The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

More than 50 per cent of the Government’s $162 million expenditure savings in the 2012-2013 fiscal year came from just four ministries/departments, a Cabinet Minister disclosed yesterday, while admitting that revenue projections had been “over-optimistic”.

Michael Halkitis, minister of state for finance, said a collective $86.6 million in savings had been found from the Department of Public Service ($29.8 million); Ministry of Tourism ($19.9 million); Ministry of Finance ($19.4 million); and the Public Hospitals Authority ($17.5 million).

No further specifics on where the cost savings had been found, and what it meant for the services offered by these four ministries, were provided.

This means that the Government will have only partly satisfied Standard & Poor’s (S&P), the Wall Street credit rating agency, which last week urged the Government to detail where it had managed to extract $162 million in recurrent spending cuts, as to do so would lend more “credibility” to its 2013-2014 Budget estimates.

Mr Halkitis, meanwhile, revealed that the Government - at the 2012-2013 fiscal year’s mid-point - had targeted only $100 million in recurrent spending cuts, targeting a total of $1.72 billion for the full year as opposed to initial projections of $1.821 billion.

Total recurrent (fixed cost) spending is now projected to come in at around $1.659 billion, and Mr Halkitis effectively gave himself and his Cabinet colleagues a ‘pat on the back’ for this achievement.

He argued that bringing the GFS fiscal deficit down to 6.1 per cent of GDP, as opposed to a projected 6.5 per cent, was “unquestionably an achievement in which we can take much pride”.

But successive governments, FNM and PLP, have been wildly optimistic with their revenue estimates, something Mr Halkitis conceded yesterday.

The Government’s 2012-2013 revenue estimates were “trending at a considerably lower level than projected” at the fiscal year’s mid-point, being down 10 per cent.

And the decline has worsened over the final half of the fiscal year, with recurrent revenues expected to finish the year down 11 per cent at $1.38 billion - some $170 million behind projections.

“That is very instructive to us, because what it shows is that over the past few years, we have been over-optimistic in our revenue forecasts,” Mr Halkitis said.

This, he added, had contributed to the ever-widening multi-million dollar fiscal deficits, and subsequent build-up in the $5 billion national debt, as spending was based on revenue projections. When revenues failed to come in to finance spending, borrowing and ‘red ink’ grew.

Focusing on the main areas of revenue underperformance, Mr Halkitis said Customs/import duties were off forecast by $49.8 million for the 2012-2013 fiscal year, while Excise Taxes were some $112 million behind projections.

Elsewhere, Stamp Tax generated from real estate transactions was $20 million off projections, and Business Licence fees down $15 million.

On the credit side, air departure taxes were $10 million higher than 2012-2013 Budget projections.

Looking ahead to the 2013-2014 fiscal year, Mr Halkitis said the rate of growth in recurrent spending, to $1.737 billion, was being held in line with the Bahamian economy’s expected GDP growth.

He again indicated the increasing centralisation of revenue and spending control functions within the Government, with the Treasury and Department of Public Service being given sole responsibility for paying the Government’s $22 million worth of National Insurance Board (NIB) contributions, and $18 million rental payments, respectively.

This is designed to give the Ministry of Finance, in particular, greater control and oversight over the Government’s finances, in particular over how departments and corporations are spending money. Ultimately, it is intended to enhance efficiency and eliminate waste.

For 2013-2014, Mr Halkitis said salaries for full-time public sector workers would total $550 million, with contract workers receiving a collective $25 million.

The Government’s electricity, and gas and diesel, costs were estimated at $18 million and $9 million, respectively, with another $6 million set to be spent on communications - phones and faxes.

Add in the NIB and rental costs, plus a total $316 million in debt servicing and repayment costs, and Mr Halkitis said more than 50 per cent of the Budget was accounted for. This, he added, gave the Government “less discretion than might be desired” when it came to spending and policy implementation.

Emphasising that the current fiscal position had ben achieved “not because we have taken a hatchet to the Budget”, Mr Halkitis said: “There will be no need for the slashing and burning that could be so detrimental to our economy and society.

“We have to act now to address our public finances to we do not have to take more drastic measures in years to come.”

Focusing on the medium-term targets, Mr Halkitis said recurrent spending would be allowed to grow in line with the Bahamian economy.

The Government wants to reduce its fixed-cost spending, as a percentage of GDP, from 20.1 per cent currently to 19.1 per cent in 2016-2017.

Capital spending will be held at around 3 per cent of GDP, but Mr Halkitis conceded that “the crux” of the Government’s fiscal turnaround strategy lies on the revenue side.

Combining the proposed Value-Added Tax (VAT) with real property tax, Customs duties and other enhancements, the Government is aiming to increase its revenue intake by a sum equivalent to 4.1 percentage points of GDP - taking this from a current 17.4 per cent to 21.5 per cent.

This, Mr Halkitis said, would bring the Government’s revenues into line with both regional and international norms.

Such fiscal targets, he added, would reduce the Government’s direct debt-to-GDP ratio from 56.4 per cent at the end of the 2013-2014 fiscal year to 51.5 per cent in 2016-2017.

Without such corrective measures, Mr Halkitis said the Bahamas could be looking at a 70 per cent debt-to-GDP ratio come the 2016-2017 fiscal year - a position where one-third of every $1 in revenue would go to debt servicing costs, up from the current 25 cents on every $1.