The Tribune

By RASHAD ROLLE

Tribune Senior Reporter

rrolle@tribunemedia.net

GOVERNMENT debt remains on course to top $10 billion by the end of the next fiscal year as the Minnis administration commits to substantial deficit spending to help the country rebound from the COVID-19 pandemic.

Prime Minister Dr Hubert Minnis unveiled his administration’s combination of tax concessions, targeted tax increases and spending plans during his budget communication yesterday.

He also tabled a resolution in the House of Assembly that would authorise the government to borrow $871,645,371 for the next fiscal year. He tabled another resolution that would let the government borrow $68m beyond what Parliament approved it to borrow for the current fiscal year which ends in June.

The deficit is projected to be $951.8 million in the 2021/2022 fiscal year.

“While the deficits proposed in the current budget remain at very elevated levels,” Dr Minnis said, “they are necessary to sustain the economy and set the stage for the impending economic rebound. Extraordinary times call for an extraordinary response. Unprecedented economic calamities must be met with unprecedented fiscal and policy initiatives. This administration makes no apologies for doing what is necessary and doing what is right to support Bahamians and the Bahamian economy under these most challenging of circumstances.”

But it bears repeating, my administration is not the party of fiscal recklessness. We have taken a temporary but a necessary detour from fiscal consolidation. As the economy stabilises in the coming years, we will return to the path of reduced deficits and public debt.”

Anticipating a global economic rebound as well as additional revenue from new tax measures, the government projects that revenue will increase by about $588.3 million during the next fiscal year. Dr Minnis said even with such an increase, revenue would be 7.5 percent below that of the 2018/2019 fiscal year.

He characterised the budget as “people centered,” saying it focuses “on maintaining and supporting families, small businesses and communities and growing our economy.”

He announced the elimination of value added tax on baby and adult diapers and sanitary pads and tampons for women. He also announced the elimination of customs duty on disinfectants, construction and repair materials to churches and other buildings used for religious gatherings, sporting equipment and apparatus and IT related hardware and cabling. He said these duty eliminations, among other things, would encourage hygiene and sanitation, encourage exercise and fitness and support private sector digitisation efforts. He said duty will be reduced on a number of building supplies to 20 percent and 25 percent to encourage construction activity.

Dr Minnis highlighted targeted tax increases that he said will yield over $50 million in revenue for the government.

“They are very specific and they are targeted,” he said of the increases. “They were designed with the notion of fairness and equity in mind.”

He said the law will be amended to clarify that all vacation home marketplaces, including AirBnB and BRBO, are required to pay VAT on rentals and commissions.

“Those marketplaces who are charging VAT presently have interpreted the legislation as being only applicable to the commissions paid out,” he said. “The clarification in the law will make it explicit: VAT will be applicable on the full value of the rental.”

Officials estimate that through this change, the country will reap an additional $31 million in revenue.

Dr Minnis said VAT will be increased on realty transactions for portions of real estate transactions that are over $2 million.

“Presently, all transactions of $100,000 are subject to ten percent VAT. With (this) amendment, those above $2 million will be charged full VAT rate of 12 percent, yielding an additional $4 million,” he said.

Dr Minnis also said amendments will be introduced to improve real property tax collections for commercial properties.

“We have had situations where owners of significant commercial properties collect substantial rent from businesses but are delinquent in the payment of taxes,” he said. “The legislative enhancements will permit the government to have those rents paid to the Department of Inland Revenue for delinquent commercial property tax owners.”

Dr Minnis said the government will increase excise tax on cheroots and cigarillos to bring them in line with conventional cigars.

He highlighted numerous budget allocations.

He said $2m will be used to support the Junkanoo community in support of their plans to develop a permanent headquarters. Other allocations include $31 million in “renewable and resilient” energy projects; $4 million for a Ragged Island multi-purpose centre; $2 million to restore the Ragged Island clinic; $1.5 million to restore the Ragged Island police station; $200,000 for repairs to the Marsh Harbour International Airport; $1.7 million for repairs to the Treasury Cay Airport; $5 million to support the North Eleuthera Airport; $5 million to support phase two of the Exuma International Airport; $4 million to repair and install proper drainage in Bel-air of Pinewood Gardens; $4.4 for an Inagua Comprehensive School; and $1.9 for an East Grand Bahama comprehensive school.”

He also announced that a special economic zone will be established to target southern islands.

Last year the Minnis administration announced plans to cut expenditure by reducing subventions to state owned enterprises by $100m. Dr Minnis, however, noted yesterday that this plan was abandoned and that payments to SOEs in some cases increased compared to years prior.

The payments included $11.2 million in assistance to Lucayan Renewal Holdings; $2.6 million to the Water & Sewerage Corporation; $34.5 million in payroll and operational support for Bahamasair; $4.1 million in operational support to the Airport Authority and $4.6 million to Nassau Flight Services.

“Part of the fiscal strategy plan calling for a gradual reduction of interventions to state owned enterprises was deferred ‘due to the effects of the pandemic’ on revenue flows to the entities,” Dr Minnis said.

“The outlays to those SOEs in the aviation sector have this year far exceeded their allocations. Despite some return to normalcy, the allocations to Bahamasair, Water & Sewerage and Nassau flight Services will be higher than in typical years as cash flow slowly returns to normal.”

Dr Minnis said full rebound of the Bahamian economy will hinge on the restoration of economies in neighbouring countries, this country’s ability to contain COVID-19 locally and the ability to energise the local economy.

He highlighted signs that the economy is already improving.

He said AirBnB occupancy rates more than doubled between November 2020 to March 2021, rising to 16.6 percent. “At the same time,” he said, “there was a two percent increase in average daily rental rates and a 52 percent increase in room reservations. Based on Central Bank data for the period end-March 2021, vacation home rentals and comparable hotel listings increased by 65.9 percent and 55.4 percent respectively. This also impacted average daily room rates which similarly increased by 10.8 and 7.5 percent to $497.95 and $169.36 for vacation home rentals and hotel listings respectively.

“With vaccine distribution ramping up, both in the Bahamas and abroad, major hotels re-opening, and the return of cruising in the Bahamas on the horizon, there is as steadfast optimism that the tourism industry will return to profitability sooner rather than later.”

Dr Minnis touted the strength of the country’s external reserves, saying they stood at $2,253.0 million at the end of April, an increase of 12.9 percent compared to March 2020.

“Despite the loss in foreign currency earnings from the key tourism sector, this administration prudently changed its debt management policy to seek US dollar borrowings to ensure an adequate level of foreign currency to support imports during the worst of the crisis,” he said. “Notwithstanding the worst economic calamities to befall the Bahamas in its recorded history, it is the prudent management and planning of this administration that has ensured that our foreign exchange holdings remain healthy and robust. That means that our Bahamian dollar has remained as strong as it ever has been.”