Travel budget to increase by $4 million

The government’s budgetary allocation for travel and subsistence for the 2019/2020 fiscal year is set to increase by just over $4 million according to its 2019 Fiscal Strategy Report, which according to Acting Financial Secretary Marlon Johnson is due to travel associated with response to Hurricane Dorian.

In response to Perspective’s inquiry on the reason for the increase in allocation, Johnson said, “The aftermath of Hurricane Dorian required a number of services to be increased to provide necessary relief and recovery assistance to the affected areas.

“Public officers from New Providence across a range of government agencies travelled back and forth between Grand Bahama and Abaco to conduct a range of damage assessments, vector surveillance and monitoring of forest and marine environments.”

The increases, Johnson added, were also associated with “emergency flights from Abaco for various medical crises which necessitated extra travel rotations for medical personnel” and were also associated with increased rotations for immigration, police and defense force officers to those islands.

“Consequently, the overall totals for subsistence – which includes per diem, incidentals and accommodation payments – increased in line with the aforementioned increase in travel,” he further explained.

“As a result, costs were accrued for technical staff conducting assessments, medical and uniformed personnel servicing those islands [and] subsistence payments also compensated customs officers responsible for the clearance of hurricane-related goods and supplies in South Florida.”

In a table of expenses Johnson provided to Perspective, $954,967 is allocated for travel by various ministries and departments; $36,854 is allocated for the Ministry of Health’s emergency flights from Abaco; $3,017,195 is allocated for per diem, incidentals and accommodations for public officers and uniformed staff; and $8,000 is allocated for expenses related to customs officers’ clearance of hurricane relief supplies in South Florida.

The total increase in expenditure is $4,017,016.

Helicopter travel, according to a document obtained by Perspective, included costs to a U.S.-based firm at a rate of $110,000 per day for six hours of flight time per aircraft, per day.

Any flight time over six hours would be billed at $10,500 per hour.

Finance Minister Peter Turnquest told Parliament last week that the government is set to table a supplementary budget which will outline all hurricane-related expenses and re-allocations.

What is important to note about this additional travel allocation is that it is on top of the $18.9 million already budgeted for government travel and subsistence, which indicates that despite the record-breaking impact Hurricane Dorian will have on government revenue and expenditure, a decision has not been taken to cut back on or eliminate all non-essential government travel for the remainder of the fiscal year.

The report indicates that travel expenditure for the next two fiscal years is estimated at $20.5 million and $21 million respectively, showing that travel budgets for the rest of this term will increase above pre -Dorian levels.

When the Minnis administration assumed office in May 2017, it told the nation that the “cupboards were bare” and despite having castigated the previous administration for what it described as excessive travel with large delegations, it has shown no restraint or contraction in this regard.

Promised annual reports on ministerial travel have not been provided to the Bahamian people, nor has the government sought to justify its travel and delegation sizes in what it claims to be a period of austerity, so as to show the country how it has specifically and tangibly benefitted from the same.

While the majority of the government’s recurrent expenses are for fixed costs that cannot be eliminated, some travel expenses can be eliminated or significantly reduced and should be if the government wishes to lower its potential recurrent deficit this fiscal year and beyond.

Dubious revenue projections

The government’s decision to borrow over $500 million to cover its projected shortfall this fiscal year as a result of Hurricane Dorian is based on the revenue it expects to collect minus its anticipated expenditure.

If the government does not collect the revenue it projects, more money will have to be borrowed.

In its report, the government says it now projects it will collect $973.3 million in value-added tax (VAT) this budget year, down from the $1.1 billion originally projected – a reduction of approximately $126.7 million.

But the $973.3 million in VAT the government now says it expects to collect is still $77.2 million more than the $896.1 million that was collected in 2018/2019, a year with no hurricanes, a 1.6 percent GDP growth rate and an increase in the VAT rate by 60 percent to the current rate of 12 percent.

VAT underperformed by $163.5 million last fiscal year due in part, the report says, “to concessions granted to industry (construction and tourism) to honor prior bookings and contracts at the old VAT rate in the opening quarter of the fiscal year”.

The report did not say how much of the $163.5 million is accounted for by those prior bookings and contracts.

What was not accounted for in VAT’s underperformance was the elimination of VAT from select services and on goods including breadbasket items and medication, as well as a VAT concession on electricity bills not exceeding $300 which was supposed to be temporary but has now been made a permanent exemption in law.

These exemptions mean that VAT from these goods and services can no longer be factored into current and future revenue intake projections.

GDP growth for 2019/2020 is now expected to occur at only half the rate of the government’s initial projection of 1.8 percent and unemployment is expected to soar to at least 13 percent.

Anticipated increases in electricity bills by Bahamas Power and Light (BPL) will have a yet-to-be-seen impact on consumer spending and economic growth.

When the government collected $896.1 million in VAT in 2018/2019, that figure included VAT from Grand Bahama and Abaco.

So it is difficult to fathom how the government expects to not only collect that sum in 2019/2020, but an additional $77.2 million added thereto when it will not be collecting VAT from construction outlays and materials on those islands or from the import of a wide range of consumables, according to a recent statement from the Office of the Prime Minister.

The statement’s list of VAT-exempt items for Abaco and Grand Bahama, including fuel and clothing, outstrips current VAT exemptions on consumables.

VAT makes up just over 40 percent of government revenue so its performance is critical to the government achieving its budgetary objectives.

Similar doubt holds for the government’s projections on the collection of excise tax, which for the last two budget cycles has fallen significantly below budgetary estimates.

Its fiscal report projects a collection of $254.8 million in excise tax in 2019/2020, down $28.5 million from the $283.4 originally projected.

The government’s new post-Dorian projections are $12.8 million above what was collected in excise taxes last budget year.

The government has pledged greater efficiency in the collection of taxes at the border.

Still, given the aforestated variables and factoring in the impact of exigency orders whose value in total deferred revenue has not yet been quantified, it is difficult to see how the government expects to meet this projected target.

Risks moving forward

A credit downgrade and lower economic growth than forecast is possible this fiscal year, according to the report, with the former, if it occurs, causing potential increases in the cost of government borrowing and the triggering of termination clauses on government loan agreements that lock in agreed interest rates based on the country’s credit rating.

If the economy moves slower than forecast, revenues would not reach estimates.

It is also possible that public sector wages will exceed the government’s available resources this budget year, the report indicates.

It also states that the risks more likely to occur in this fiscal period are higher interest rates, higher energy prices, substantial losses by state owned-enterprises (SOEs) requiring intervention and pension cost overruns.

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