The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s $238 million deficit for the 2013-2014 fiscal year’s first half shows there is “much more work to do”, a Tax Coalition co-chair said yesterday, even though it represented a 19.3 per cent year-over-year decline.

Prime Minister Perry Christie, in unveiling the Mid-Year Budget in the House of Assembly, expressed confidence that the Government could beat its projected GFS deficit target for the year to end-June 2014.

The first half GFS deficit, a measurement that strips out debt principal redemption, was down from the $295 million incurred in 2012-2013, but shows the Government is still running monthly deficits averaging almost $40 million.

Robert Myers, co-chair of the Coalition for Responsible Taxation, told Tribune Business that while the reduced half-year deficit was positive, the amount of ‘red ink’ showed the Government was far away from achieving a balanced Budget.

The Christie administration is projecting that, with help from the $500 million predicted from Value-Added Tax (VAT), it will achieve a balanced Budget on the recurrent side by the 2016-2017 fiscal year.

Still, Mr Myers said: “Any movement in deficit reduction is positive, but it’s a clear indication of how much work we have to do.

“We have to get to e balanced Budget. We’re still spending more than we’re earning. We’ve got to be able to cut into that. We’ve got to get that down and figure out ways to do that.”

The Tax Coalition co-chair added: “We’re headed in the right direction, and it [the Budget] seems to be on track mid-year.”

Mr Christie yesterday said the Government expected its full-year GFS deficit to come in at $447 million, a sum equivalent to 5.2 per cent of gross domestic product (GDP).

He described this as a significant reduction from the 6.4 per cent, $500 million-plus deficit incurred in the 2012-2013 fiscal year.

However, an examination of the Government’s 2013-2014 Budget projections form last May shows that, in gross dollar terms, the Christie administration is now projecting a $4 million rise in its full-year deficit.

The May forecast estimated the deficit at $443 million, so the slight rise announced yesterday is not material.

However, a comparison of the figures shows that the Government has made slight revisions to key fiscal and economic indicators - some moving in the right direction, and others heading the opposite way.

As an example, the Government is forecasting revenues will now be $20-$23 million less than initially projecting, coming in for the full Budget year at $1.48 billion as opposed to May’s $1.503 billion.

Mr Christie yesterday noted that the $1.48 billion figure was equivalent to 17.2 per cent of Bahamian GDP, an increase from the 16.7 per cent achieved in 2012-2013.

However, the 17.2 per cent figure quoted by Mr Christie was down from the 17.4 per cent projected in the May Budget. Still, the Prime Minister focused on the positive, with revenues for the half-year to end December up $36 million or 5.7 per cent to $669 million.

There was better news on the recurrent expenditure front, which deals with the Government’s fixed costs. This came in at $841 million for the 2013-2014 half-year, essentially flat year-over-year with the prior year’s $839 million.

Mr Christie said the $841 million accounted for 48 per cent of the Government’s planned recurrent spending for the full fiscal year, and it was now budgeting for a modest $17 million drop from its initial forecast - from $1.737 billion to $1.72 billion.

The Prime Minister said that while recurrent spending might increase in gross dollar terms, given the need to hire doctors and nurses to staff new mini-hospitals, the Government was focusing on its main objective - to reduce it relative to the size of the economy, or a percentage of GDP.

Mr Christie said recurrent spending would come in at 20 per cent of GDP in 2013-2014, compared to a 20.8 per cent high achieved in 2010-2011.

On the capital spending front, the Government has spent $106 million or 36 per cent of its full-year $295 million budget during the 2013-2014 first half.

“We expect a pick up in this category of expenditure in the second half of this year, with total capital expenditure coming in on target at $295 million for the full year,” Mr Christie said.

“That will still represent a substantial reduction relative to the size of the economy, from a high of 4.9 per cent in 2011-2012 to 3.4 per cent this fiscal year.

“We’ve got to do some things, and can’t hold back on them.”

The Government, though, has also trimmed its GDP current prices forecast, dropping it by over $50 million - from $8.644 billion to $8.593 billion.

Mr Christie, meanwhile, reiterated the need to set the fiscal deficit and national debt, which hit $5.1 billion at 2013 year-end or 59.7 per cent of GDP, on a sustainable trajectory.

He emphasised that more than one-fifth of all government revenues, 21 cents out of every $1, was being “siphoned” towards debt servicing and away from providing other key government services.

Mr Christie emphasised that the Bahamas could not afford to jeopardise Bahamian and foreign investor confidence via “lax fiscal policies”, suggesting that doing nothing was not an option.

He added that the country would suffer credit downgrades and higher interest rates if it “failed to act decisively and stop mortgaging the future to support today’s spending”.

“Does any of this matter to the average Bahamian citizen?” Mr Christie asked.

“It most certainly does. For one thing, a high and rising burden of Government Debt chews up ever-increasing sums of our revenues merely to pay interest on the debt and to repay maturing debt.

“High Government borrowings and debt also lead to higher rates of interest which affect the daily lives of all Bahamians, through higher monthly payments for consumer loans and mortgages. Workers’ pay packets are thus left with less money to cover ongoing and essential living expenses.”

The Prime Minister emphasised that his government “will not waver” from its fiscal and economic goals.