The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is “doing a bit of swinging for the fences” in its future revenue projections, a governance reformer believes, amid indications $486m in tax concessions were granted during the first nine months of the 2020-2021 fiscal year.

Matt Aubry, the Organisation for Responsible Governance’s (ORG) executive director, told Tribune Business that forecasts of a $1bn revenue increase during the three Budget cycles to 2024-2025 were “a bit optimistic” given The Bahamas current fiscal and economic status as well as historical performance.

Speaking after Moody’s last week voiced misgivings over whether The Bahamas will hit its revenue, spending and growth targets as set in the 2022-2023 Budget, he added that it was critical for the country to “mitigate the risks” identified by the credit rating agency.

“I think each of those are notable,” Mr Aubry told this newspaper of Moody’s concerns, adding of the revenue projections: “I think the Government is doing a bit of swinging for the fences with this...... I do think that’s a bit optimistic from where we’re at to get there.

“Coming from an external perception, It’s important to consider that, but the question is what are the things we need to be working on to mitigate some of these risks. How do we manage our debt? How do we make sure execution is more in line than it has been in the past, and that the Government does a good job in revenue retention and finding revenue?

“It cannot be that those numbers are there, and we see how we get there. It has to be ingrained in the foundation of this Budget, and how this government moves forward.” Describing the International Monetary Fund’s (IMF) take on The Bahamas’ position as “solid”, Mr Aubry said the country has had difficulty in meeting fiscal and Budget targets in the past, and added that “I don’t think we can push this down the line” in terms of extra revenue measures.

The Davis administration is projecting a $1bn revenue increase over the next three fiscal years, growing its income from $2.455bn in this year’s Budget to $3.539bn in 2024-2025. Yet it unveiled no new and/or increased tax measures in Wednesday’s Budget, and is instead seemingly relying on improved economic growth and better tax compliance, enforcement and administration to get there.

The post-COVID reopening and recovery is expected to generate a $537m year-over-year increase in revenue during 2021-2022 compared to the prior year’s $1.909bn. A further $346.5m increase is projected in the upcoming 2022-2023 fiscal year, meaning that recurrent revenue will expand by 28.6 percent by fiscal-year-end 2022 and 14.1 percent in 2023.

Besides the revenue surge, the Davis administration is relying on curbed recurrent (fixed cost) spending of just under $3bn to curb the deficit beyond the upcoming 2022-2023 Budget year and, by 2024-2025, convert this ‘red ink’ into a near-$279m fiscal surplus. The Government is forecasting that recurrent expenditure will peak at $2.997bn in 2022-2023 before declining to $2.952bn in 2023-2024 and then to $2.918bn in 2024-2025.

This was picked up by Moody’s, which warned of multiple “risks” to the Government’s fiscal consolidation projections due to the absence of any tax increases in the just-unveiled Budget. It also asserted that spending restraints will “weigh on economic growth”.

The Opposition last night seized on the rating agency’s assessment, with Kwasi Thompson, ex-minister of state for finance and now east Grand Bahama MP, saying its verdict was “very worrisome”. He told Tribune Business: “We share their concerns. Upon what basis have they [the Government] increased the VAT revenue projections by $500m? We share Moody’s concerns that real tax reform has not been addressed.

“They do not believe the fiscal targets will be met, and given this government’s record of over-spending the deficit will be further increased. Their concerns were only made worse with the total lack of a debt management strategy in the Budget communication. This only confirms the Opposition’s concerns.”

Moody’s had asserted that “over-optimistic revenue projections” in the absence of a wider tax base and difficulties in controlling government spending “in line with targets” represent real threats to bringing the $10.5bn national debt under control.

And the rating agency suggested that the Government may have under-estimated its debt servicing (interest) costs, even if the average debt cost does not change, due to a combination of rising global rates as developed countries move to fight inflation and “the increase in risk premium” for The Bahamas’ sovereign debt as shown by the deep discounts/high yields which international investors are demanding.

Meanwhile, documents accompanying the 2022-2023 Budget appear to show that the Government had granted some $485.565m in tax breaks, incentives, waivers and exemptions for the first nine months of the 2020-2021 fiscal year. This amounted to close to half, or 50 percent, or the $1.02bn in such relief that was planned for the full 12 months to end-June 2021.

The largest “tax relief, remissions and other waivers” line item was for Excise Tax and duty exemptions on Bahamas Power & Light’s (BPL) fuel import bill and that incurred by other “licensed entities”, which were projected to total $250.889m for the 2020-2021 fiscal full year. The second highest was for The Bahamas’ biggest industry, the resort sector, with more than $162m in tax waivers forecast under the Hotels Encouragement Act.

While the tax breaks were not broken down by company or developer, there was a line item for the high-end Albany project in southwestern New Providence. One set of data projected it was set to receive $48.735m in Excise Tax and duty exemptions during the 2020-2021 full-year, and another pegged this number at $13.857m. Added together, the two figures bring the total tax waiver received by the development to more than $62m.

Simon Wilson, the Ministry of Finance’s financial secretary, yesterday suggested that the two sets of “tax relief” data was likely due to the fact that, while more recent concessions are captured by Customs’ online portal, Click2Clear, others were recorded on a cash basis prior to the system’s introduction and the two have never been reconciled.

“That’s one of the challenges for Customs,” he explained. “If an exemption was started previously, cash stays cash. If it started under Click2Clear, it stays in Click2Clear. You have exemptions over multiple years, so if it starts in cash it stays in cash. Because of issues with cash, the data doesn’t follow over to Click2Clear.”

The amount of tax concessions granted by the Government as disclosed for the first time due to the Minnis administration’s passage of the Public Finance Management Act, which mandates by law that they be revealed with the Budget. The Government must now provide a “statement of tax relief and exemptions granted or planned, and the amount of tax relief and exemptions for the current financial year and forecasted for the next financial year”.