By NEIL HARTNELL
Tribune Business Editor
The Government yesterday expressed “confidence” it will hit its key fiscal targets despite blowing past its forecast 2015-2016 full-year deficit in just six months, with recurrent spending up $200 million year-over-year.
Prime Minister Perry Christie, unveiling the mid-year Budget in the House of Assembly, confirmed that the Government had exceeded its full-year projections by incurring a $157 million fiscal deficit for the six months to end-December 2015.
This means that it will have to generate a $16 million GFS ‘surplus’ (stripping out debt principal redemption) in the half-year to end-June 2016 to meet its $141 million fiscal deficit target for the full Budget period.
Mr Christie yesterday attributed the $157 million deficit to “seasonality”, pointing out that the majority of the Government’s revenues are traditionally earned during the second half of its financial year, which coincides with a peak in economic activity related to the winter tourism cycle.
Acknowledging that the half-year fiscal deficit was “slightly in excess of the full-year estimate”, the Prime Minister told the House: “I would again stress the impact on the deficit of the seasonality of our revenue flows.
“Were there no such seasonality, and had revenues come in at 50 per cent of the full-year estimate, the GFS deficit in the first half would have come in at roughly $40 million, readily on target to achieve the $141 million deficit target for the year.
“I am therefore confident that, as our revenue flows pick up in the second half as expected, we will indeed succeed in bringing in the deficit at a level close to the estimate in the Budget communication.”
Mr Christie yesterday said the $905 million in revenues generated during the 2015-2016 first half represented just 44 per cent of the full-year forecast.
He added that the Government typically earned between 39-45 per cent of its full year revenues during the first half, placing this year’s figure towards the top end of the average achieved over the last three fiscal years.
In a communication that focused heavily on the revenue side, Mr Christie said the Government’s income was up by $216.592 million, or 31.7 per cent, compared to the 2014-2015 half-year figures.
This increase was driven by Value-Added Tax’s (VAT) implementation on January 1, 2015, and its $317.033 million in revenue. VAT was not present during the 2014-2015 Budget year’s first half, making the revenue comparison somewhat misleading.
Mr Christie did not spend much time on the Government’s expenditure, noting that its recurrent (fixed cost) spending for the half-year stood at $1.085 billion or 51.7 per cent of the full-year estimate.
However, a closer inspection of the Budget documents provided by the Government reveals that recurrent spending for the 2015-2016 half-year increased by $200 million or 22.6 per cent.
The sharp growth, from $885 million the prior year, almost wipes out the $217 million net revenue gain produced by VAT. As a result, the Government’s recurrent balance only drops from $197 million worth of ‘red ink’ to $180 million.
This will likely raise fears that the Government is using its new revenues for traditional ‘tax and spend’ policies, rather than to eliminate the fiscal deficit and pay down the ever-expanding $6.5 billion national debt as promised.
“When you look at the expenditure side, that’s the real worrisome part,” K P Turnquest, the Opposition’s finance spokesman, told Tribune Business.
“Even if the revenue comes in, with that expenditure at the current rate, you’re going to blow that Budget projection with the deficit.
“It’s going to be very difficult, very tight, and it’s going to call for some significant cost containment on the expenditure side.”
Tribune Business last week revealed how Moody’s, the international credit rating agency, suggested that the Government may have to rein in spending during the 2015-2016 fiscal year’s second half - a call that is supported by the latest data.
Rick Lowe, a noted ‘fiscal hawk’ with the Nassau Institute think-tank, said of the latest figures: “It just shows they have not made any concerted effort to rein in expenditure.
“There’s certainly no evidence of it. If the country doesn’t start reining in expenditure, and if growth slows even more, we’re doomed.
“There’s no doubt we’ll be what this Organisation for Responsible Governance calls ‘a failed state’. Another downgrade, and we’ll be in deep doo doo.”
Mr Lowe pointed out that the Christie administration had borrowed more than $1 billion during its first three years in office, and added: “We’re on dangerous ground.
“They’d better do some soul searching as the legacy being left for our children and grandchildren is not going to be pleasant. D-Day is going to come; it’s just taking longer than anticipated.”
The half-year Budget data also shows that the Government exceeded its full-year ‘proceeds from borrowings’ projections during the 2015-2016 first half, bringing in $287.364 million compared to the 12-month projection of $286 million.
Mr Christie yesterday said the Government had seen a near-$100 million reduction in other key revenue categories as a result of reforms designed to ease the path for VAT implementation.
Import/export duties and Excise taxes were down by $25.592 million and $16.331 million, respectively, at $139.045 million and $120.402 million due to tax rate cuts designed to lessen VAT’s impact.
Tourism taxes fell by $24.893 million to $55.043 million, as a result of the Government eliminating the 10 per cent occupancy tax. And Stamp Duty was reduced by $23.654 million to $50.317 million, due to VAT now accounting for 7.5 percentage points of the 10 per cent tax rate normally applied to real estate transactions.
With $91 million in capital spending added to the $180 million recurrent (primary) deficit, the Government’s total deficit for the half-year is $271 million - down by 18.1 per cent or $60 million from the prior year’s $331 million.
The GFS deficit measurement, the one most commonly used by the Government, ‘benefits’ from a year-over-year increase in debt principal repayments, which are stripped out from this calculation.
The $113 million in principal repayments, an increase on the prior year’s $62 million, help drive the GFS deficit down to $158 million compared to $269 million for the 2014-2015 half-year - a reduction of 41.3 per cent.
Mr Christie also touted the Government’s projected achievement of slashing the fiscal deficit by $398 million within three years, provided its $141 million forecast holds true.
He said the near-75 per cent cut, from $539 million in 2012-2013, had been achieved without any public sector lay-offs or cutbacks to public services.