Steady as she goes
In a lengthy communication yesterday, the minister of finance delivered a budget communication that essentially said that the government’s 2019/2020 financial approach going forward would be “steady as she goes”.
The minister made it clear that the government’s essential focus will continue to be on slowing the growth of the deficit so as to bring about reduction in the national debt. This policy will be anchored on fiscal responsibility and reform initiatives that the government will continue to pursue, including fiscal responsibility legislation.
This follows upon the major step taken in the 2018/2019 budget when the government increased value-added tax (VAT) from 7.5 percent to 12 percent and reduced expenditure by 10 percent.
While the new budget proposes no new taxes or increase in VAT, the minister made it clear that the government will seek to aggressively collect unpaid taxes.
Perhaps their efforts will be more successful in collecting taxes from ordinary Bahamians than has been their experience collecting from the powerful local gaming houses.
Whether it is reforming digital tax administration processes or tightening the age-old ones, the minister noted that the government thinks it has a great deal of revenue to collect by enhancing its compliance measures.
The minister of finance noted that in the current fiscal year, government revenue will come in at $2.4 billion, $240 million lower than forecasted. And, expenditure will come in at some $2.7 billion, $330 million lower than forecasted. The resulting deficit in the current budget year therefore is expected to be about $229 million or 1.8 percent of GDP; which the minister described as a historic achievement. For the new budget, the minister estimates revenue of $2.63 billion and expenditure of $2.77 billion, resulting in a forecasted deficit in the upcoming year of $137 million, a GFS deficit of about 1.1 percent.
Growth of the economy is projected to continue at a modest pace. Government revenue will continue its reliance on the VAT increase initiated last year and continued aggressive collection in the years ahead. It is not expected that economic growth will play a major part in the government’s deficit reduction drive.
While its broad outlines are unintriguing, there are a few details in both the minister’s communication and the budget itself that are worth examining. For instance, we are constantly being told by some contractors and suppliers of goods and services to the government of their challenges in collecting money due from the government. Likewise, some essential government services seem to be starved of required financial resources. A reduction in recurrent expenditure only makes sense if essential services are adequately funded.
A balanced budget also only makes sense if a healthy economy supports it. If the economy is growing slowly, higher taxes are likely to encourage that slow growth or cause slower growth. Public finance is often a balance between book accounting and economic incentivizing. If one or the other is out of balance, the result can be public frustration.
This review will be the subject of upcoming editorials, as we look at some of the proposed revenue and expenditure measures. Following upon that review, an overall assessment of the budget will be made by us.