The mid-term budget
The prime minister and minister of finance has presented to Parliament a statement on the fiscal affairs of the country for the six month period ending 31st December, 2010. It seems clear that the country is still being severely challenged on the fiscal front and the economy has yet to emerge from the depths of the global recession.
The most important budgetary item, total revenue, is trailing estimates by$50 million despite the tax hikes and the improved revenue administration announced at the start of this current budgetary cycle.
That outcome is not surprising when one considers that in our economy, our major source of government revenue is customs duties, which are determined by the level of imports, which in turn is determined by employment levels and tourists arrivals.
Unemployment is in the mid-teens, according to the latest available figures which have not been released since 2009, and air-arrivals–the most important tourist category–is seemingly stagnant at 1.3 million; a figure that has hardly changed in two decades.
From a policy perspective, it seems clear that efforts to boost tourist arrivals(by air)and at the same time expand employment opportunities are of critical importance going forward.
Although the budget statement gave a hint of cautious optimism regarding the outlook for economic growth and development over the short term, it is difficult to overlook the ominous threat to that growth also contained in the statement in reference to the almost 24 percent increase in gas prices at the pump and the 37 percent increase in the surcharge applied by B.E.C. to our electricity bills.
It would appear that the consumer, who continues to buckle under the more than$1 billion in loan arrears at the bank(mostly in mortgages), will continue to face serious financial challenges for the rest of the year.
The mid-term budget permits, among other things, for Parliament to approve by way of a supplementary expenditure Bill any additional funding that is needed for specific line items in the original budget. In this exercise, an additional$10 million was needed for the e-government initiative;$18 million is earmarked for payment to the utility companies; nearly$4 million for the police; and another$4 million for medicine.
On the Capital Budget side,$5 million went to Broadcasting Corporation and some$8.8 million to the Water and Sewerage Corporation. These cost-over runs are partially offset by under-spending on other items.
What is somewhat surprising about the listing, however, is the absence of any additional funding for Bahamasair, which is usually at the head of the line when it comes to government hand-outs. The expenditure items, both recurrent and capital, are largely within the estimates which were earlier approved by Parliament and given the fixed nature of the major items, Personnel Emoluments(wages, salaries, gratuities and pensions)that is not surprising but it is cause for concern in the face of sluggish revenue performance and the historical stance taken by successive governments not to make any major adjustments to staff levels in the public services sector.
The combination of sluggish revenue performance and rigid expenditure levels, which have become hallmarks of government’s budgets, could only lead to continuing deficits; deficits which are invariably financed by further additions to the national debt, which at an unprecedented 56%of GDP, is approaching a threshold that should be of paramount concern to all of us, especially the younger generation who no doubt would have to pay it off sometime in the future.