The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will bridge the “gap” to its $1.3bn revenue increase with “additional measures” in the upcoming mid-year Budget as it faces criticism for “very extreme” fiscal forecasts.

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business that some “new tax measures” will be required to achieve the projected 55.7 percent increase in government revenues over the next four years - an objective critical to achieving a forecast $71.9m Budget surplus by the 2024-2025 fiscal year.

While confirming that the Davis administration has not fully declared its hand on all possible options in the just-released Fiscal Strategy Report, he held to the position that enhanced enforcement and greater compliance will be “the primary driver” behind the attainment of $3.643bn in total revenues in the 2025-2026 fiscal year.

Mr Wilson, while not providing any details on the new and/or increased taxes under consideration, said the Government’s senior tax officials were also confident that “a significant” sum remains uncollected annually across real property taxes, VAT, Customs duties and Excise Tax.

Asked by this newspaper how the Davis administration planned to meet the Fiscal Strategy Report’s targets, especially since it spoke to generating just an extra $300m annually via enforcement measures when a further $1.3bn will be required in just four years’ time, Mr Wilson replied: “There is a gap, but you have to look at this report in context.

“I think the minister of finance [Prime Minister Philip Davis] indicated that during the mid-year Budget, he’ll speak to additional revenue measures in some detail. It’s a process over a period of time; there are a number of things going on. You cannot be premature in any announcements.

“The minister, at the mid-year Budget, indicated he will speak to some revenue measures, and then you have the annual Budget in May. We’re doing different scenarios as to what it will be, and how it might look, and once internally we are comfortable with it, and the minister is comfortable with it, they will be published.”

Mr Wilson spoke out after the Government’s 2021 Fiscal Strategy Report, released at 11.20pm last Thursday night, revealed it is targeting a more than $1.3bn revenue increase over the next four fiscal years - increasing its total tax and fee income from the presently-projected $2.339bn to $3.643bn in 2025-2026.

Such a goal, together with the forecast $71.9m and $220.4m Budget surpluses for 2024-2025 and 2025-2026, have already provoked concerns that the report’s projections are too aggressive and overly-optimistic given the struggles of many households, businesses and the wider economy to recover from the twin devastating impacts of Hurricane Dorian and COVID-19.

Kwasi Thompson, ex-minister of state for finance in the Minnis administration, in giving the Free National Movement’s (FNM) response to the Fiscal Strategy Report said the forecasts “diverge materially” from the 2020 version produced under its watch.

“Yet, critically, it does not provide the evidence to justify the change in these projections, some of which are very extreme,” he blasted. “The Fiscal Strategy Report provides for an almost 60 percent increase in the amount of Government revenue in four years.

“What is the basis for such projections, considering that you have decreased the amount of VAT [from 12 percent to 10 percent] and have not mentioned any new taxes? How are we to rely on these numbers when the Fiscal Strategy Report 2021 states that they have not completed the studies or strategy that we were expecting to accompany and justify the projections?”

However, Mr Wilson argued that some of the revenue buoyancy will be produced by “the reflation of the economy” as tourism continues to rebound, and businesses re-open, following prior COVID-19 lockdowns and other restrictions.

“Some of it is going to be the reflation of the economy, some of it is going to be a focus on compliance and some of it is going to be new tax measures,” he told Tribune Business of how the Government plans to hit its revenue and Budget surplus targets. “Based on our analysis we believe compliance will be the primary driver.”

While the recent real property tax revaluation exercise, and massive increase in tax bills for some, had grabbed the headlines in recent days, Mr Wilson added: “There are other taxes where compliance is not up to acceptable levels.

“If you look at the various Budget pronouncements over the past years, there has been material disappointment with the performance of the Customs Department. There may be money there. We haven’t done an in-depth VAT performance analysis because of the pandemic and so forth, so there may be non-filers and money sitting there.

“There’s a strong feeling that the Business Licence can be improved, looked at and made fairer and more equitable, and those improvements may lead to an increase in revenues.”

Mr Wilson declined to give a figure for how much the Government believes it loses out on annually in uncollected taxes, but added: “Based on internal discussions and what we know, we feel - and that’s the persons involved in tax administration in the Government - very comfortable it’s a significant figure.”

The financial secretary has similar expectations about the potential revenue boost from reducing VAT to 10 percent, and eliminating most of the ‘zero ratings’ and exemptions. He added: “I really think it’s going to be significant, but we won’t know until the April filing. That will be the first quarterly filing under the new regime and will tell us what is happening, all things being equal.”

Yet Mr Thompson was not the only person yesterday to voice concerns about the Government’s revenue and deficit forecasts. Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, told Tribune Business: “The projections seem a bit optimistic given directly where we are.

“If we are striking out for a Budget surplus in such a short period of time, which is what that speaks to, I’m not sure we’ve accounted for the challenges with inflation and the supply chain, and the impact that will have on consumer behaviour.

“Basing it on a balanced Budget in such a short time and the surplus they anticipate, it’s still hard to get your mind around that in terms of historically what we’ve seen, our ability to execute, the minimal growth in our economy and lack of compliance in many areas.”

Mr Aubry said achieving the Fiscal Strategy Report’s targets depends on “two things we have not been very good at in The Bahamas”. He added: “One is execution. It takes a long time to ramp up to things once you put plans in place, and that can affect performance against these goals.

“They’re also talking about increased compliance. It fundamentally comes down to public trust. There has to be accountability. You may build the engine, but you still need oil to keep it going, and that oil is public trust. To achieve this over five years, we’re going to have to invest significantly in making the public believe.”

Based on feedback to Tribune Business, the Government’s efforts to make all real property taxpayers pay their fair share are already running into scepticism as to whether those with the ‘right connections’ - political, religious and otherwise - will still be able to evade their obligations despite the rhetoric.