Gov’t promises to ‘end fiscal insanity’


Tribune Business Editor


The Davis administration last night admitted that the decades-old “structural imbalance” in the Government’s finances is a recipe for “economic calamity”, and pledged: “This fiscal insanity must end.”

The Ministry of Finance, seeking to justify increasing government revenues to a sum equal to 25 percent of Bahamian economic output, warned that “dire and painful consequences” will follow if public spending continues to exceed tax income by hundreds of millions of dollars on an annual basis.

With the $12bn national debt still matching, or close to, the economy’s overall size, the Government said relying solely on new and/or increased taxes to eliminate the fiscal deficit - which was equivalent to 7.4 percent of gross domestic product (GDP) in 2021-2022 - would require “a roughly 37 percent increase in the tax take” from households and businesses.

Acknowledging that an increase of this magnitude would likely plunge the Bahamian economy into recession, and be counter-productive to the job creating expansion it is seeking, the Davis administration confirmed its medium-term fiscal strategy will combine spending restraint - bringing fixed-cost public spending down to 20 percent of GDP - with tax enforcement and enhancement measures.

Conceding the existence of an annual “gap” between taxes that are collected and what should be paid, the Government reiterated that a combined $840m is owed to the Public Treasury in unpaid VAT, Business Licence fees and real property taxes. However, the Fiscal Strategy Report unveiled earlier this year revealed that revenues must increase by $1.3bn over the next four fiscal years - a jump of 55.7 percent - to achieve 2024-2025’s Budget surplus of $71.9m.

Referring to its election campaign promises to deliver “big and transformative change”, the Ministry of Finance paper said: “If the Government is to be successful in achieving this new direction and securing better economic outcomes for all Bahamians, specifically in terms of jobs and standard of living, it is undeniable that it must as a priority restore the fiscal health of the nation.

“Running never-ending deficits, one piling up on top of another, to the point that the amount of debt owed by the Government exceeds the size of the domestic economy is a prescription for fiscal and economic calamity. This fiscal insanity must end, and the Government that was elected last September is doggedly determined to do just that as a vital foundation for its transformative Blueprint for Change.”

The Bahamas has never run an annual fiscal surplus since Independence, and the Davis administration’s paper made clear its view that responsibility for this lies largely on the revenue side. To make its case, it noted how revenues equivalent to 20.2 percent of GDP in the 2021-2022 fiscal year were dwarfed by spending that was equal to 27.6 percent of economic output.

“The fundamental fiscal problem in The Bahamas is that government revenue, at 20.2 per cent of GDP in 2021-2022, comes nowhere close to being adequate to sensibly finance Government spending,” it added. “At an aggregate level, then, we face a structural imbalance between spending and revenue amounting to some 7.4 percentage points of GDP. Such a gap is clearly untenable and, if allowed to persist, could well lead to dire and painful consequences.”

Likely seeking to head-off counter arguments that wasteful spending, inefficiency and corruption under multiple administrations are equally, if not more, to blame for The Bahamas’ fiscal woe, the Ministry of Finance quickly added: “That is not to say that public expenditure is immune from review and assessment.

“Indeed, as explained in the Fiscal Strategy Report, the Government is determined to implement targeted reforms to enhance the effectiveness and efficiency of public spending.” However, it made clear that increasing annual revenues is the main focus and priority in the Davis administration’s bid to eliminate the fiscal deficit by the 2024-2025 fiscal year.

“How best to address this fiscal conundrum?” the paper asked. “One option would be to simply raise the amount of revenue collected from Bahamians to the full extent needed to finance the current level of government spending. That would entail a roughly 37 per cent increase in the tax take which, in and of itself, would evidently be highly counter-productive to the Government’s critical objective of significantly bolstering the rate of economic growth and job creation.

“An alternative solution would be to simply shred government spending to the point that it matches the current level of revenue. It is evident that such an approach would readily have severe and deleterious effects on Bahamian society, in terms of access to vital government programmes and services such as health care and education, to name only two..... Quite obviously, simple solutions are to be eschewed.”

It is unclear why the Government has focused on the 2021-2022 fiscal year to bolster its case given that this was still a period when The Bahamas was grappling with the COVID-19 pandemic. Lockdowns and other restrictions still curtailed economic activity and government revenue, while social assistance spending was still elevated, meaning that the 7.4 percentage point gap between expenditure and revenue was higher than normal.

Using current and real GDP figures from the Government’s Budget for 2022-2023, that 7.4 percentage gap translates into $981.53m and $824.36m respectively. The deficit for the current fiscal year is projected to be $564m or equal to 4.3 percent of GDP, a somewhat lower amount, but there can be no denying the existence of a structural fiscal imbalance.

The Ministry of Finance, meanwhile, argued that the Government’s current and projected spending levels “are nowhere near to being excessive internationally”, pointing to GDP ratios that are in the low to mid-30 percent ranges in Trinidad & Tobago, Belize, Jamaica and St Kitts and Nevis; 27 percent in Barbados; 25 percent in St Lucia; and 22 percent in Grenada.

