The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister yesterday blamed an increased deficit on “very heavy spending commitments” incurred during the 2022-2023 fiscal year’s first half, but voiced confidence the Government will “meet or exceed” target.

Michael Halkitis, minster of economic affairs, addressing the Prime Minister’s Office media briefing, said the need to meet “debt obligations” coming due helped produce an expenditure spike in both October and December last year.

No figures were provided, and the spending “commitments” not identified. However, he argued that the fact the half-year deficit hit $285.7m, representing some 50.6 percent of the forecast full-year amount and a $7.8m year-over-year rise, was merely a “timing related” issue and will not be repeated during the year’s final six months to end-June.

“We’ve had some very heavy expenditure commitments that had to be done in October as well as December, mainly related to debt obligations,” Mr Halkitis explained of the deficit outcome for the six months to end-December 2022. “This period we are now in is when the bulk of the revenues come in, and the heavy commitments we’ve seen have been taken care of and spending will not be as much.

“So we should see an even better Budget performance in the second half of the year. We look at performance, we are looking at trends. We are on track and we are moving in the right direction.” Tribune Business reported yesterday that the Government is projecting a slight increase in its 2022-2023 full-year Budget deficit compared to the Budget estimates last May, with the gap widening by $11.4m to $575.4m.

However, as a percentage of economic output (gross domestic product), the full-year deficit remains at 4.3 percent. The Government is also holding to its medium-term fiscal and economic forecasts over the next three years, projecting that the deficit will shrink to $125.3m or 0.9 percent of GDP in 2023-2024 before being converted into a $278.8m surplus the following year.

“The main takes that came out of the mid-year Budget are that revenues are performing exceptionally well, by and large we are containing our costs, and we are largely on target to meet our 4.3 percent deficit projection for the full year, and very optimistic that we will meet or exceed that target,” Mr Halkitis said.

“We are on the right track, and the news is positive. Anyone saying the deficit is up, that’s timing related. We are fully confident we will meet our projections. More revenue comes in in the second half [of the fiscal year], and we will not have all the heavy spending obligations.”

The Government typically earns the bulk of its revenues during the fiscal year’s second half, which is the January-June period, as this coincides with a spike in economic activity due to the peak winter tourism season, the payment of Business Licence fees and the majority of real property taxes, and commercial vehicle licensing month.

However, successive administrations have always been unable to control the spike in expenditure that typically occurs in May and June, as multiple ministries, departments and agencies race to settle outstanding bills before the fiscal year-end. The deficit for the 2021-2022 fiscal year spiked by $318.7m in June 2022, which represented over 46 percent of the full-year amount.

And, while revenues have increased, their first-half performance having been up a comparative period when the economy was re-opening and COVID restrictions still applied, this has been more than matched by rising expenditure. As a result, the revenue gains gave effectively been cancelled out, as shown by the fact the Government is forecasting that recurrent expenditure will increase by $76.5m to over $3bn for the full fiscal year compared to a $53m revenue rise.

“We resolved not to have any tax increases,” Mr Halkitis said of the Government’s plans. “It’s a multi-year strategy of the Government to restore the country’s finances by growing the economy, having improved revenue administration meaning we do a better job of collecting taxes that are due, containing costs and finding new revenue sources. That’s the whole carbon credit discussion. We are gradually moving in that direction of sustainable finances.”

Again responding to Opposition charges that the Government’s fiscal forecasts are optimistic, he added: “Yes, they are optimistic, but every projection we’ve made since coming to office we’ve made sure we’ve not only met them but beaten them. We’ve met or beaten every single projection made.”

The mid-year Budget, though, revealed that the Ministry of Agriculture, Marine Resources and Family Island Affairs’ recurrent Budget allocation of $6.149m for food security - a topic much-touted by the Davis administration - has been cut by more than 50 percent, which has shrunk this by $3.098m to some $3.051m.

These monies appear to have been reallocated to the Bahamas Agricultural and Industrial Corporation (BAIC), which has seen its subsidy expanded by $2.081m to $7.081m, and the Bahamas Agricultural and Marine Science Institute (BAMSI), whose taxpayer support has been expanded by $1.15m to $7.626m. It is unclear whether these two agencies will now have responsibility for food security.

The Ministry of Public Service has enjoyed the largest mid-year Budget reallocation of $25.511m. Some $15.8m, or over 60 percent, of this sum is to cover office rental costs and National Insurance Board (NIB) lease agreements, with a further $6.18m dedicated to pension payments to public officials. These will now increase to over $130m for the year.