The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The “weak consumer demand” that sparked a $21 million year-over-year decline in international trade taxes will be exacerbated by Value-Added Tax (VAT) into “a very serious situation”, the Opposition’s finance spokesman believes.

Speaking to Tribune Business after it was revealed that the Government incurred a $201.3 million deficit for the first five months of the 2013-2014 fiscal year, K P Turnquest said the figures showed the Government had not implemented “any fiscal restraint”.

He added that the data, released by the Central Bank of the Bahamas for the five months to end-November, showed it was “entirely premature” for the Government to have lauded a 34 per cent drop in the first quarter fiscal deficit.

While the figures showed the fiscal deficit for the five months to end-November had narrowed slightly, by $23.4 million or 10.4 per cent, Mr Turnquest also noted that the Government had borrowed almost $270 million during that period to cover its ‘red ink’.

While the Christie administration’s net borrowing is likely to be less, given that $50 million of that sum was a “short-term foreign currency loan” likely to have been taken out by other debt, these borrowings all took place before the recent $300 million sovereign bond issue was placed.

The extent of the Government’s continued borrowing again highlights the need for across-the-board fiscal reform, the remaining questions being the ‘what’ and the ‘how’.

“Really? Wow. Isn’t that contrary to what they said,” was Mr Turnquest’s response when informed by Tribune Business of the Government’s financial performance for the five months to end-November 2013.

The east Grand Bahama MP contrasted the latest data with the Government’s previous triumphalism in the House of Assembly, when minister of state for finance, Michael Halkitis, revealed that the deficit for the 2013-2014 Budget year’s first quarter was down 34 per cent.

“For the Government to take credit for that reduction was entirely premature,” Mr Turnquest told Tribune Business.

“I told them than that it was a blip, and you can’t judge the year on the first three months of taxes. It can be as simple as a timing issue.”

Mr Turnquest added that a reduction in health care spending had contributed to the reduced deficit in the first three months of the Government’s fiscal year, saying at the time that this area was “suffering” as a result and the Government would have to “catch up”.

“I’m not surprised at all,” Mr Turnquest told Tribune Business of the Government’s fiscal performance to end-November. “Let’s face it, at the end of the day, the Government has not shown any true fiscal restraint.

“The evidence is there to show where they are incurring all kinds of unnecessary. They’ve not done anything on capital works, but all that’s going to catch up. I’m looking forward to the mid-Year Budget debate.”

Mr Turnquest described last week’s remarks by Mr Halkitis, indicating that the Government was likely to publish the mid-year numbers and not have much of a debate on them, as “unusual”.

“If there’s nothing to hide, present the numbers and let’s talk about them,” he added.

The FNM finance spokesman’s attention was then taken by the Central Bank’s report that international trade taxes (border Customs, Excise and Stamp duties) were down year-over-year by 8.2 per cent or $21 million.

The Central Bank blamed the drop on “weak consumer demand”, and Mr Turnquest said this was “a continuing trend” that had major implications for the Government’s plans to implement VAT come July 1, 2014.

The 15 per cent VAT tax will largely be borne by the end-user consumer, and the current tax data raised major questions about whether its implementation will slow the economy and also see the Government miss its revenue targets.

The drop in trade taxes also occurred during a period incorporating the run-up to Christmas, when businesses are stocking up for the holiday sales, which adds to the concern created by the fall-off.

“That does not bode very well at all for the economy, and certainly when we add VAT to it, it is giving a portend of a very serious situation for us,” Mr Turnquest told Tribune Business.

“We know from the evidence of other jurisdictions that in the initial [VAT] launch, consumer spending is going to decrease.

“I think it’s very telling, even ahead of that, it’s very telling those taxes are down. We import everything we consume,” he added.

“To the extent there’s a decrease in border taxes, it means the economy is not functioning as actively as the Government would want us to believe. If you look at the fundamentals, nothing has changed.”