The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition yesterday charged that the Prime Minister has “a very big credibility problem” after he gave conflicting reasons for revising the fiscal deficit downwards just a week after unveiling the mid-year Budget.

Philip Davis KC, leading off the mid-year Budget debate in the House of Assembly, initially criticised “inaccurate” media articles and headlines which last Thursday reported that both government revenues and the deficit had increased year-over-year for the six months to end-December 2022.

Stating “here are the facts”, he asserted that the deficit - which measures by how much government spending exceeds revenue - had actually decreased by $5.3m year-over-year to $276m. While the latter figure was backed by the mid-year Budget performance book released last week, it contrasted with the $285.7m deficit - representing a $7.8m increase on 2021-2022 half-year comparatives - that was disclosed by Mr Davis in the mid-year Budget debate.

When challenged on the discrepancy by Opposition finance spokesman, Kwasi Thompson, the Prime Minister switched blame from the media to his speech writers. “The figures numbers speak for themselves. Everyone can see. That was a misspeak by the writers,” Mr Davis said of last week’s $285m figure. “I made a point to correct it. What I said today was correct.”

The Prime Minister’s chief speech writer is Ian Poitier, although Mr Davis did not identify who was responsible for preparing his mid-year Budget address or providing the figures that it quoted. The prompt correction will also dampen any Opposition moves to accuse him of misleading Parliament and the House of Assembly.

“Here are the facts. Government’s fiscal deficit for the first half of the fiscal year decreased by $5.3m when compared to the previous year. The deficit totalled $276m for the first six months of this fiscal year, compared to $281.3 million in the prior year,” Mr Davis said yesterday. This was backed up by the mid-year Budget numbers, which based on Tribune Business calculations produced the same $276m deficit.

However, this contrasts with what the Prime Minister disclosed last Wednesday when he said: “During the period, the Government experienced a net deficit of $285.7m, which represented an increase of $7.8m compared to the previously comparable period. At the half-way mark in this fiscal year, the deficit stood at 50.6 percent of the Budget forecast.” Based on the revised $276m deficit, it is now 48.9 percent of the full-year Budget target.

Those figures were accurately reported by The Tribune and other media at the time. While the difference between a $276m deficit and one of $285.7m is hardly material, representing $9.7m or a 3.4 percent swing in a more positive direction, the Opposition was quick to seize on the seeming confusion.

Mr Thompson, the former minister of state for finance in the Minnis administration, told Tribune Business that the situation sends the wrong signal to international as well as local capital markets, including the credit rating agencies, bondholders and investors, when it comes to the Government’s fiscal competence and grip on financial affairs.

“It is very, very concerning that the Prime Minister could say in a mid-year Budget communication what the deficit is, that the deficit has increased, and only one week later” come back and revise it,” the east Grand Bahama MP argued. “He has not yet given a full explanation as to why the information has changed.

“Again, it creates a credibility problem. It is a very big credibility problem in that rating agencies, Bahamians, government officials, investors; all of us rely on that information as being accurate. It is very troubling that one week later the Prime Minister would actually change the deficit numbers when his very own figures give the basis on which those reports were made.

“Again, those numbers should be very clear and very certain. We should not be guessing as to what the deficit is, and nor should we be in a position of changing what the public declaration of the deficit is. That’s not where we want to be.”

The Prime Minister’s revised deficit is the accurate figure. Mr Thompson yesterday disputed that the $276m figure represents a year-over-year decrease, pointing to the mid-year 2021-2022 report that showed the prior year’s ‘red ink’ was $269m - some $7m below that which Mr Davis announced yesterday. However, research by Tribune Business showed that the prior year’s six-month deficit was later revised upwards from $269m to $281.6m.

Mr Davis, meanwhile, yesterday moved on to tout what he described as his administration’s progress in placing The Bahamas’ public finances back on a more sustainable path. In particular, he cited the attainment of a first-half primary budget surplus - a measurement that strips out interest payments on the Government’s debt from calculations of its spending.

“For the first half of this fiscal year, the primary balance reflected a surplus equating $4.9m - a major variance from the primary deficit of $41.2m in the previous year,” the Prime Minister said. “This primary surplus is the first in a very long time. When analysing over 10 years’ worth of data, it is evident that the Government had reccurring primary deficits each year for the same time period.”

Also pointing to the higher percentage of forecast full-year revenue now being collected in the six months to end-December 2022, Mr Davis argued that this was a sign the Government’s enhanced tax compliance and enforcement strategies are working.

“Compared to total tax revenue, VAT comprises 54.6 percent of [the] total. For the first six months of the fiscal year, VAT totalled $598.8m, and grew by $54.2m compared to the prior year,” the Prime Minister said. “To-date, VAT accounts for 42.4 percent of the budget forecast......

“Despite the period-over-period improvement in the VAT collection, the VAT yield has not reached its full potential. In fact, I believe that this administration can further increase the VAT yield with more compliance efforts.

“Analysing historical VAT collections in comparison to the forecast, for the first six months of the fiscal year, reveals that in fiscal year 2021-2022 VAT equated to 58.8 percent of the Budget forecast. In fiscal year 2020-2021, VAT equated to 43 percent of the forecast, and in fiscal year 2019-2020, VAT equated to 52.9 percent of the forecast.

“Thus, although VAT collections to-date increased over the prior year, the collection rate in comparison to the Budget for the first half of this fiscal year is lower than in the last three fiscal years. This same kind of trend was also seen with Business Licence fee collections during the period, in which the actuals underperformed in comparison to the Budget forecast.”

Turning to specific taxes, Mr Davis said taxes on international trade and transactions improved by $88.5m year-over-year to hit $314.3m or 61.8 percent of the Budget target. “Most notable under this tax component was an improvement in departure tax collection by $45m compared to the prior year, totalling $71.5m,” he added.

“To-date, departure tax stands at 73.7 percent of the forecast. Also, excise duties grew by $37.4m to total $119m. At the half-year mark, this accounts for 73.7 percent of the Budget forecast. Another highlight is property tax collection, which increased to $59.5m, an improvement of $22.7m when compared to the prior year. This accounts for 35.1 percent of the Budget target.

“Property tax collection at end-December 2022 represents the highest amount collected when compared to collections over the last nine years for the same period. Based on this trend, property tax collections, by the end of this fiscal year, can have the highest yield seen in a long time.”