The 2018/2019 Budget Communication presented in the House of Assembly yesterday by Deputy Prime Minister and Minister of Finance, K. Peter Turnquest  is causing political consternation around the  Bahamas as Bahamians rebel against the government’s decision to increase Value Added Tax (VAT) by 60 per cent.  The rate has been  moved from 7.5 per cent to 12 per cent. 

Justifying the increase, Mr. Turnquest said, “ our government fully appreciates the sacrifice that the sub substantial increases in the  VAT rate and other taxes will represent for our citizens.  But as I have repeatedly said on record, this government was elected to do what is right for the welfare of the country and not to do what is politically expedient or politically popular.”  

In terms of fiscal performance, it was projected that the 2017/2018 GFS deficit will sit at $310 million; an improvement of $13 million.

If all goes as planned, capital expenditure will come in at $153 million down from the initial forecast of $230 million.

However, recurrent revenue is said to be less buoyant, and this despite the country’s real growth rate.

According to Minister Turnquest, this is pegged to sit at some $130 million below forecast – a yield that is well below others in the region and furthermore, inadequate to the government’s needs.

Moving ahead, the government forecasted that the 2018/2019 recurrent expenditure will amount to $2,589 million, an increase of $346 million from the budgeted amount in 2017/2018. 

According to the DPM the increase includes: $172 million in arrears that will be paid in the coming year; the $76 million increase as a result of the adoption of full and proper budgeting for known commitments across the breadth and scope of government expenditures; some $19 million for the new recurrent expenditure policy initiatives; and $89 million for additional interest payments.

He also revealed that the level of capital expenditure in 2018/2019 is set at $299 million, up $69 million from $230 million in 2017/2018.

The DPM added that the demands for new investments in public infrastructure exceeds the amount that is allocated for next year and the government does not want to prioritize such investments as a means of boosting potential economic growth.

He also mentioned that the outlook for recurrent revenue in the coming fiscal year is governed to a large extent by the fiscal impact of both the revenue measures proposed in the budget as well as the impact of the rise in the rate of VAT.

The lesser revenue measures – including adjustments up and down – are estimated to produce a net gain in revenue of some $100 million while the VAT increase should net new revenue to the tune of some $400 million.

As a result, after factoring in the growth of the economy and targeted gains from enhanced revenue collections, total recurrent revenue in 2018/2019 is estimated at a level of $2,649 million, or 20.1 per cent of GDP.

Minister Turnquest said that is an improvement in the revenue yield of 4 full percentage points from the level of 16.1 per cent posted in 2017/2018.

He added that while still lagging behind regional norms, such a level of the revenue yield is definitely more reasonable in relation to the needs of modern governance.

The GFS deficit in 2018/2019 is therefore projected at $237 million, some $73 million lower than in 2017/2018.

At 1.8 per cent of GDP, the deficit will come in at the target that will be mandated in the fiscal responsibility legislation.

According to the DPM, with the decline in the size of the deficit and the ongoing growth of nominal GDP, the debt-to-GDP ratio is projected to fall to 56.1 per cent in 2018/2019, down from 57.2 per cent in 2017/2018. 

In the outer years of 2019/2020 and 2020/2021, the growth of primary recurrent expenditure is being held to 2.5 per cent per year. 

As such, this category of discretionary spending will decline from 16.8 per cent of GDP in 2018/2019 to 15.4 per cent of GDP in 2020/2021, the Minister noted.

Capital expenditure over the forecast horizon is projected to grow by 2.5 per cent per year.

Meanwhile, the projection for recurrent revenue beyond 2018/2019 assumes that the revenue yield of the tax system remains constant at its level of 20.1 per cent of GDP in 2018/2019 on the basis of these planning assumptions, the GFS deficit in 2019/2020 is projected at $85 million, or 0.6 per cent of GDP.

The minister said that in 2020/2021, a GFS surplus of some $10 million is forecast, the government will readily achieve the deficit targets for those two years.

In addition, the debt-to-GDP ratio will decline steadily over the forecast period, to stand at 52.1 per cent at the end of 2020/2021.