The Tribune

• Gov't 'very confident': Income 7% above forecast

• Opposition: Projections 'hugely, hugely optimistic'

• No new/increased taxes, but plenty subtle tweaks

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance's top official yesterday asserted he is "very confident" the Government will increase revenues by $400m year-over-year, and slash its fiscal deficit by 75 percent, in the absence of new and/or increased taxes.

Simon Wilson, the financial secretary, told Tribune Business his optimism surrounding the 2023-2024 fiscal projections comes from current trends with revenues presently surpassing projections and prior year performance by 7 percent and 10 percent, respectively. And, while no headline-grabbing tax measures were announced, legislative changes accompanying the Budget revealed fee adjustments and other tweaks (see articles on Page 1B).

The Davis administration, unveiling its 2023-2024 Budget in the House of Assembly, largely stayed true to previous forecasts by projecting that it will cut the GFS deficit by some $389.5m compared to the outturn for the current fiscal year which still has a full month to run.

The numbers show this will be achieved by holding the Government's recurrent (fixed cost) and capital spending in line with 2022-2023 levels, with a $400m year-over-year revenue increase to $3.316bn driving the deficit - which measures by how much its spending exceeds income - down to $131.1m for the upcoming fiscal year.

The latter figure, which strips out debt principal redemption to capture the Government's net new debt or borrowing, is less than $6m more than the $125.3m deficit projected for 2023-2024 in last year's Budget. The Davis administration is basing its revenue, and entire fiscal performance, on economic growth and tax compliance/enforcement measures driving increased income in the absence of new and/or increased levies.

"I think we're very confident," Mr Wilson told this newspaper of the Government's revenue and deficit forecasts. "We think they're achievable. That's why we put it there. We look at this year's trends, and we are trending 7 percent above projections and 10 percent above the previous year. We know there are some areas where we fall short. We have to work hard, stick to the plan, and should be OK."

The Budget's 2023-2024 fiscal projections, which forecast revenues will jump from $2.909bn in 2022-2023 to $3.316bn next year, are also broadly in line with the current Fiscal Strategy Report. Comparing the two indicates that the Government is more than $70m ahead of the Fiscal Strategy Report's projections when it comes to revenues, as it had forecast total income of $3.243m for 2023-2024.

However, the Davis administration has backed away from forecasts that it will achieve a fiscal surplus exceeding a quarter of a billion dollars in the 2024-2025 fiscal year. While still predicting it will reach the rarity of a surplus, meaning the Government's revenues exceed its spending, it has cut the size of this surplus to $109.2m. This represents a 61 percent cut to the $278.8m forecast in last year's Budget, and a 62 percent fall against the Fiscal Strategy Report's $287.3m.

Kwasi Thompson, the Opposition's finance spokesman, yesterday told Tribune Business he viewed the Government's fiscal projections as "hugely, hugely optimistic" given that the Bahamian economy's growth rate will likely slow after regaining the output that was lost due to COVID-19

"I think those projections are hugely, hugely optimistic. I think the rate of growth this year, I don't believe it's going to be the same next year. I think those revenue projections are hugely optimistic as a result," he argued. "The latest Central Bank report said that while tourism continues to grow, the rate of growth is decreasing, and that is a very, very significant point we need to take into account with regard to our projections. I think they're hugely optimistic."

Hubert Edwards, the Organisation for Responsible Governance's (ORG) economic development committee head, yesterday said it was possible the Government could hit its $400m revenue increase target. "Given the outlay they have just announced I don't want to go out on a limb and say it's not realistic," he added.

"I think there are some elements they have in mind, not increasing taxes but incorporating areas that, up to now, have not been taxed or have only attracted fees. Clearly, the universe of sources has expanded. Obviously the numbers are better than what was originally projected, and if they hold true they would have set the trend for a significant rebalancing and move into securing a surplus.

"One caveat to that is if this increase is from recurring revenue or supported by the collection of outstanding tax arrears. If it's from recurring revenues it means it's sustainable, but if not there's a question of how it will materialise the following year."

Prime Minister Philip Davis KC, in unveiling the 2023-2024 Budget, asserted that the Government will achieve its revenue ambitions without resorting to new and/or increased taxes. "A key focus will be to generate more revenue for the public purse without raising taxes. This means no increase in the VAT rate, and no increase in Customs duties, Excise duty, tax rates and real property tax rates," he said.

"We will instead increase revenue collection by improving tax compliance and enforcement. This is based on the simple principle of fairness. Most people pay their taxes. Why should some people be allowed not to? If people are experiencing hardship, or if there are other extenuating circumstances, we invite people to come and talk with us. We can usually come to some form of agreement.

"It is noteworthy that, when pressed to do so, a significant number of people readily pay off their arrears. This suggests that they weren’t unable to pay their taxes; they simply didn’t do so."

The two major drivers of the Government's revenue increase are VAT and taxes on international trade and transactions, which combined are forecast to generate an extra $270m-plus in the upcoming 2023-2024 fiscal year. VAT collections are forecast to rise by almost $180m, growing by 12.7 percent from $1.412bn to $1.591bn, while international trade and transactions taxes are forecast to grow by $92m to $708.546m.

Meanwhile, Mr Wilson said he was "pretty confident" the Government slash the 2022-2023 fiscal deficit by $54.8m, or near-10 percent, compared to the last projection of $575.4m. "Unless something drastic happens to the revenue we should finish this year at over $100m above target," he told Tribune Business.

"March was a very strong month. We have to wait and see on April's numbers. June last year wasn't as strong as we wanted it to be, so we have to keep our fingers crossed for June." However, Mr Wilson added that there had been no sign of any easing in revenue trends heading into the last month of the fiscal year, which closes on June 30, 2023.

The Government's Budget numbers predict that 2022-2023 revenues will come in some $107.8m above forecast, finishing the year at $2.909bn as opposed to $2.801bn, and thus setting it up to further cut the deficit next fiscal year on the path to achieving a fiscal surplus in 2024-2025.

Mr Davis yesterday confirmed that his administration is expecting to run a $300m-plus deficit in the final quarter of the 2022-2023 fiscal year, as the amount of 'red ink' after the first nine months stood at $216.2m. Successive administrations typically incur large deficits in June, especially, as this is when multiple agencies, ministries and departments present bills for payment prior to the fiscal year end that the Ministry of Finance was unaware of.

Turning to the full-year outlook, the Prime Minister added: "Analysis of the trends of the first three quarters of this fiscal year, and the years prior, suggest that the Government is potentially set to exceed the $2.85bn target set forth in the February 2023 mid-year supplementary Budget. I am confident the revenue outturn at the end of the fiscal year 2022-2023 will near $2.9bn.

"Public spending has remained on track, and is well within the budgeted amount. For this reason I am confident that expenditure at end of the fiscal year 2022-2023 will almost reach the target of $3.1bn set in the supplementary Budget. The primary balance will therefore record a surplus of $68.4m at the end of the fiscal year, a $54.8m increase from the $13.6m surplus projected in the supplementary Budget.

"Likewise, the overall deficit is expected to improve to $520.6m, down from the $575.4m outlined in the supplementary Budget."