The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A FORMER Cabinet minister yesterday accused the Government of “the height of fiscal irresponsibility” with the Budget’s projected deficit forecast to overshoot by some $149m targets set just four months ago.

Kwasi Thompson, ex-minister of state for finance in the Minnis administration, slammed its successor for “significant divergence” from the goals set out in January’s Fiscal Strategy Report as it unveiled changes to revenue, spending and deficit targets for the 2022-2023 fiscal year set to begin on July 1.

Asserting that this was “wholly against the letter and the spirit of the Fiscal Responsibility Act”, Mr Thompson zeroed in on the revised fiscal deficit which is now projected to equal $564m or 4.3 percent of national gross domestic product (GDP). The deficit measures by how much the Government’s spending exceeds its revenue income, and the east Grand Bahama MP argued that the $564m was a major change to the $415.2m forecast at end-January.

“This government has made a significant divergence from the Fiscal Strategy Report’s 2021 deficit target of $415.2m to a Budget target of $564m. They told Parliament the fiscal deficit would be 3 percent of GDP, now it is 4 percent of GDP. That increase of $148.8m represents a 36 percent increase over the target that you told Parliament and you told the Bahamian people.

“This is wholly against the letter and the spirit of the Fiscal Responsibility Act. The Fiscal Responsibility Act was established to ensure that all governments lay out their fiscal plans and fiscal targets, and only diverge from these targets under exceptional negative circumstances, such as natural disasters or severe economic shocks.” This would have been triggered by Hurricane Dorian and the fall-out from the COVID-19 pandemic.

Asserting that none of these criteria were now present, Mr Thompson accused the Government of “simply ignoring” the law as set out by the Fiscal Responsibility Act and breaching its own fiscal objectives in the Fiscal Strategy Report.

However, both Senator Michael Halkitis, minister of economic affairs, and Simon Wilson, the Ministry of Finance’s financial secretary, have justified the revised Budget numbers as compared to those in the Fiscal Strategy Report on the basis that the economy is rebounding much faster than anticipated from the effects of COVID-19 now it has re-opened further.

This, they added, has prompted the Government to adjust its forecasts as more information on the economy becomes available. And Mr Wilson told this newspaper that the projected $564m deficit does not account for, or include, potential revenue windfalls such as the $100m that the Davis administration is due to receive if it sells the Grand Lucayan hotel.

Yet Mr Thompson said: “By their own account - and by the information they have provided - the revenues are over-performing. The economy is doing better than expected thanks to the highly effective policies left in place by the former FNM government. So with the economy doing better than expected, and with revenues doing better than expected, we should have seen a Budget where the target deficit is lower than what was in the Fiscal Strategy Report.

“Instead, contrary to the requirements of the Fiscal Responsibility Act, the Government is coming in with a higher deficit number. This administration is not taking its fiscal responsibility seriously. The Fiscal Responsibility Act lays out the only acceptable reasons for diverging from fiscal targets. None of these situations prevail today that warrant such an exception.

“If the Government chooses to ignore the Fiscal Responsibility Act - the same act they supported and quoted often while in Opposition - it wholly undermines their credibility and, of course, it puts our credit ratings in jeopardy for no good reason. And when our credit rating falls, our borrowing costs go up and Bahamian taxpayers everywhere pay the price for their fiscal irresponsibility.”

Mr Thompson said “the really worrisome part” is the Government’s decision to exceed the Fiscal Strategy Report’s spending projections. Recurrent or fixed-cost spending, which goes on the likes of civil service salaries, wages, emoluments and rent, was forecast at end-January 2022 to be $2.698bn in the upcoming 2022-2023 fiscal year. However, that has been revised upwards by $300m to $2.997bn.

The former minister explained that this was especially concerning when set against revenue forecasts that he branded “sheer fantasy”. He added: “Show us the data that forms the basis for your revenue projections. Tell us how you will collect $1.4bn in VAT, $500m more than last year, without significant new tax measures...

“The Fiscal Strategy Report is not just a guide, but it has the force of law in the fiscal targets and objectives. The PLP budget has a material and significant difference from the Fiscal Strategy Report. How can we believe what you say? You presented a Fiscal Strategy Report and, in the first year, you are unable or unwilling to abide by it.”

Rather than reduce the public service wage bill to $568m, as shown in the Fiscal Strategy Report, Mr Thompson said the 2022-2023 Budget was now expanding this by $56m compared to the outlay for the 2021-2022 fiscal year. And the Government has also temporarily shelved plans to slash subsidies to state-owned enterprises (SOEs), which are set to increase by almost $31m year-over-year in the upcoming 2022-2023 Budget year.

The Davis administration’s Fiscal Strategy Report, released just four months prior in January 2022, had committed the Government to pursuing plans left in place by its predecessor that were targeting a $100m cut in these subsidies to the likes of Bahamasair and the Water & Sewerage Corporation “over the medium-term horizon”.

But the Davis administration is increasing total taxpayer subsidies to them in the upcoming 2022-2023 fiscal year by 7 percent to $457.183m compared to the $426.202m forecast for the current Budget cycle. Of the latter figure, some $398.251m had already been advanced as at end-March 2022.

Taxpayer funding is thus going in the opposite direction to the cost savings drive pledged in the Fiscal Strategy Report. Most of the increase is directed to three agencies: The Public Hospitals Authority ($9m to $232.456m); the Bahamas Public Parks and Beaches Authority ($8.8m to $24m); and the Water & Sewerage Corporation ($8m to $32m).

“What you have done is increase the allocations to state-owned enterprises. Clearly, your commitment to begin reform of state-owned enterprises was only hot air,” Mr Thompson said yesterday.