concerned because taxes are going to have to go up to pay for it one way or another.

“Sooner or later the taxes are going to have to rise, and that’s the unfortunate part. How much can we bear? The Government is in a catch-22. They have no revenue and are still paying all those employees. They haven’t cut back like certain people in the private sector. With few tourists coming in the economy has ground to a halt.

“It’s amazing how fast it adds up. Without an economic turnaround it’s certainly doom and gloom. It’s not a spot we should be happy to see, but what do we expect? We can’t anticipate anything other than what’s going on.”

Comments

Dawes 1 month, 2 weeks ago

The government have been warned that we would collapse for over 20 years and the only thing they have done is VAT and then an increase in spending. And yet many people still fawn over them as though they are amazing. They are not they are failures and hopefully one day their complete incompetence's will be shown for all to see. The problem is how far we have to go down before that can happen. Fully expect no change in the type of person running this country after the next election so we have at least 5 more years of this ( the type will be either FNM or PLP and both have showed how useless they are to everyone in The Bahamas except themselves).

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tribanon 1 month, 2 weeks ago

Rick Lowe told Tribune Business: “We should all be concerned because taxes are going to have to go up to pay for it one way or another."

Obviously Rick Lowe is unware that the tax base of our country has for the most been destroyed. And good luck trying to tax the wealthy political elite and their cronies who were instrumental in its destruction. As for heavily taxing our wealthy foreign residents, well we all know they would simply pack up and leave our country in a flash.

Rick Lowe also told Tribune business: "We can’t anticipate anything other than what’s going on.”

He's right about that in as much as the expectation of good governance along with sound economic and social policies could never have been in the cards for us under a Minnis-led administration. Minnis's abysmal performance as PM is going to have horrific reverberating repercussions on not only ourselves, but also generations of Bahamians to come after us.

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KapunkleUp 1 month, 2 weeks ago

Remember the Golden Rule... those who have the gold make the rules. It's obvious that the lower and middle classes are going to end up paying through the nose for this mess. The upper elite members will pay token tribute to look good.

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John 1 month, 2 weeks ago

And you cannot ignore the fact that government income is exceeding it’s projected income. An indication that the economy, including tourism is hungry to return.

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tribanon 1 month, 2 weeks ago

The ever increasing level and interest cost of the foreign currency denominated portion of our national debt is a much better indicator of how fast HMS Bahamas is sinking. This is the type of financial information that cannot be manipulated by the devious and very non-transparent Minnis-led administration.

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DWW 1 month, 2 weeks ago

Like the PLP Tribonon says, fire all them civil servants that we don't need. cut ministry and department completments to 50% staffing and problem solved... right?

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Proguing 1 month, 2 weeks ago

The Bahamas has over a third of its work force employed in the public sector vs 12.9% in Germany and 13.3% in the USA.

Think about that for a minute....

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sheeprunner12 1 month, 1 week ago

Do the math ....... 30,000 civil servants out of 200,000 work force.

Not 33%

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KapunkleUp 1 month, 2 weeks ago

That's a good start. Then continue with rounding up all lawyers and sticking them onto an island where they can argue and bill themselves to death.

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tribanon 1 month, 1 week ago

I'm no more PLP than the moon is made of cheese. And I'm no more FNM than a cold winter's day in hell. LOL

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sheeprunner12 1 month, 1 week ago

The Bahamian tax system NEEDS a complete overhaul .......... This is the ideal time to do it as we try to rebound from Covid & Dorian. Whether the FNM Government will do so, depends on the political climate leading up to the 2022 Election ........ and beyond.

CONSIDER THIS:

What present taxes should we keep? ... fuel, vehicle, stamp, departure, excise, customs, real property, NIB/Health, business, VAT12 etc What present taxes should we get rid of totally? What present taxes should we increase rates? What present taxes should we decrease rates? What NEW taxes should we consider in order to ENHANCE social equity? How can the post-2021 tax regime be BETTER collected by Govt or private sector? How can ALL Bahamians be encouraged to pay their taxes more efficiently/timely? How can the Govt reduce the amount of non-receivables from its taxation system? How can the Govt ensure that Bahamians are compliant with taxes before benefiting from any Govt incentives? How can younger Bahamians (U50) be educated to engage in greater awareness of the importance of paying taxes (compared to their forebears)?

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tribanon 1 month, 1 week ago

Forget tax reform. It would be ineffective and meaningless without first reforming our entire civil service system. Without comprehensive civil service reform more taxes would only translate to even more waste, fraud and corruption at all levels of government with lower income taxpayers being even bigger losers than they already are.

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