Despite raising the rate of value-added tax (VAT) by 60 percent last July, the government will fall nearly $240 million short of its projected revenue target for this fiscal year, Deputy Prime Minister and Minister of Finance Peter Turnquest revealed in the House of Assembly yesterday.
“For the fiscal year as a whole, revenue is estimated to come in at about $2.4 billion, some $238 million, or nine percent, lower than what was budgeted at the start of the fiscal year, largely on account of the new agreement with the gaming operators, the delayed implementation of the Revenue Enhancement Unit (REU), and the concessions granted to hotels and contractors in respect of the introduction of the higher rate of VAT,” he said as he delivered the 2019/2020 budget communication.
Turnquest foreshadowed the shortfall during his mid-year budget statement. However, at the time he projected that the revenue would fall short by seven percent.
Despite the revenue forecast shortfall, projected revenue
increased by $373 million in the 2018/2019 fiscal year, led by an increase in VAT collected. Although he said the economy performed positively overall, Turnquest acknowledged that government revenue did not increase at the expected pace.
He said revenue collection should rebound and increase in the coming fiscal year.
“On the expenditure front, total outlays are projected to equal approximately $2.6 billion, which is also some nine percent or $259.1 million below the amount initially budgeted for the year,” Turnquest noted.
“Of this total, approximately $172.3 million is anticipated to be settled in respect of arrears, in line with the budget projection.
“Based on these developments, we therefore anticipate the fiscal deficit to total some $229 million in 2018/19, representing 1.8 percent of GDP; that will be broadly in line with the $237.6 million deficit projected in the last budget.”
“That is historical, Mr. Speaker,” he continued.
“If you go back in time or recent memory, you will quickly recognize that government after government has failed to reach their deficit target.”
Turnquest also revealed the Minnis administration intends to borrow nearly $87 million in the coming fiscal year.
Shortly after he wrapped up his budget communication, Turnquest introduced two resolutions: one to borrow $72,387,438 to cover the shortfall in the 2019/2020 fiscal budget, and, another to borrow $14,557,000 from the Caribbean Development Bank to finance a street light retrofitting project.
Turnquest said the project is expected to enhance climate resiliency capacity; reduce fossil fuel generated electricity for street lighting by Bahamas Power and Light; and enhance the capacity to implement communication infrastructure. The money will cover project preparation assistance and infrastructure works, among other things.
With this new round of borrowing, government debt is forecasted to increase from $7.4 billion to $7.61 billion in the upcoming fiscal year.
Looking to the upcoming fiscal year, Turnquest forecasted that the government would eclipse the 18.8 percent increase revenue yield recorded this year.
He said the increase is based in part on the fact that that the REU will be fully established, and is expected to significantly improve revenue collections.
Additionally, he noted that VAT will be reported at 12 percent for a full year for the first time since the rate increase, and the new tax agreement with the gaming houses will be fully implemented.
“As such, we expect to secure higher receipts for the government accordingly,” he said.
“…All told, this should translate into an increase in the revenue yield of the tax system to the area of 19.8 percent of GDP in 2019/20 and beyond. As such, we have budgeted for total revenue of $2.628 billion in 2019/20, which represents a $215 million increase over the projected outturn in 2018/19.”
Recurrent expenditure in 2019/20 is budgeted at $2.530 billion, an increase of $95 million over this year’s projected expenditure.
Capital expenditure is budgeted at $235 million next year, a $28 million increase.
Turnquest said the government will pay an additional $100.4 million toward the $360 million build up of bills it met when the Minnis administration came to office.
He said the government is also obligated to meet its obligations regarding the BTC legacy Defined Benefit Pension Plan, which is set out in the Shareholders’ Agreement between the government and Cable & Wireless Communications.
“It has been determined that the government never provided the $39 million to the Feeder Trust that was created to assist in meeting its obligations to the plan, when the corporation was sold to Cable and Wireless for $210 million in April 2011,” Turnquest said.
The government budgeted $3 million in the 2019/20 budget and will devise a multi-year plan to pay the balance, he added.
Meantime, the GFS deficit in 2019/20 is estimated at $137 million.
“I pause to note here, Mr. Speaker, that this will be the lowest annual fiscal deficit recorded in The Bahamas in 10 years,” Turnquest said.
“Also, our 1.0 percent deficit to GDP ratio target will mean the lowest fiscal deficit ratio in this country in over 17 years. That is right, this will mark the lowest deficit ratio this land has seen in nearly two decades.
“For the fiscal years beyond 2019/20, the budget projection postulates that the revenue yield will be maintained at its 2019/20 level. As well, the projection reflects our commitment to keeping a tight rein on the growth of primary recurrent expenditure.”
Turnquest added: “For too long, the government has used taxpayers’ money to feed a culture of political largess and government inefficiency; to put band-aids over structural problems that undermine the government’s ability to play its true role.
“The reality is, the Bahamian government is like a house that needs repairs. In some areas, the walls need to be gutted and the roof needs to be completely rebuilt. In other parts, new electrical wires need to be installed, along with new pipes and fixtures.
“…This budget invests in comprehensive structural reforms that are going to make the government work better and be better.”
Education: Benedict College, BA in Mass Communications