The Tribune

• Some $5.4m ahead of prior year, defends projections

• Warns ‘cannot shoot from the hip’ over tax reform

• Yet ‘cannot sit idly on the sidelines’ over tax push

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday defended the government’s forecasts for the upcoming fiscal year by revealing that its revenues had exceeded projections by almost $127m over the past six months.

Kwasi Thompson, minister of state for finance, responded to charges that the revenue projections for the upcoming 2021-2022 fiscal year are too optimistic or aggressive by describing an improving income trend since the tourism industry and wider economy began their re-opening in earnest in November 2020.

While revenues for the six-month period to May 2021 were only $5.4m ahead of their prior year comparatives, the latter included almost four months where the Bahamian economy was not impacted by COVID-19 prior to the end-March 2020 lockdown. However, the expectations for this fiscal year suggest that revenues have to be measured against a low bar.

“With the opening of the economy in November 2020, the country has experienced higher-than-expected or projected growth in revenue inflows from main tax categories such as VAT, Customs and border taxes,” Mr Thompson said in leading off the Senate’s Budget debate.

“In fact, revenue for the five months ending November 2020 totalled only $530m, a contraction of 42.4 percent compared to the same period of the prior year. Those first five months were a hard five months.

“But if we look at revenue for the last six months - the period of December 2020 to May 2021 - preliminary data places revenue ahead of budget projections by 13.5 percent ($126.6m). Revenue collection for the six months ending May 2021 is also ahead of actual revenue for the same period in the prior year by a marginal $5.4m,” the minister added.

“Obviously we do not expect revenue inflows to compare to the pre-Dorian/pre-COVID levels, but as I have said, madame president, we are trending in the right direction and well on track to meeting this fiscal year’s revenue estimates. The momentum is building, the economy is on a good path and The Bahamas is coming back.” 

Various observers, including former minister of state for finance, Zhivargo Laing, and economist Rupert Pinder, have voiced concerns that the revenue projections for the upcoming 2021-2022 fiscal year that begins on July 1 are too optimistic and aggressive. Successive administrations have established a track record in failing to achieve their annual revenue targets.

The fear here is that, if the Government misses or under-shoots on its tax targets and other income goals, the fiscal deficit will widen beyond the forecast $951.8m and force the Government to either slash spending or undertake unanticipated borrowing that further hikes the $10.4bn national debt.

The $2.245bn recurrent revenues predicted for next fiscal year represent a 35.6 percent increase on the $1.656bn projected to be collected in 2020-2021. They are also a 7.5 percent, or $157m, increase on revenue earnt in the 2019-2020 fiscal year, although the latter quarter of that period saw virtually no economic activity at all due to lockdowns and border closures.

The upcoming year’s revenues are just under $180m, or 7.5 percent, below the $2.426bn gained in 2018-2019, which was the last full fiscal year before COVID-19 and also when the Government raised the VAT rate to 12 percent.

Mr Thompson, though, sought to allay these fears by arguing that tourism’s rebound over the coming months will act as a rising tide to lift all boats and increase revenue inflows coming into the Public Treasury.

He also asserted that he “doesn’t accept one bit” assertions that The Bahamas is “on the brink of some sort of fiscal collapse” due to record deficits that are forecast to peak this year at $1.327bn, and which will increase the national debt by more than $3bn over the three years to end-June 2022 to stand at a forecast $10.4bn.

Arguing that the Government had no choice but to borrow as The Bahamas recovers from the “massive setback” of Hurricane Dorian and COVID-19, Mr Thompson said the resulting surge in the national debt was “a worthy sacrifice” to protect Bahamian businesses, jobs and the most vulnerable. 

“Not all debt is created equal,” Mr Thompson said, justifying the heavy reliance on World Bank and Inter-American Development Bank (IDB) loans to meet a large portion of the deficit financing. “We have a well-established profile with the international financial agencies and we have been able to leverage this profile to secure concessionary terms on rates for this lending, unlike if we were to simply rely on an open market for our financing needs.

“Even rating agencies view debt from the international agencies differently from the mainstream banking institutions because of the positive development impacts associated with such borrowing. This is why we have given more priority to the management of these relationships.”

Promising that the Government will “not shy away or sugarcoat” the realities facing The Bahamas, Mr Thompson said this nation also “cannot shoot from the hip” when it comes to tax reform despite external pressures such as the G-7 agreement on a minimum 15 percent global corporate tax rate.

The minister said initial work on The Bahamas’ own tax reform study has already been carried out, with the initiative set to be “in full swing” by September 2021 and preliminary results available by year-end. “We will publish a white paper on the findings of the study and will ensure broad consultation and input from the public regarding the outcomes of the assessment,” Mr Thompson said. 

“We want to ensure that whatever significant changes we propose to the tax framework, that these changes are informed by reasoned and empirical analysis, and not simply the conjecture and posturing that too often gets attention when matters such as this are raised in the public domain.”

While The Bahamas will assert its rights to implement a tax system best-suited to its needs, Mr Thompson said it cannot ignore the implications of the G-7 deal. “We cannot sit idly on the sidelines,” he added. “We are participants in a global environment. We embrace the notion that, even in the midst of changes, there are always opportunities. This is the approach we must take.

“While change may be coming, we must be ready to embrace the new opportunities. We have already begun the dialogue with the financial services sector to gain an understanding of how the proposed new global tax protocols may impact their business.

“At the same time as we contemplate tax reform, we are going to work with stakeholders to determine how best to position the changes in the global landscape to adjust both our tax systems and the portfolio of products on offer by our international financial institutions to ensure that we create more opportunities here in The Bahamas.”