By NEIL HARTNELL
Tribune Business Editor
The Government narrowly missed its deficit target for the recently closed 2022-2023 fiscal year despite a near-$160m undershoot on its VAT forecast, it was revealed yesterday.
The Ministry of Finance, unveiling its monthly report for June 2023, which also represented the fiscal year-end, disclosed that the $533.4m full-year deficit was just 2.5 percent or $12.8m higher than the revised target of $520.6m presented with the 2023-2024 Budget at end-May.
That outcome was also some $42m, or 7.3 percent lower, than the $575.4m deficit target set in the original 2022-2023 Budget. The Government largely kept the latter figure, which represents the difference between its spending and revenue income, on target despite failing to achieve its VAT ambitions for the period.
VAT, which is the Government’s main revenue source, accounting for almost 48 percent or nearly half its recurrent income, came in a material 11.3 percent below the 2022-2023 full-year projection of $1.412bn to stand at $1.252bn.
As a result of this outcome, the Davis administration must now bridge a $339m gap between that figure and this year’s $1.591bn forecast if it is to achieve its VAT ambitions and likely wider revenue and budgetary goals. That would amount to a 27 percent year-over-year increase.
Fiscal observers yesterday suggested this was too wide a gulf to overcome, as figures for July 2023 - the first month of the current fiscal year - showed VAT revenues increasing year-over-year by just $6.8m from $140.1m the prior year to $146.9m.
Based on the $339m ‘gap’, they added that the Government needs an average increase in VAT collections of $28m per month to bridge this, and July’s jump was well short of the latter figure even though it represented June’s filings and is one of four ‘bumper’ months in which all registrants - quarterly as well as monthly filers - remit taxes collected from the end-consumer to the Public Treasury.
“They were $160m off the VAT projection,” one source said of the 2022-2023 full-year, “with the anticipation that VAT this year will go higher than last year’s projection. That’s a compounding issue. You based this year on what you thought you’d get last year, and VAT has not performed against projections.”
Simon Wilson, the Ministry of Finance’s financial secretary, yesterday suggested much of the VAT under-shoot was related to timing issues involving when real estate transactions close and the appropriate tax payment is received by the Department of Inland Revenue (DIR).
“VAT has a component linked to property transactions,” he explained. “When you look at they key components of VAT, there are imports and domestic VAT. We are pretty much on target with those. It’s the one with land transactions where there tends to be some fluctuations and so forth.
“With land transactions you can have tax avoidance, transactions structured in a way that makes it very difficult to realise revenue. The revenue is there but it requires work, which includes VAT on imports. We know it’s there but it requires work.”
Despite the VAT undershoot, the Government can take comfort from the fact it almost scored a direct hit on its total revenue target for 2022-2023. Total income came in just $1.5m below target at $2.856bn, with taxes on international trade and transactions, plus other taxes on goods and services both exceeding Budget targets to compensate for the VAT miss.
Some $675.4m in international trade and taxes were collected for the full fiscal year, beating projections of $616.3m by $59.1m or 9.6 percent, while $374.8m was generated from other taxes on goods and services. The latter beat forecast by 15.1 percent, or $49.2m.
Real property taxes narrowly missed their full-year goal of $169.4m, coming in $7.9m or 4.7 percent lower, at $161.5m as opposed to $169.4m. However, non-tax revenues beat forecast by some 19.8 percent, reaching $380.4m as opposed to the $317.4m goal.
“If you look at the last fiscal period we achieved the revenue targets because we did the work,” Mr Wilson added. The Government was also able to contain its total and recurrent (fixed cost) sending slightly below Budget estimates even though debt servicing (interest) and subsidies to loss-making state-owned enterprises (SOEs) breached 2022-2023 full-year targets.
Interest payments on the Government’s debt were 2.3 percent higher than estimated, finishing at $573.1m as opposed to $560m in an environment where rising US and global interest rates raised payments on The Bahamas’ variable US dollar-denominated debt.
Subsidies, meanwhile, overshot by 7.5 percent to finish the period at $464.7m compared to $432.4m. However, salaries and personal emoluments finished slightly below Budget estimates at $805.2m compared to the initial $827.9m allocation, while social assistance and pensions expenditure was also less than planned, finishing 2 percent under projections at $227.4m compared to $232.1m.
The Government also generated an $18.2m fiscal surplus for July, the first month of the 2023-2024 fiscal year, which was less than half the prior year’s $41.3m. Total revenues were up slightly year-over-year, standing at $264m compared to $260.3m in July 2022, although tax revenues were up at $245.8m as compared to $232.1m in the prior year.
Total spending, though, increased by 12.2 percent $245.9m as compared to $219.1m in July 2022, representing a $26.8m rise. Recurrent spending, which covers the Government’s fixed costs such as salaries and rents, rose by $17.4m from $216.3m in the prior year to $233.7m.
Mr Wilson, though, told Tribune Business that the spending increases were in line with Budget forecasts. “July was in line with expectations,” he said. “Given the cyclical nature of the way we operate our Budget we’re pretty much on track. We cannot be satisfied. We have to keep working at it. Last year was good but we have to move on. We can’t work historically. We have to keep pushing forward.”