The Tribune

* Ministry using 'microscope' to find savings

* Minister pledges 'no plans to raise taxes'

* But studies eyed on 'progressive' options

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance's top official yesterday admitted it will be hard-pressed to achieve the $100m in recurrent spending cuts it is targeting over the next six months, conceding: "It will be very taxing."

Marlon Johnson, responding to Tribune Business queries at a press conference on the newly-released Fiscal Strategy Report, conceded that such savings will be hard to achieve because the Government's 2020-2021 Budget had already been "scaled back" to cope with the slump in tax revenues produced by COVID-19.

Disclosing that Ministry of Finance officials and analysts were inspecting the Budget "with a microscope" to detect areas where expenses can be slashed, Mr Johnson said the Government's permanent secretaries - the civil servants in charge of its ministries - and other top executives all "understand the precariousness of where we are".

Describing the search for recurrent spending cuts as "a work that's in progress", Mr Johnson said the Ministry of Finance was working with all ministries, departments and agencies to target areas such as "discretionary programmes and subventions to state-owned enterprises" for cutbacks.

"We're really going through that with a microscope to see what can be postponed and deferred," he replied to this newspaper. "It is very taxing given that we start with a scaled back Budget. My permanent secretary colleagues understand the precariousness of where we are."

Senator Kwasi Thompson, the newly-appointed minister of state for finance, in unveiling last week's Fiscal Strategy Report, said the Government was seeking $200m worth of spending cuts - some $100m on the recurrent side, and a matching $100m reduction on capital expenditure - to ensure it met the 2020-2021 Budget's $1.327bn deficit target.

He explained that the cuts were necessary because of some $75.8m in previously unplanned COVID-19 assistance spending, and a $68m undershoot on projected first quarter revenues due to a combination of lockdowns and the slower-than-expected tourism recovery.

While capital spending, which includes infrastructure and public works developments, is much simpler to slash by simply delaying or deferring non-key projects, the Government's recurrent budget is much harder to unpick in the search for savings.

This is because it includes all the Government's fixed costs, such as civil service wages, emoluments and pensions; rents for property; and debt servicing and principal redemption costs - with the latter now the single biggest line item in the Budget. All these expenses are effectively set, or baked in, making it much harder to make cuts without causing pain.

Mr Johnson yesterday acknowledged the challenge of finding deeper cuts in the recurrent or fixed-cost Budget, especially since all ministries, agencies and departments had already been tasked with cutting expenses by 20 percent prior to the new fiscal year's start.

He confirmed that "the Government is intending to postpone non-essential and bigger projects that can be deferred" on the capital spending side to achieve the necessary $100m savings there, and added that reducing taxpayer subsidies to state-owned enterprises (SOEs) will be critical to enabling the Government to meet increased debt servicing obligations produced by the COVID-19 blowout.

With almost $408m budgeted for such subsidies in 2020-2021, Mr Johnson said: "The Government is seeking accelerated savings of $100m over the next four years. That is critical to enable the Government to meet its debt servicing obligations as a result of the increased expenditure caused by" COVID-19.

Mr Thompson, meanwhile, reassured Bahamians the Government has no plans to impose new and/or increased taxes on Bahamian businesses and households - at least not in the short-term until the economy has recovered.

"The short answer to that is there are no plans for increases in taxes," he said in response to questioning. "One of the things we really want to be focused on is to maintain the plan we have in place now. We have to take care of our people. We have to focus on reducing spending, and then we must grow the economy.

"There is a school of thought that if we increase taxes that is going to have an effect on growing the economy. In short, there are no plans at the moment for us to increase taxes." Many observers, though, will likely be sceptical and unconvinced that The Bahamas can escape imposing new and increased taxes over the medium to long-term once the economy has recovered from COVID-19.

This is due to the debt and deficit blow-out produced by the pandemic in combination with Hurricane Dorian. The Fiscal Strategy Report itself forecasts that the national debt will be approaching $11bn come 2024-2025, and admits that economic growth by itself will not be sufficient to set The Bahamas back on the path to economic and fiscal sustainability.

Mr Johnson, in his presentation, indicated that the Government has adopted the recommendation from the Economic Recovery Committee (ERC) he co-chaired to "review the existing tax regime and develop a road map of tax system reform recommendations that would introduce greater progressivity, fairness and stability".

This language seemingly indicates a shift towards an income or corporate income tax-type system, away from the regressive consumption-based taxes that The Bahamas has traditionally relied upon. Mr Johnson, though, said the Ministry of Finance was only at the starting point when it came to undertaking the necessary studies that will provide the empirical data to justify any tax reform.

This work, he added, will determine "where the underlying burden falls" when it comes to paying any new tax, as well as the costs and administrative complexity associated with enforcing it. The acting financial secretary also reinforced that SOEs must move to a "cost recovery model", either through fee/tariff increases that cover the cost of providing services, or efficiency and savings gains.

Both he and Mr Thompson were also forced to give a clarification after Mr Johnson indicated that "the number of clerical positions" within the public sector will likely reduce over time as the Government moves to digitise more and more government services.

Mr Thompson said the digital transition will take place over time, and not result in "a complete shock that persons are out of work or a job description". He added that the switch would be accompanied by retraining for those affected, while new posts would likely be created that they can fill.

"Where we see savings is not what the Government spends," Mr Thompson said. "Where we see savings is in efficiency, and for the businesses and people that have to use these services. It saves them time in terms of doing business with the Government.

"The time one spends on the line is time not working, time when they are not making money. We're focused on reducing the amount of time persons are spending doing business with the Government to get that service."