The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE Government’s forecast $437m revenue jump for the upcoming 2024-2025 fiscal year represents an increase eight times’ greater than the pace of economic growth according to Budget numbers.

Data published with last Wednesday’s Budget shows that the $3.537bn total revenue projected for the upcoming fiscal year that begins on July 1 is a 14 percent year-over-year increase on the $3.1bn outturn for the current 2022-2023 period that was unveiled by Prime Minister Philip Davis KC on Wednesday.

Revenues are typically a function of economic growth and activity, especially given a Bahamian tax system heavily reliant on consumption. The fact that the Government’s income is forecast to grow at a rate more than eight times’ faster than gross domestic product’s (GP) predicted 1.7 percent real expansion has already attracted the Opposition’s attention, and it is arguing: “The numbers don’t add up.”

“What we need to take into account is the actual numbers instead of what they say,” Kwasi Thompson, the Opposition’s finance spokesman, told Tribune Business. “The actual numbers, as reported, was that at nine months we are behind in revenues. The numbers reported were that we are behind in VAT receipts.

“If we are behind in this year’s projections, and our economic growth next [fiscal] year is not to exceed this year’s economic growth, what makes us believe our revenues will exceed this year’s revenues? It does not add up. They have not explained it. The law requires them to explain it. The people deserve an explanation.

“Let us not listen to what they say but look at what the actual numbers report. The actual numbers do not report that we are going to make next year’s projections.” Mr Thompson, who served as minister of state for finance in the Minnis administration, argued that both the 2024-2025 forecasts and projections for the current fiscal year pose a threat to the Government’s credibility.

“It again boils down to the credibility of the Government; credibility with its people, credibility with its investors and credibility with the international community,” the east Grand Bahama MP added. “The Government does a disservice when it makes these statements and does not abide by these statements. The fiscal responsibility clauses were put in the law for a reason.

“The Government must not be credible just with its people but must be credible with investors and with the international community. They have, unfortunately, done away with our credibility.” Simon Wilson, the Ministry of Finance’s financial secretary, could not be reached for comment before press time last night.

However, Michael Halkitis, minister of economic affairs, last week dismissed such concerns and turned the tables on the Opposition. He accused Mr Thompson and FNM leader, Michael Pintard, of being proven wrong on every fiscal-related statement they have made and asserted that neither himself nor the Government “place any stock” in what the Opposition have to say.

Sometimes, though, the Budget communication is more notable for what it does not say rather than what it does. The Prime Minister last Wednesday touted the Government’s revenue performance while disclosing that it is projected to receive more than $900m in revenue during the 2023-2024 fiscal year’s final quarter to take the full 12-month outcome to $3.1bn.

That, though, is more than $200m below the $3.316bn target set in last year’s Budget despite rev- enue for the first nine months to end-March 2024 having risen by $112.4, or 5.4 percent, year-over-year. And that revenue growth rate, as well as the 9 percent and 8 percent growth paces for current and year-end income unveiled by the Prime Minister, are also behind the 14 percent jump needed to hit 2024-2025’s goal.

This newspaper also previously reported that VAT, which accounts for 43 percent of tax revenues, needed to grow 27 percent or $339m over the $1.252bn collected in 2022-2023 to hit this year’s target of $1.591bn.

Materials released with the Budget communication show that the Government was almost $600m behind the full-year $1.591bn target for VAT with just three months to go. And, for the upcoming 2024-2025 fiscal year, the Government will have to hit its $437m total revenue increase despite a year-over-year decline in VAT revenues - its main income source - compared to 2023-2024 projections.

The Davis administration is forecasting that it will earn $1.516bn in VAT during the 12 months to end-June 2025, which is a more than a $70m or 4.3 percent decline compared to this year’s $1.591bn forecast. This decline, though is forecast to be more than offset by $100m year-over-year increases in ‘taxes on international trade and transactions’ and ‘taxes on the use and permission to use goods’.

Several observers, though, have questioned the divergence between increasing trade taxes (import duties) and declining VAT, arguing that both are consumption-based and should therefore being moving in the same direction. They also queried the higher revenue forecast given that economic growth in 2024-2025 is projected to be relatively flat and in the absence of any major revenue-raising measures.

The Prime Minister last Wednesday said the estimated $140m impact from levying the 15 percent corporate income tax on an estimated 50 Bahamas- domiciled companies, which are part of multinational groups generating more than 750m euros in annual turnover, will not be fully seen until the 2025- 2026 fiscal year which is more than 12 months away.

“A draft of the legislation is expected to be tabled along with the 2024-2025 Budget,” the latest Fiscal Strategy Report said of the corporate income tax legislation. “Early estimates of the additional revenue yield to be generated from this new tax is set at $140m. However, the medium-term forecasts do not include these amounts.”

The Fiscal Strategy Report added that the Davis administration believes a combination of economic growth, combined with more rigorous tax enforcement and revenue collection initiatives, will enable it to hit its 25 percent revenue-to-GDP target by 2025-2026 even though its projections do not include any potential earnings from blue carbon credits.

Mr Halkitis recently said there were suggestions that the Government could earn $900m per year from monetising its seagrass and mangrove carbon sinks, but the report added: “Projections remain policy neutral for the anticipated positive contributions from the proposed commercialisation of The Bahamas’ blue carbon credits and the implementation of the Qualified Domestic Minimum Top-Up Tax.”

Meanwhile, the Prime Minister, in stating that there would be a “60.6 percent decrease in the deficit outturn from the previous fiscal year, 2022- 2023”, effectively pegged the full-year deficit for the 12 months to end-June 2024 at $210.63m. This is at the top of the 1-1.5 percent of GDP range given by the Government.