The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Tourism and the economy’s gradual re-opening enabled the government to narrow the gap between its revenue forecasts and outturn despite a $736.1m first half deficit, it was revealed yesterday.

Marlon Johnson, the Ministry of Finance’s acting financial secretary, told Tribune Business that tourism’s slow ramp-up from November onwards, together with the easing of COVID-19 restrictions on the domestic economy, had helped the government’s income flows make up lost ground following the lockdowns that plagued the 2020-2021 fiscal first quarter.

“In the second quarter we ended up being a bit closer to the budget projections than in the first quarter, which was a positive development,” Mr Johnson said. “That put us closer in line with where we thought we would be at this particular juncture.

“We’re not far off from where we thought we’d be at this particular juncture because the November and December numbers were pretty solid. The January numbers are promising in terms of revenue.”

Senator Kwasi Thompson, minister of state for finance, described the improving revenue trends as promising in a statement yesterday. “I wish to note in particular that we have seen a strengthening in the revenue performance as the domestic economy opened back up and the tourism trade began to pick up in November and December,” he said.

“While the month of January 2021 is not covered in this report, I am pleased to advise that preliminary indications are that we will likely meet - and perhaps exceed - the budgeted revenues for January, an encouraging sign in what has understandably been the country’s most challenging economic period ever.”

The Government’s so-called “fiscal snapshot” and 2020-2021 first half report, released yesterday, was nor surprisingly full of ‘red ink’ given the devastation inflicted by COVID-19 on the very economic activity and consumer demand it relies on to drive the bulk of its revenue streams.

With income down by $430m year-over-year, and spending up by $112.1m as the Government sought to ease the pandemic’s worst effects on vulnerable Bahamians and the economy, the fiscal deficit expanded by $542.1m compared to the prior year’s $194m.

“The imposition of more restrictive COVID-19 measures in the opening quarter of fiscal year 2020-2021, and the slower than anticipated recovery of economic activity in the ensuing months, dampened revenue collections for the first half of fiscal year 2020-2021,” the report said.

“Compared with the corresponding period of fiscal year 2019-2020, total revenue declined by an estimated $430m (39 percent) to $671.4m, which constituted 61 percent of the prior year’s collections and 38.1 percent of the budget target. Developments were largely driven by sharp contractions in receipts from VAT, excise taxes, customs and import duties and departure taxes.”

VAT, the Government’s main revenue source, suffered a $229m or 44.4 percent year-over-year decline to $286.3m due to the drop-off in economic activity. That compared to $515m collected in the 2019-2020 fiscal year’s first half.

Even gaming revenues, which had previously been extremely resilient, suffered due to the restrictions and lack of business affecting both hotels and casinos. “The reduction in economic activity and higher unemployment conditions also adversely impacted gaming/betting activity, with gaming taxes lower by $8.4m (43.3 percent) at $11m,” the “fiscal snapshot” added.

“Revenue receipts for the first half of the fiscal year 2020-2021 stood at $671.4m or 38.1 percent of the budgeted amount, a decline of $430m (39 percent) from the comparative year-earlier period. Tax receipts, at 37.6 percent of budget, contracted by $425m (42.7 percent) to $569.5m, and non-tax revenue was lower by $4.9m (4.6 percent) at $101.9m for 41.2 percent of the budget.”

The Government traditionally earns the bulk of its revenues in the first three months of the calendar year, as this coincides with tourism’s peak, the payment of Business Licence fees and most real property taxes, and commercial vehicle licensing month. The impact this year, though, will be much more muted.

“Similar to the factors impacting VAT receipts, excise tax receipts contracted by $43.6m (32.9 percent) to $88.9m,” the “fiscal snapshot” said of the 2020-2021 first half. “The intake from taxes on international trade and transactions narrowed by $128.7m (55.5 percent) to $103.1m.

“Property income aggregated $16.8m to represent 41.5 percent of the budget, and an increase of $10.6m from the prior year comparison, buoyed by the $11.8m Autec lease payment made in the second quarter.

“Receipts for the sale of goods and services, of $65.9m, were $20.5m (23.7 percent) below the year-earlier intake. Dominating this outcome were declines in Immigration fees of $8.4m (20.3 percent) and Customs fees of $6.4m (27.2 percent).”

Meanwhile, COVID-19 caused total government spending to increase by $119.5m or 10.1 percent to $1.299bn or 50.4 percent of the sum budgeted for the full year. This was despite a $41.2m reduction in the public sector’s wage bill to $342.3m, which was largely due to the absence of the $22.8m lump sum payment that was made to civil servants in the prior year.

“Expenditure on social assistance benefits expanded significantly by $91.6m (715.6 percent) to $104.4m compared to the same period in the prior year to settle at 76 percent of the budget,” the report said.

“Approximately $66.2m was expended on direct cash transfers under the Government’s unemployment assistance programme administered by the National Insurance Board (NIB). Furthermore, food assistance benefits, which were facilitated via the Department of Social Services and the National Food Distribution Task Force, totaled $30.8m.”

Elsewhere, subsidies to state-owned enterprises (SOEs) jumped by $21.5m or 10.9 percent to $219.3m, accounting for some 59.1 percent of the sum allocated for the full year. “Subsidies to public non-financial corporations were boosted to $205.7m from $189.5m,” the “fiscal snapshot” added.

“This included transfers of $117.1m to the Public Hospitals Authority (PHA) to support its ongoing operations as well as COVID-19 remediation efforts. Support of $34.8m was provided to Bahamasair, $19m to the National Health Insurance; and $15.2m was transferred to the Water and Sewerage Corporation to support operational costs amid revenue challenges imposed by the impact of the COVID-19 economic disruptions.”