By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
The Government’s latest fiscal forecasts yesterday provoked contrasting reaction, with a governance reformer saying he “truly loves” the growth focus but the Opposition’s finance spokesman pointing to “credibility problems”.
Hubert Edwards, the Organisation for Responsible Governance’s (ORG) economic development committee head, told Tribune Business that the Davis administration’s concentration on expanding the Bahamian economy as the primary means of solving the nation’s ills was “the right direction which needs to be followed”.
While acknowledging that the Government’s growth and fiscal targets were ambitious, he added that they “need to be” given The Bahamas’ economic challenges. The ORG chief also said the private sector, in particular, needs to understand how the forecasts were derived and emerge with “a clear message” from the Fiscal Strategy Report 2022 debate - supposed to begin in the House of Assembly today - so it understands the part it has to play.
The Fiscal Strategy Report shows the Davis administration is betting that growing The Bahamas to a $16bn-plus economy, based on nominal annual gross domestic product (GDP), will be sufficient to drive the necessary revenue growth that will finance the forecast increase in government spending as well as generate an annual Budget surplus of more than $200m for the three years from 2024-2025 onwards.
This will also enable the Government to avoid imposing new and/or increased taxes, and there was no mention of any such measures in the Fiscal Strategy Report, with the revenue-side focus placed almost entirely on compliance, enforcement and cracking down on tax cheats and bill duckers. The GDP increase is also essential to cutting the country’s debt-to-GDP ratio from the present 85.8 percent to 67.1 percent by 2026-2027.
However, this will only become reality if the Bahamian grows by 20.9 percent in nominal GDP terms between this fiscal year and 2026-2027. This would take economic output from $13.236bn to $15.996bn, an increase of more than $2.7bn over four years, using a measure that does not strip out the impact of inflation.
“That is positive thinking, and is certainly the way we need to think,” Mr Edwards told Tribune Business yesterday. “I truly love the direction, no question about it. After the debate, I would expect we would walk away with sufficient information to understand why they are projecting the numbers they are projecting, and there’s a very clear message to be embraced by the private sector.
“This level of growth will not be driven by the public sector. There needs to be an unequivocal message that the private sector can go out and embrace in its planning. If we have any uncertainty over this, what is going to be driving this, if there are taxes in the background, it could impact investment decisions. If there’s uncertainty, persons will sit back and wait until they have a clearer view. We’re looking forward to getting a very clear view of how this is going to transpire.”
Mr Edwards said there were several things that “jump out when you drill down” into the Fiscal Strategy Report’s numbers. The Government is forecasting that it will grow its revenues by some 43 percent to over $4bn during the next four years - a $1.2bn increase, and a near-$1.4bn rise compared to the $2.609bn collected in 2021-2022.
He pointed out that the magnitude of the increase, especially in percentage terms, which is designed to achieve a 25 percent revenue-to-GDP ratio, suggests “some tax treatment taking place” or some measures in fees to help drive the Public Treasury’s income beyond gross domestic product (GDP) growth.
And the economic growth projections themselves were also ambitious given that they “outstrip our historical growth rates of anywhere up to 2 percent”. The Fiscal Strategy Report acknowledged International Monetary Fund (IMF) growth forecasts showing that GDP expansion in real terms, which strips out inflation, will drop back to its long-run average of 1.9 percent and 1.6 percent, respectively, in 2025 and 2026.
Mr Edwards said some of the growth areas targeted in the report focus on areas such as energy, workforce skills and productivity and the ease of doing business - all areas that require fundamental reform, with an impact that could lag. And it was also difficult to determine how the so-called “transformation sector” will deliver the forecast $800m growth between this fiscal year and 2026-2027.
The “transformation” sector was said to include total output from industries such as “manufacturing, construction, agriculture, forestry, fishing, mining, gas, water, quarrying and electricity production” by the Fiscal Strategy Report.
Meanwhile, Kwasi Thompson, the Opposition’s finance spokesman, yesterday argued that the revenue projections were “unrealistic” as he criticised the Davis administration for again changing its fiscal forecasts. “They have been inconsistent in the first Fiscal Strategy Report they presented, they have been inconsistent in the last Budget presentation, and been inconsistent in the second Fiscal Strategy Report,” he told Tribune Business.
“They keep changing the goal posts, and that creates credibility problems for them.” Mr Thompson, in a statement, also said the Government will “destroy the middle class” with tax and spend policies designed “to squeeze every dime possible” from working Bahamians.
“The Davis administration’s ‘tax and spend policy’, articulated in their latest Fiscal Strategy 2022, will destroy the middle class,” he argued. “The PLP government’s $1.2bn in additional revenue projections make it clear that they intend to squeeze every dime possible from the middle class.
“They fully expect the poor and middle class to pay $1bn more in VAT, more real property tax, more fees and more Customs Duty to fund their expansion of government spending and their extravagant ways.” Pointing to the Government’s revenue enhancement report, which called for $90m in extra fee income, Mr Thompson also called for it to curtail spending.
“The Davis tax (so they can) spend policy plans will make life even more expensive and even more difficult for the middle class and for struggling Bahamians,” he added. “While Davis and his team are seeking to force the middle class to sacrifice and pay more, they demonstrate every day that they are not seeking to cut back and make the same sacrifice they are asking of the Bahamian taxpayer. The Government is seeking to get more from those who have less.
“They simply without good reasons decide to increase the revenue projections so that they could increase the spending projections. They are intent to squeeze some more from the poor and middle class to allow them to spend more.”