The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government believes its 2013-2014 fiscal deficit will be lower than the projected $443 million if it sticks to its consolidation plan, with half-year numbers “slightly better” than forecast.

Michael Halkitis, minister of state for finance, expressed confidence that the fiscal numbers for the first six months, buoyed by strong Customs duty collections in December, were “a little bit ahead” of forecast despite the Government having already incurred a $200 million-plus deficit.

Data released by the Central Bank of the Bahamas showed that while the Government’s fiscal deficit for the five months to end-November 2013 had narrowed year-over-year by $23.4 million, or 10.4 per cent, it still stood at a total $201.3 million.

The Central Bank attributed the decline to “the combined effect of a $17.4 million (2.4 per cent) decline in aggregate expenditure to $716.3 million, and a modest $6 million (1.2 per cent) rise in total revenue to $515 million”.

The Government is anticipating an extra $100 million in revenue this fiscal year via the new and increased taxes unveiled in the 2013-2014 Budget, with much of this coming via higher Business and commercial bank licence fees.

While the Central Bank’s data indicates the Government’s revenue initiatives have met with only modest success, Mr Halkitis confirmed the new licence fees were set to kick in this quarter - the first of the calendar year, and third in the Government’s fiscal year.

“We feel that if we can stick to our programme, we will do better than $443 million,” Mr Halkitis told Tribune Business, referring to the deficit projected at the time of the May Budget.

“We are running the numbers now for the mid-year Budget, shown up to December, and we expect that we are just about on target and maybe a little bit ahead of forecast.

“We are, when we look at the December numbers, tracking slightly ahead of that; doing slightly better than that. Some things are coming together in terms of revenue and expenditure reduction,” he added.

“We saw some improvement going into December. December saw some strengthening in Customs revenue.”

Mr Halkitis said the Government had moved swiftly to get to grips with every aspect of its costs and spending, with much of the work it was doing often unseen.

“When we’re talking about reforms, we’re doing a lot of things behind the scenes, expenditure management and how we disburse funds,” he added.

“We’re committed to this fiscal discipline, and then turn around, as it gets entrenched.”

The Minister emphasised that the upcoming mid-year Budget, which is usually unveiled in February, would “definitely” not see the Government seek additional borrowing beyond what was contained in the 2013-2014 Budget projections.

The Central Bank, in its December report, said non-tax revenues for the period to end-November grew by $8.3 million or 13.5 per cent to $70 million.

This, it said, was primarily to a $17.7 million (51.7per cent) upturn in fines, forfeits and administrative fees, which outweighed the $8.5 million (32.1 per cent) contraction in property income flows.

However, the news on the Government’s tax revenues was less promising. The Central Bank said: “In contrast, tax receipts fell marginally by $2.5 million (0.6 per cent) to $444.9 million, as weak consumer demand led to a $21 million (8.2 per cent) reduction in taxes on international trade, to outstrip the $15.8 million (10 per cent) gain in other ‘miscellaneous’ taxes and broad-based rate-related increases in business and professional fees of $4.1 million (23.9 per cent).”

Given that the Government’s new Value-Added Tax (VAT) will be paid almost entirely by the end-user consumer, the drop in trade taxes and “weak consumer demand” does not appear to bode well for either the economy or the administration’s 2014-2015 revenue projections.

However, Mr Halkitis indicated that the Government is hoping job creation stemming from projects such as Baha Mar, Albany and Sunwing’s investment in Freeport will spark an economic boost to offset any negative fall-out from VAT.

Suggesting that there would be a positive “correction” in consumer spending, Mr Halkitis added that the simultaneous Customs duty rate drops - in line with VAT’s implementation - would also mitigate the latter’s inflationary impact when it came to goods.

Pointing out that the September-November period was traditionally a period of weak consumer spending (it does include Christmas inventory stocking up), the Minister did acknowledge that many Bahamians were deleveraging on their existing debt.

“We expect that as the economy picks up, more job come online, we will see some strength in consumer spending,” Mr Halkitis told Tribune Business.

He emphasised that the Government, in the form of the Ministry of Finance, was still pushing for July 1 as the VAT implementation deadline.

Asked whether this deadline could be altered, Mr Halkitis replied: “Not that we see now. At this point, we’re pushing for July 1.”

He acknowledged, though, that this could still be altered by decisions taken from a “political standpoint”, but said the Ministry was moving to ensure both itself and private sector registrants were ready from an IT and systems implementation standpoint.

Elsewhere, the Central Bank said the Government’s reduced spending for the five months to end-November was “due solely to the contraction in capital outlays, by $28.3 million (33.3 per cent) to $56.7 million, as several major infrastructure projects were completed”.

More ominously, it added: “Conversely, recurrent spending grew by $7.1 million (1.1 per cent) to $634.4 million, as higher interest payments and subsidies led to a $27.5 million (11.1 per cent) gain in transfer payments, which offset the $20.5 million (5.4 per cent) decline in consumption outlays, that was partly linked to lower spending on contractual services.

“Financing for the deficit comprised Government bonds ($115 million), external borrowings ($104.9 million) and a short-term internal foreign currency loan ($50 million).”