The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Opposition’s finance spokesman is “giving the Government the benefit of the doubt” over the widening $100 million gap to its 2015-2016 deficit target.

K P Turnquest told Tribune Business that March would be “a critical month” for the Christie administration in determining whether it will hit its $141 million deficit target for the year to end-June 2016.

“I think we were all concerned that they would not be able to make up the significant ground lost at the end of the year,” he said, referring to the fact that the deficit was already $16 million above the full-year target at end-December 2015.

“However, I’m willing to give the Government the benefit of the doubt, recognising that a lot of new revenue comes in during the first quarter.”

Mr Turnquest was responding after the Central Bank’s monthly report for February showed that the Government was getting further away from its targets, as the total fiscal deficit for the first eight months in the 2015-2016 Budget year stood at $242.7 million.

March, though, is revenue-heavy for the Government, as all Business Licence fees have to be paid by month’s end. It is also when all commercial vehicles are due to be licensed, and this year contained Easter - the peak of tourism industry activity.

Michael Halkitis, minister of state for finance, previously suggested this revenue boost would enable the Government to make up fiscal ground lost during the 2015-2016 year’s first half.

He pointed out that the bulk of the Government’s revenues are traditionally earned during the second half of the fiscal year, in a position that was also supported by the Central Bank.

Yet given that Business Licence fees are turnover-based, the Government is likely to see at least a 10 per cent reduction in this revenue stream as a result of Value-Added Tax’s (VAT) impact on sales and consumer demand.

The Christie administration had predicted that Business Licence fee revenue will increase from $126 million in 2014-2015 to $140 million this fiscal year, a forecast that VAT will apply pressure to.

“March is going to be a critical month for them,” Mr Turnquest told Tribune Business. “If that comes in flat, they’re going to have a major problem.”

He added that the Government had pushed its forecast for when it will run a GFS surplus back a further year, and said: “They’re couching their language a bit more carefully now to give themselves some wiggle room.”

And, despite the Government earning almost $424 million in gross VAT revenues in the eight months to end-February 2016, Mr Turnquest questioned what the net impact would be once all due refunds were paid to the private sector.

The FNM’s deputy leader also expressed concern about the continuing increase in total government spending, which rose by $171.8 million or 13.7 per cent upturn to $1.427 billion by end-February 2016.

“That was one of the things we raised during the mid-year Budget; that spending was going up significantly,” Mr Turnquest told Tribune Business.

“Even after taking into account what they said about the shift of spending from the capital to the recurrent account, there was still $100 million in additional expenditure this year over last.

“That does not point to a government that recognises we have a problem,” he continued, “and that fiscal controls are a significant part of the solution to the debt problem we have.

“We have to recognise that at some point we will hit that tipping point beyond which there is no return with this, so it will be prudent for the Government to scale back its expenditure to ‘break even’ or be level with the previous year at the very least, so we don’t spend money we don’t have.”

The $6.6 billion national debt is continuing to increase, albeit at a much slower pace following VAT’s introduction.

However, suspicions persist that the Government is using the VAT monies to finance increased spending and social programmes, as opposed to eliminating the deficit and paying down the national debt - its initial goals.

The 2016-2017 Budget is due to be unveiled on May 25, and Mr Turnquest said there was a “big risk” of further spending increases given that a general election is due within the next 12 months.

“How far are these guys willing to paint a picture that is unrealistic and unsustainable going forward?” the FNM deputy leader asked of the Christie administration.

“How much room do we have to accommodate these things? God help us if some hurricane or disaster occurs in that period.

“We have to recognise we’re in difficult times. Yes, there are some projects on the board ready to go; the Freeport Container Port expansion may happen,” Mr Turnquest added.

“But these things do not happen overnight, and we must take these windfalls when they arise to pay down the debt and create fiscal space, rather than consume it with new spending.”