The government yesterday tabled its much-touted Fiscal Responsibility Bill 2018, the instrument it hopes will drive down deficits to meet its stated target of 50 percent debt-to-GDP over the long term.
The government is supposed to identify this target in the Fiscal Strategy Report included in each annual budget after the law comes into force.
The Fiscal Strategy Report, to be debated no later than January 31 each year, is supposed to inform the creation of the budget.
The legislation, which was circulated for public feedback in May, has hard targets for government deficits over the next three years to try achieve the massive reduction in debt and deficits.
The debt-to-GDP ratio stood at around 58 percent at the end of the 2017-2018 fiscal year.
The deficit was 5.8 percent of GDP in the same fiscal year.
The government wants that deficit number no higher than 0.5 percent of GDP by the end of the 2020-2021 fiscal year.
The legislation would cap the deficit for this fiscal year at a maximum of 1.8 percent.
The target deficit for the 2019-2020 fiscal year is no more than 1 percent of GDP.
However, the legislation does allow the government some flexibility if it provides explanations, in the form of a fiscal adjustment plan, as to why the targets were not met.
Even so, the government can avoid the adjustment plan by coming within the “compliance margin” set out in the legislation.
The margin can’t be outside of 0.5 percent of GDP.
Minister of Finance and Deputy Prime Minister Peter Turnquest tabled the bill, hailing it as an “advanced, cutting [edge] piece of legislation”.
“Mr. Speaker, this is a bill that has been widely consulted with the… civil society and one that we look forward to as an effective tool, as foreshadowed during the budget debate, that will help us to grasp hold of [the] fiscal state of the country,” Turnquest said.
The deputy prime minister has consistently warned of the impact the escalation of debt and recent massive fiscal deficits will have on the country’s economy.
In May, Turnquest announced an increase in the rate of value-added tax from 7.5 percent to 12 percent to pay the country’s bills and put it on a path to financial stability.
The Fiscal Responsibility Bill is key in the Minnis administration’s efforts to reign in government spending it claims grew wildly out of control under the previous Christie administration.
The bill also mandates a Pre-Election Economic and Fiscal Update report no later than 20 days before the polling date of a general election.
A mid-year review of the progress with regard to adherence of the Fiscal Strategy Report is also mandated.
The International Monetary Fund (IMF) and Inter-American Development Bank (IDB) both provided guidance on the framework for the legislation.
An independent five-member Fiscal Responsibility Council of members of civil society and with specific areas of expertise in law, business, economics, accounting and finance is supposed to review the Fiscal Strategy Report before it goes to Parliament.
“The Fiscal Responsibility Council is mandated to conduct periodic and ongoing assessments of the government’s finances and make its assessments public,” Turnquest said in May.
Some in civil society had complained that the council had little to no teeth as it could not impose penalties if the report is not properly composed.
The bill tabled yesterday does not appear to include any penalties.