The Tribune

By NEILL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman yesterday slammed the Government for the latest adjustments to its financial targets, and asserted: “The law is set to create fiscal discipline, not fiscal convenience.”

Kwasi Thompson, the east Grand Bahama MP, hit out after the second Davis administration moved to revise downwards its revenue goals, as a percentage of Bahamian economic output or gross domestic product (GDP), for the upcoming 2026-2027 Budget period and subsequent fiscal years by lowering this ratio below the originally-targeted 25 percent.

The Public Finance Management (Change of Fiscal Objectives) (Amendment of First Schedule) Order 2026, tabled in the House of Assembly alongside last week’s Budget communication, sought to justify the reduced revenue-to-GDP target ratio for 2026-2027, which has been cut from 25 percent to 23.5 percent, on the basis of “significantly higher” GDP forecasts.

The Bahamas National Statistical Institute (BNSI) recently revised the advanced estimates for this nation’s 2025 GDP growth to 3.8 percent, and the expanded economic output has increased the denominator for the revenue-to-GDP ratio, making the 25 percent target harder to obtain.

However, the Order also reveals that other critical factors driving the downward revision are the Government’s desire to avoid imposing new and/or increased taxes along with “limited revenue gains” from enhanced enforcement and compliance measures. In other words, the Government was unlikely to hit the 25 percent revenue-to-GDP target, which was set by the first Davis administration in 2022 soon after taking office, without imposing greater austerity via new and/or higher taxes.

“In the absence of new tax policy measures, revenue gains from compliance improvements are expected to be limited,” the Order’s preamble states. “And whereas, in light of these developments and consistent with its commitment to fiscal consolidation and long-term sustainability, while avoiding the imposition of new taxes, the Government is revising its fiscal target for the gross revenue-to-GDP ratio.”

The Order, which changes the Public Finance Management Act 2023’s first schedule, states: “Adjust the gross revenue-to-GDP ratio from 25 percent in fiscal year 2026-2027 to a revised target of 23.5 percent. The ratio is projected to increase to 24 percent in fiscal year 2027-2028 and 24.5 percent in fiscal year 2028-2029, before returning to the medium-term target of 25 percent by fiscal year 2029-2030 and beyond.”

The newly-elected Davis administration is thus forecasting that its ultimate 25 percent objective will take longer to achieve than originally thought. And it is still projecting that revenues for the upcoming 2026-2027 fiscal year will grow by $470m, or 12 percent, year-over-year for the 2026-2027 Budget period compared to 2025-2026’s projected $3.887bn to take its total income to around $4.4bn.

However, Mr Thompson argued that the revision to the revenue-to-GDP ratio undermines, and makes a mockery of, having defined targets enshrined in fiscal responsibility law. He told Tribune Business that it takes away the very reason for having such objectives if the Government simply revises them for its own purposes with no good reason, such as the aftermath of a Hurricane Dorian-style storm, and asserted that this is not the first time the Davis administration has made such a move.

Suggesting that such practices cut down the very concept of fiscal discipline, the east Grand Bahama MP said: “ The law is not set up in a way that should allow a government to conveniently change the targets. The law is set up in a way to prevent a government conveniently changing targets. That’s why it’s called fiscal discipline.

“The law is set up in a way to create discipline. What the PLP unfortunately continue to do, they continue to change the law by changing these targets when it’s convenient for them to do so. In 2022, they went to the extent of publishing an entire report to justify and state why it was necessary for the Government to have the 25 percent revenue-to-GDP ratio in there. Were they wrong then, or are they wrong now?

“The law is set up to create fiscal discipline, not fiscal convenience,” Mr Thompson added. “I cannot reiterate it enough: It’s fiscal discipline, not fiscal convenience. Even in their 2022 report that they gave to the public, the commitment they gave spoke to revenue enhancement. If they are going to reduce their targets for revenue, why not reduce their targets for expenditure? They are being fiscally irresponsible in not doing that.

“They have to justify it. My position, and our party’s position, I believe, is the law requires you to have fiscal discipline. The targets are in place for you to work to meet them, not change them when they become inconvenient, and that’s the Government’s main challenge. They are asking the public to tighten their belts and have restraint in their spending, in their own personal lives, but they are not prepared to do the same in government. They are not prepared to lead by example when it comes to fiscal discipline.”

Mr Thompson, in an earlier statement, added: “Perhaps the most troubling aspect of this Budget is that the Government, in its amendment to the Debt [Public Finance] Management Act, has abandoned one of the central pillars of its own fiscal strategy.

“In 2022, the Ministry of Finance published an entire report entitled ‘Securing the revenue target of 25 percent of GDP’. In that report, the Government argued that achieving a revenue ratio of 25 percent of GDP was essential to place debt on a sustainable path, finance public services and create fiscal headroom for future shocks.

“Today, and again without any meaningful explanation, the Government has lowered that revenue target. A fiscal framework only has value if governments are prepared to live within it. Otherwise, targets become little more than numbers on paper that can be rewritten whenever they become inconvenient.”