The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition yesterday voiced fears that the potential $160m VAT under-shoot in the prior fiscal year puts the Government’s 2023-2024 revenue forecast “at risk” and leaves its $131m deficit target under “tremendous pressure”.

Kwasi Thompson, the Free National Movement (FNM) finance spokesman, told Tribune Business that the Davis administration must “adjust their spending” if it finds itself coming up short on the likely $340m year-over-year increase it will need to meet its 2023-2024 VAT target.

And the east Grand Bahama MP said it was “stunning” that the deficit for the 11 months to end-May 2023 was similar to the prior year comparative. This was despite total revenues to-date exceeding the 2021-2022 full-year amount, leading Mr Thompson to accuse the Davis administration of “squandering the buoyant revenue from a growing economy”.

The Government’s fiscal summary for May 2023, released on Tuesday, shows that total revenues and total tax revenues stood at 91.4 percent and 90.7 percent, respectively, of their full-year targets with just one month left in the 2022-2023 fiscal year. Total revenues for the 11 months to end-May were $244.5m below their full-year goal, standing at $2.613bn compared to $2.857bn, while total tax revenues at almost $2.3bn needed to bridge a $237.3m gap during June to reach $2.537bn. 

Based on June 2022’s performance, when total revenues and total tax revenues were $221.3m and $187.8m, respectively, if that was matched this year it would leave both indicators moderately short of Budget forecasts by $23.2m and $50m. However, if June 2022’s intake of $85.2m is repeated, VAT revenues for the full-year will come in at $1.247bn - a figure $164m below the $1.411bn target.

The significance of the VAT performance is that, despite this under-shoot, the VAT revenue projection is increasing by almost $180m year-over-year compared to last year’s forecast to $1.591bn for the current 2023-2024 fiscal period. And, when compared to the likely outturn, this represents a $340m year-over-year increase, thus raising questions as to how the Government will hit this hiked target.

Zeroing in on this issue, Mr Thompson told this newspaper: “We are raising this as a concern. The May report makes it clear, I believe, that they are going to find it very difficult to meet their VAT projections. If they are not able to meet their VAT projections [for 2022-2023], that places this year’s VAT projections at risk. We again call on the Government to adjust their lavish spending, adjust their unnecessary spending, in order to compensate.

“They have spent far more than last year. We again urge the Government to take note that if they have to adjust the VAT numbers they will also have to adjust spending.” However, Michael Halkitis, minister of economic affairs, previously pointed out that when inflation is factored in the projected $11.8m year-over-year increase in recurrent spending to just over $3bn for the 2023-2024 fiscal year actually represents a decrease.

The Government will thus argue that it is containing spending, holding it relatively constant, and will also likely assert that some of the increase since 2018-2019 is due to post-COVID inflation. However, Mr Thompson reiterated in a statement: “It is painfully clear that the VAT projections for last year will almost certainly not materialise.

“The Government has also projected a significant increase in VAT receipts for this 2023-2024 fiscal year, and the failure to meet the VAT target from the last fiscal year will likely put the current year’s revenue targets at risk. This will place tremendous pressure on the Government’s ambitious deficit target of some $131m for the current fiscal year. 

“We again call on the Government to immediately begin to revise its current spending plan and to cut down on unnecessary and wasteful spending so as to ensure the country stays on its documented medium-term plan for fiscal consolidation.”

Simon Wilson, the Ministry of Finance’s financial secretary, previously told Tribune Business that the Government was on track to “come in very close” to both its revenue and revised $520.6m full-year deficit target for the now-closed 2022-2023 fiscal year.

However, administrations typically incur substantial deficits in June, as ministries, agencies and departments rush to present bills for payment that the Ministry of Finance never knew existed before the fiscal year closes at that month’s end. The Government incurred a $318.7m deficit for June 2022, and a repeat performance this year would take the 12-month deficit for 2022-2023 to $640m - above both the revised $520.6m target and the initial $575.4m.

“The Opposition restates its grave concerns on the trajectory of the fiscal position as the final numbers for 2022-2023 become clear,” Mr Thompson added. “The May 2023 year-to-date deficit of $321.4m is not far off from the over $300m deficit recorded for the previous corresponding period, although revenues for the same period are up over $225m.

“If the Budget deficit for the month of June 2023 ends up close to that of June 2022, then the Government is likely to miss both its budgeted and revised fiscal deficit target despite having record revenues. It is stunning that with higher revenues the Government is still poised to run a deficit of well in excess of half a billion dollars. From a fiscal standpoint, the Davis administration is squandering the buoyant revenue position from a growing economy.”

Mr Thompson, former minister of state for finance in the Minnis administration, subsequently affirmed to Tribune Business: “The last two months, May and June, are critical months, and if we go based on what took place last year the Government is at a very critical stage as to whether it will meet last year’s [2022-2023] deficit target and, if it does not, whether it will have to make changes to this year’s projections as well. The Government should definitely be making adjustments to spending.”

Mr Wilson said the Davis administration remains “well-positioned” to hit the revised 2022-2023 full-year deficit target of $520.6m, which was almost $200m away with one month left in the period. “We are still doing the final bits of clean up, but I think we’re well positioned,” he added, while acknowledging the toll June can inflict.

“We can’t rest on our laurels. June is its own beast. You can fool yourself and say you will be OK, but it takes only one thing in June to blow everything up,” the financial secretary said.