The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading accounting firm last night urged the Government to “take a much more aggressive approach” to cutting its projected $1.823 billion in public spending, describing the issue as “the elephant in the room”.

KPMG (Bahamas) described the 2014-2015 Budget as “being a little risky” because there was no major reduction in government spending, leaving the Christie administration almost totally reliant on hitting economic growth and revenue targets to achieve its Budget projections.

The accounting firm, in its analysis of the Budget, called for the Government’s fixed cost spending, which is projected to stabilise at just under $1.9 billion for the next three periods, to “come down substantially”.

While acknowledging that the Budget was

“a step in the right direction” to curtailing the growth of the national debt, and reducing the fiscal deficit, KPMG said it largely “preserves the status quo” on spending “with little in the way of meaningful Budget cuts”.

The issue topped the list of the accounting firm’s concerns over the 2014-2015 Budget, with KPMG stating: “Clearly, the ‘elephant in the room’ is Government expenditure.”

It acknowledged that the Christie administration was attempting to impose fiscal austerity gradually, in a bid to avoid economic shocks that increased an already-high unemployment rate, while also preserving public services.

“The question is: Are the measures being taken sufficiently aggressive at this time?” KPMG asked. “The Budget shows expenditures increasing by $103 million for 2014-2015 over the projected outturn for 2013-2014, and stabilising just under the $1.9 billion level over the next few years. There is no doubt that this needs to come down substantially.”

While the civil service payroll, representing 70 per cent of the Budget, was “notoriously difficult” to cut into, KPMG urged the Government to review payroll systems for inefficiencies and leakages. It also praised it for starting to seek efficiencies with its non-payroll spending.

“We feel the Government should take a much more aggressive approach on this area, and look forward to seeing the mid-term Budget once some of these planned improvements are implemented and working,” KPMG said.

“This expenditure budget is relatively void of any major expense reduction initiatives, while at the same time appearing to be one of relative containment with respect to any new expenditures.”

Such a call backs the position taken by the Coalition for Responsible Taxation, which has consistently argued on the private sector’s behalf that spending cuts/controls are “critical” if the Bahamas is to successfully achieve fiscal reform.

Breaking down the $103 million spending increase projected in the 2014-2015 Budget, KPMG said that an increase in debt principal and interest payments accounted for “a whopping” $42 million.

“Total interest payments are expected to be $259 million in 2014-2015, which is a $54 million increase in two years,” the accounting firm said.

“Total debt redemptions are projected at $98 million. So between the two, we are looking at $357 million in debt service.”

As for capital spending, this is projected to grow by 12.3 per cent or $36.202 million year-over-year to hit $331.393 million in 2014-2015, up from $295.19 million. The Government has helped offset some of the increase by cutting Bahamasair’s subsidy by $5 million.

KPMG again advocated that the Government employ private-public partnerships (PPPs) on infrastructure projects, bringing private sector capital and expertise into the mix.

“The capital needs of the Bahamas far exceed $331 million, and indeed in prior studies we have estimated the total short to mid-term need in excess of $2 billion,” KPMG said.

“A primary objective of PPPs is, of course, not just about investment, but more importantly about higher quality and lower cost service provision to the general public and visitors alike.

“At the same time, we believe that better strategic planning of infrastructure, much improved procurement practices and consistency amongst ministries, departments and corporations need to be urgently addressed to improve the efficiency of capital expenditure, as there is no doubt a significant potential saving in these numbers.”