By NEIL HARTNELL
Tribune Business Editor
The Government was yesterday urged not to become “giddy” over beating its 2014-2015 fiscal deficit projections by almost 31 per cent, as the Prime Minister moved to return “the dividends from the successful Value-Added Tax (VAT) regime” to hard-pressed Bahamians.
Perry Christie, in unveiling the 2015-2016 Budget, said the Government’s projected GFS fiscal deficit for the current period was now projected to come in at $198 million, down $88 million from the initial $286 million forecast.
Touting VAT’s successful implementation, and the $110 million in revenues raised from its three months, Mr Christie said the GFS deficit (which strips out debt principal redemptions) was now set to close the year equivalent to 2.3 per cent of GDP, as opposed to the forecast 3.2 per cent.
And, taking a not-so-subtle swipe at the Opposition, Mr Christie said: “[Taking out] the proceeds from the sale of BTC shares that were attributed to capital revenue in 2010-2011, this year’s deficit will come in at its lowest level since 2007-2008, fully seven years ago.
“This is also a sharp improvement from the fiscal structure that we inherited in 2012-2013, when the deficit exceeded 6 per cent of GDP.”
Outspoken businessman Dionisio D’Aguilar, who had previously urged the Government to provide evidence it was exercising fiscal discipline, yesterday praised it for beating its deficit forecast.
The projected outcome means that the Government has cut the GFS deficit by 59.6 per cent from the $488 million worth of ‘red ink’ incurred in 2013-2014, and Mr D’Aguilar said the $290 million year-over-year decline suggested it had slashed this by “$100 million more than what they collected from VAT”.
He quickly warned the Government, though, not to embark on a “spending spree” with its new revenues, and called for it to maintain its fiscal discipline.
“What I’ve found with these Budgets always is that the devil is in the detail,” Mr D’Aguilar told Tribune Business. “I’m glad there’s an improvement in the deficit, but may I remind them it’s still a deficit.
“I’m always worried this makes them giddy and they will go on a spending spree, especially as the next Budget will be the last before an election.”
He reiterated that “one can’t giddy until you see the numbers”, but it appeared “at first glance” that the Government was starting to deliver on some of its fiscal turnaround strategy.
“But don’t give the bank away,” Mr D’Aguilar told Tribune Business. “The debt is very high, and this is just the start. Politicians start to give things away, and once they do, it’s hard to get it back, so they have to continue with fiscal prudence.
“Halkitis and crew have to be commended for holding the line, and they must continue to do so as there are plenty of greedy politicians out there.”
The Prime Minister added that the Government expected to hit its $1.1771 billion revenue target for 2014-2015, with VAT on target to meet “at least” the $150 million projection for the fiscal year’s second half.
Recurrent spending on the Government’s fixed costs, such as wages and rents, is forecast to slightly exceed projections at $1.844 billion as opposed to $1.823 billion. However, this will be more than offset by an 11.8 per cent fall in projected capital spending from $331 million to $292 million.
As a result, Mr Christie said total government spending for 2014-2015 would be down slightly from forecast, standing at $2.136 billion compared to $2.154 billion.
A closer inspection of the numbers, though, shows that the Government’s recurrent deficit for 2014-2015 is likely to be slightly higher than projected at $74 million, compared to $53 million.
The reduced GFS deficit has been achieved largely by a 68.4 per cent, or $68 million, increase in debt principal redemptions above projections to $165 million.
The other factor driving the GFS deficit fall was lower-than-expected capital spending but, without the increased principal redemptions, it would likely have been relatively flat against expectations.
This is shown by the fact that the total deficit (GFS plus debt principal repayments) is likely to come in at $363 million, compared to the initial $384 million projection.
The Government gave no explanation for the increased principal repayments, and whether they were early repayments and where the monies to fund them came from.
Mr Christie would only say: “We now estimate that total Government debt at the end of 2014-2015 will amount to $5.356 billion, down $88 million from last year’s Budget forecast of $5.444 billion.”
Still, the Prime Minister emphasised the Government’s faith in VAT as a revenue raising mechanism, with the Government projecting a $277 million or 15.6 per cent year-over-year increase in revenues for the 2015-2016 fiscal year.
“That is some $100 million higher than we were projecting at this time last year,” Mr Christie said.
“The revenue yield in the coming fiscal year will thus amount to 22.2 per cent of GDP, in line with the objectives of our reform plan and up significantly from the unacceptable and inadequately low level of 16.4 per cent achieved in 2009-2010.
“Going forward beyond 2015-2016, a revenue yield of 22.2 per cent of GDP will make a valuable contribution to the achievement of the key fiscal objectives in our medium-term fiscal plan.”
The bulk of the revenue growth will be driven by VAT’s first full year, with the Government now projecting the new tax will raise $344 million as opposed to $300 million. It also expects to earn an extra $30 million from the gaming industry, due to the web shop legalisation.
Armed with its increased revenues, the Government is projecting that the GFS deficit for the upcoming fiscal year will again fall to $141 million or just 1.5 per cent of GDP.
Mr Christie admitted that it would be another year before the Government’s recurrent account balance moves into surplus, due to some $154 million of previous capital spending being reallocated to the recurrent budget.
This seems to include the subsidies handed to the likes of Bahamasair and the Water & Sewerage, which no longer appear to be broken out in the Budget documents, raising questions over the Government’s commitment to transparency.
Also buried in the documents is the fact that the Bahamas will be spending some $418.5 million on servicing its $6 billion-plus debt in 2015-2016, making this again comfortably the largest allocation in the Budget.
Some $266.361 million will go on servicing (interest costs, and $152.184 million has been allocated to principal repayments.
The Government, for its part, can point to the fact that it has reduced its borrowing for the 2015-2016 fiscal year to $182.39 million, and almost-47 per cent reduction on the previous year’s $343.189 million. And that sum is less than one-third of the $582 million borrowed in 2013-2014.
The Prime Minister yesterday pledged that the GFS deficit would be “completely eliminated”by 2017-2018, with a small surplus recorded, He added that the Government’s debt-to-GDP ratio would peak this year at 61.1 per cent, before falling to 56.8 per cent by 2017-2018.
Mr Christie said recurrent spending, excluding the $154 million reallocation, would be maintained at 21 per cent of GDP.
“In keeping with our medium-term fiscal consolidation plan, we are still targeting a reduction in recurrent expenditure of 0.5 per cent of GDP in each of the two outer years of this year’s projection,” he added.
“The ratio will thus be reduced to 22 per cent, of GDP in 2017-2018, from 22.8 per cent of GDP in 2015-2016.”