Adding in capital spending equal to 3.5 percent of GDP would take the Government’s total spending over the medium to a sum equivalent to 23.5 percent of GDP, the Ministry of Finance added. “The sensible way forward is through a combination of spending restraint and revenue enhancement, and this is the cornerstone of the Government’s medium-term fiscal strategy,” it said.

“On one hand, the plan is not to cut the level of recurrent spending but, rather, to constrain its rate of growth such that its ratio to GDP declines over time to a more sustainable level of 20 per cent. Reforms and enhanced efficiencies in government operations will contribute to this goal.

“Reallocations will also be implemented to align spending to core government priorities as set out in the Blueprint for Change. These focused actions on recurrent spending will also facilitate a much-needed, sustained boost in capital expenditure to 3.5 per cent of GDP. The latter will be critical in underpinning the stronger long-term growth of our economy.”

Describing the 25 percent revenue-to-GDP target as “the appropriate counter-balance” to this level of spending, the Ministry of Finance said achieving it would also restore the fiscal headroom necessary to cope with post-hurricane rebuilding and other climate change-influenced disasters.

“At 25 per cent, the yield of the revenue system will be sufficient to fully finance both recurrent and capital expenditure while also leading to the gradual elimination of the annual deficit. Fiscal headroom will also be provided through which the Government can deal with unforeseen eventualities,” it added.

“While vital within the context of the Government’s fiscal strategy, a revenue-to-GDP revenue ratio of 25 per cent is not unreasonable in and of itself or when viewed internationally. Within the advanced G-7 nations, the revenue ratio amounts to some 36 per cent; in the Euro area it averages roughly 46 per cent. Latin American and Caribbean countries post an average ratio of 27 per cent with regional rates of 30-31 per cent in Jamaica, Barbados and Belize.”


tribanon 1 year, 3 months ago

“An alternative solution would be to simply shred government spending to the point that it matches the current level of revenue. It is evident that such an approach would readily have severe and deleterious effects on Bahamian society, in terms of access to vital government programmes and services such as health care and education, to name only two..... Quite obviously, simple solutions are to be eschewed.”

Dumb-arse Davis doesn't have a clue how to go about growing the private sector tax base and creating prosperity for the Bahamian people because he firmly believes in his small, twisted and feeble mind that government is the answer to everything, especially job growth.

His alternative solution above is now his government's only solution. The private sector tax base continues to shrink, and water cannot be had from a stone. Most Bahamians today simply don't have the ability to pay any more taxes. Frankly they must now try evade paying taxes so they can at least buy a little food for themselves and their loved ones.

Meanwhile dumb-arse Davis continues to grow the size of government every which way he possibly can while refusing to cut his own frothy travel budget, not to mention Fwreddy Boy's exorbitant globe-trotting costs. The proverbial shiit has already hit the fan and blown back all over the dumb-arse Davis's face. He just doesn't realize it yet.

And just wait until his spendthrift 'full of hot air' government goes to market to try 'roll' that huge block of foreign currency denominated government bonds due to mature real soon. At that point dumb-arse Davis will be running around like a crazy squawking chicken that has just had its head chopped-off.


tribanon 1 year, 3 months ago

Absolutely right. It doesn't matter who from the FNM or PLP is PM. Both of these parties have for decades now represented the corrupt interests of the wealthy political estatblisment and not the interests of the Bahamian people.

And it is very much in the interest of the corrupt political establishment to provide us with a corrupt, incompetent, and dumb-arse PM. Doing so furthers their collective corrupt interests at the expense of the vast majority of Bahamians who the corrupt wealthy political ruling class would be quite content to see living in the poor house while they wheel and deal with foreign investors.

This is why the two-party failed system now ends up giving us every 5 years a corrupt and incompetent PM like Minnis or a Davis. That cycle needs to be broken before we find ourselves without a Bahamas worth living in in which the ruling majority are illegal Haitian aliens and their offspring.


themessenger 1 year, 3 months ago

Man, yinnas een see da solution right in plain sight, Elect Andrew Allen as Prime Minister and Minister of Finance, dat budget would balance ova night. Lol.


concerned799 1 year, 3 months ago

Selling off BPL would raise a lot of money and lower the government's expense on electricity, as a private provider could provide power much cheaper, see for example much lower power rates in the Cayman Islands with a private power provider.


Sickened 1 year, 3 months ago

Any sale wouldn't benefit the Bahamian people. Those funds would be reallocated to personal accounts long before they even hit the treasury.


tribanon 1 year, 3 months ago

It is Bank of The Bahamas that should have been sold by government a long time ago. Minnis and his crew, and now Davis and his crew, have all been taking a seond bite out of that plump apple which was not too long ago bailed-out by Bahamian taxpayers to the tune of $500+ million.


Porcupine 1 year, 3 months ago

We seen to miss one of the most obvious recurring issues affecting our finances. Other than wholesale government mismanagement A horribly low productivity of our work force. While our government is full of morons, who simply do not understand economics, including Mr. Davis, it doesn't help that we as a country don't seem to give a shite. About anything. This is a generational issue that cannot be fixed by a government in 5 years time.


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