The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The deputy prime minister yesterday pledged a medium-term "right sizing of the public service", amid warnings the government cannot delay forced civil service terminations for ever.

KP Turnquest, pictured, responding to charges that the budget did too little to address the government's soaring expenditure, told Tribune Business that its fiscal forecasts call "for a moderation" of recurrent spending once the $360m arrears backlog is paid off over the next three years.

He added that recurrent, or fixed-cost spending, would be further curtailed by capping it as a percentage of gross domestic product (GDP), with the Fiscal Responsibility Bill committing the government to constrain its growth in line with the long-term rise in economic output.

"The projection calls for a moderation of recurrent expenditure as the arrears are paid off," Mr Turnquest told Tribune Business, after this was projected to soar by 23.3 per cent or $489 million in the upcoming 2018-2019 fiscal year.

"We anticipate that within the fiscal strategy there will be an indicative cap on expenditure as a percentage of GDP, so as to avoid the persistent run-up and expansion of government expenditure over time."

Mr Turnquest also promised that the Government's unfunded public sector pension liabilities, which represent a "ticking timebomb" projected by the IMF to hit $3.7 billion in 2030, would be a "key element" of the fiscal plans once the present situation was addressed.

He pointed to the fact that around half the Budget 'heads', or line items, had been reduced or held 'flat' against 2017-2018 figures as evidence that the Government is taking its commitment to cut spending seriously.

"We remain serious about expenditure restraint," Mr Turnquest told Tribune Business. "A key element of our mid-term strategy will be the right-sizing of the public service. And pension reform.

"That said, we recognise that we do have to enhance the professional skill sets of the public service and we intend to recruit in very focused way those Bahamians with critically-needed professional skills."

The Government has budgeted $4 million for the recruitment of college-educated graduates to the public service in 2018-2019 as it seeks to fulfill this objective. It is one of several additional spending initiatives, totalling $19 million, that are intended to deliver on the Minnis administration's election pledges, including over $5 million for small business development and $5 million for the long-promised Over-the-Hill 'economic empowerment zone'.

Mr Turnquest last week blamed this funding, together with $172 million required to pay-off unfunded arrears, and a further $76 million needed to fully fund known spending commitments, for the jump in recurrent spending in 2018-2019. An $89 million increase in debt-servicing interest payments is also included.

But the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), in a May 31 letter to Mr Turnquest, warned that the proposed recurrent spending increase for 2018-2019 was "unsustainable".

The letter, signed by Michael Maura and Edison Sumner, the Chamber's chairman and chief executive respectively, warned that the Bahamas "cannot tax ourselves out" of the current fiscal crisis by placing the entire burden on the private sector and consumers.

"While we agree that the state of the Government's fiscal affairs needs to be remedied, we are reminded that successive administrations created this fiscal challenge and we cannot tax ourselves out of our current situation," they wrote.

"The increase in government expenditure year-on-year is unsustainable. Specifically, we note that recurrent and capital expenditure is being increased by $555 million when compared to the projected expenditure for 2017-2018. The increase in VAT and other revenue measures are projected to yield $500 million in 2018-2019.

"Hence we submit that the additional revenue will be funding the increased spending appetite of the Government of the Bahamas for the new fiscal year. The Government of the Bahamas needs to identify other opportunities for improving the economy through fiscal prudence and innovation, tax efficiency and equity, and enhanced revenue-generating measures."

Mr Maura, in a subsequent interview with Tribune Business, warned that the Government had little alternative but to initiate forced civil service lay-offs if it was to reduce the burden imposed on the rest of society by an over-bloated public sector. It has currently focused on releasing persons when their contracts expire.

"Relying on the Budget presentation, you have the expenditure climbing by approximately the same amount as these new taxes are supposed to deliver to the Government," the Chamber chairman said. "You have approximately $500 million in additional tax revenues, and $500 million in additional spending.

"While the Government had been discovering unknown arrears, and has to address those additional debts and expenditures as they come up, the business community is saying: 'We hear you, but what are you doing at the same time to reduce the size of government and make sure the Government is more efficient than it is today.

"We agree that the Government cannot kick the can down the road, leave our problems for another day, but at the same time there has to be a real appreciation in government of its size and cutting down on its costs apart from cutting down on debt."

Arguing that the public sector should not be spared the bitter fiscal medicine, Mr Maura added: "Unfortunately it may mean a methodical reduction in the size of labour. We cannot take the approach, we cannot accept that is the reality and way it's got to be. Unpleasant as it is, we have to reduce the size of the Government workforce. It has to happen."

The $172 million worth of arrears payments the Government plans to pay in 2018-2019 include $17 million in departure tax rebates owed to the cruise lines; $11.921 million and $10.265 million owed to Bahamas Power & Light (BPL) and the Bahamas Telecommunications Company (BTC) respectively; $13.589 million for the National Drug Plan; another $13.589 million in rent arrears; $10.751 million in VAT refunds; $25 million for Bank of the Bahamas-related liabilities; and $50.227 million for 'other outstanding commitments'.

When asked what happened to the $400 million borrowed to pay outstanding commitments from the 2016-2017 fiscal year, Mr Turnquest said the funds were used to cover these arrears and more that were identified over the past 12 months.

He explained that the $360 million referred to in the 2018-2019 Budget represent "additional arrears and obligations that had not been budgeted before". Affirming that the Government had sought to address them all 'one-time', the Deputy Prime Minister reiterated: "No more fudging of the Budget."