The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government must not cut spending so deeply that it chokes off essential infrastructure investment, the Chamber's chairman warned yesterday, as its deficit fell by over one-third.

Michael Maura, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chairman, welcomed the reduced deficit and recurrent spending slashes but cautioned against shrinking government too far because of the negative impact on consumer demand.

He was speaking after the Central Bank's December economic developments report revealed that the Government's fiscal deficit for the five months to end-November 2017 had dropped by 33.8 per cent or $85.8 million year-over-year, falling to $168.1 million.

The decline is largely due to the fact that this period in 2017-2018 is up against Hurricane Matthew comparatives from the prior fiscal year, when the then-Christie administration had to undertake an unplanned $150 million emergency borrowing and increase spending to repair essential infrastructure, public assets and homes damaged by the storm.

The damage inflicted by Hurricane Irma last year, estimated at $135 million, had much less of an impact on the first five months of the Minnis administration's Budgetary performance. However, the Central Bank figures mean the $7.5 billion national debt continues to increase, albeit it at a slower rate, with the $168 million deficit placing the Government close to the track necessary to achieve its $323 million full-year target.

Mr Maura said it was "paramount" that the Government put its 'fiscal house' in order to boost economic growth and private sector confidence, but added that it should not focus on cutting costs alone.

"That speaks to discipline, that speaks to investment in our future, and it speaks to delivering on commitments to the Bahamian people," the Chamber chairman added of fiscal reform. "That was one of the biggest issues we had under the former administration; we felt they didn't have a firm hand on the financial controls of government."

He added that while recurrent spending needed to be kept in check, the Government must still look for infrastructure investment opportunities that will generate positive returns by supporting private sector expansion.

"We can't just have a government cutting costs," he told Tribune Business, "as you will shock yourself out of business." Mr Maura explained that the Government had "to balance the necessary cost reduction effects against economic growth effects".

He added: "Where does the Government have to invest? We have to be careful that we don't tie ourselves off too tight to where we're hurting ourselves economically because the Government is still the biggest business in the country."

Mr Maura said there were several infrastructure improvement opportunities that "don't necessarily cost the Government money", pointing to energy reform. He added that the Bahamas Power & Light (BPL) tenders on fuel supply and short-term generation were examples where the required capital investment will be made by the winning private sector, not the taxpayer.

Outlining the Government's fiscal performance for the five months to end-November 2017, the Central Bank report said: "Data on the Government's budgetary operations for the first five months of fiscal year 2017-2018 showed that the deficit narrowed by $85.8 million (33.8 per cent) to $168.1 million.

"Underpinning this development was a $28.9 million (4.1 per cent) increase in total [revenue] receipts to $738 million, and a $56.9 million (5.9 per cent) reduction in total expenditure to $906.1 million."

The data made clear that much of the decrease resulted from the absence of Hurricane Matthew-related revenues losses and extra spending, which impacted the year-before period.

"The reduction in expenditure was solely attributed to a halving in capital outlays by $61 million to $59.7 million," the Central Bank said. "The ratcheting down of hurricane-related spending decreased infrastructure expenditure by $48.1 million (48.8 per cent), while asset acquisitions declined by $13 million (58.3 per cent).

"In contrast, current expenditure edged-up by $4.3 million (0.5 per cent) to $846.4 million, driven by a $40 million (9.4 per cent) increase in consumption outlays. Specifically, spending for wages and salaries grew by $22.7 million (7.9 per cent), and purchases of goods and services advanced by $17.2 million (12.4 per cent), mainly on account of a $23.1 million increase in 'other' contractual services. In contrast, transfer payments declined by $35.8 million (8.6 per cent), underpinned by a reduction in health-related subsidy payments" for National Health Insurance (NHI).

On the revenue side, Value-Added Tax (VAT) receipts increased by $15.7 million or 6 per cent year-over-year, supporting a $27.2 million or 4.3 per cent increase in tax revenues to $659.2 million.

"Broad-based gains also occurred for most of the remaining categories, with receipts from taxes on international trade firming by $7.7 million (3.7 per cent) due mainly to higher excise taxes," the Central Bank found.

"In addition, business and professional fees rose by $6 million (46.2 per cent) on account of gains in general Business License fees, while higher gaming tax revenue was responsible for the $1.5 million (15.5 per cent) advance in selective taxes on services.

"Further, 'other' miscellaneous taxes were virtually unchanged, as the $7.4 million (42.6 per cent) fall-off in unclassified stamp taxes negated gains in motor vehicle and property taxes. In addition, non-tax receipts firmed by $1.7 million (2.3 per cent) to $78.7 million, buttressed by an expansion in proceeds from fines, forfeits and administrative fees, which eclipsed decreased income from other sources."