|The Budget: Part II|
Philip C. Galanis
Published: Jun 11, 2012
Last week, we invited our readers to consider whether the national budget for fiscal 2012/13 as presented by the Rt. Hon. Prime Minister and Minister of Finance addresses the important promises that were made during the general election campaign. In answering that question, we reviewed the fiscal environment that the PLP Administration inherited on May 7, 2012 and the attendant limitations and constraints for the nation’s first budget for Mr. Christie’s second non-consecutive term in office.
This week, we would like to continue to Consider This… Do the PLP administration’s budgetary provisions remain true to its pledges to an impatient and hurting populace whose expectations for relief and renewal are extremely high, and to what extent does the 2012/13 national budget meet those high expectations?
The macro view
The government anticipates that it will incur a total deficit of $570 million for the fiscal year ending June 30, 2012 and a Government Finance Statistics (GFS) deficit of $504 million for that period. This represents an increased GFS deficit of $256 million or 103 percent more than was originally approved by Parliament for fiscal 2011/2012. The GFS deficit as a percent of GDP will be 6.3 percent — a new record for The Bahamas — more than a doubling of that figure of three percent in the preceding year. The increased GFS deficit will be financed by additional borrowings which will push the national debt from $4.3 billion at December 31, 2011 to $4.8 billion a year later, rapidly approaching 60 percent of GDP, also a new record — and not in a good way.
Similarly, the GFS deficit for 2012/13 will be $550 million which, as a percent of GDP, will be 6.5 percent — another new record for The Bahamas. By the end of fiscal 2013, the national debt will exceed $5.3 billion, more than 60 percent of GDP.
Recurrent revenue measures
The recurrent budgeted revenues of $1.55 billion for the next fiscal year are anticipated to increase by only $100 million or seven percent over the actual outturn of the preceding fiscal year. This compares to an increase of $435 million or five percent in the gross domestic product (GDP) for the same period.
At first glance, the projected recurrent revenue appears to be overly optimistic for several reasons. First, recurrent revenue is projected to exceed the increased GDP rate of growth by two percent. Secondly, last year’s budgeted revenue of $1.514 billion was not achieved. The actual, revised projected revenue came in at $1.45 billion or $64 million less than was originally budgeted.
The third and most compelling reason that we believe that the projected recurrent revenue is overly optimistic is that over the past five years, the average increase in recurrent revenue was three percent. To suggest that we will achieve more than a doubling of that amount to seven percent next year is questionable. The government anticipates that it will collect an additional $148 million more in excise taxes in the next fiscal period than it did last year, although at the same time it foreshadows a reduction in almost every other category of tax revenue over the preceding year, except for tourism taxes which are expected to increase by $8 million.
The government expects to receive no capital revenue for the ensuing year as compared to $86 million last year.
The recurrent expenditures for 2012 will end at $1.7 billion, $27 million or two percent more than the $1.68 billion that was originally approved by Parliament for fiscal 2011/2012. For 2012/13, recurrent expenditures are forecast at $1.82 billion, an increase of $114 million or six percent over the preceding year.
Several recurrent expenditure allocations have been made to address specific campaign promises. There is an allocation of $4.4 million for the re-established Ministry of Financial Services and $3.2 million for the establishment of the Ministry for Grand Bahama, both campaign pledges. Thirdly, the government has provided $15 million “for the implementation of early initiatives in the Charter [for Governance], such as the introduction of Urban Renewal 2.0.”
Several other items are noteworthy relative to budgeted recurrent expenditures. These include significant subventions for the following ministries and departments:
Department of Public Service, $187 million – an increase of $13 million;
Royal Bahamas Police Force, $132.2 million – an increase of $5.6 million;
Royal Bahamas Defence Force, $54.7 million – an increase of $3 million;
Department of Education, $202 million – an increase of $5.4 million;
Ministry of Education, Science & Technology, $49 million – an increase of $3.7 million;
Department of Social Services, $40 million – an increase of $5.9 million;
Public Hospitals Authority, $199 million – an increase of $13.2 million.
These allocations demonstrate the government’s commitment to essential areas of our economy and society that require urgent attention. Moreover, the increases reflect many of the areas that the PLP consistently promised the electorate they would address once they were returned to office.
The increases for the Public Service and Social Services demonstrate the government’s stated intentions to improve the conditions of the average Bahamian, whether working or in need. Enhanced subventions to the Public Hospitals Authority reflect that healthcare is a priority issue and those to the Department of Education and the Ministry of Education, Science and Technology confirm the government’s oft-stated intentions to address the deficiencies in education as a method of creating a better future for young Bahamians. The increases to the Royal Bahamas Police and Defense Forces confirm the government’s determination, as spoken about at every rally, to break the back of crime and to address the problem of our porous borders, with regard to illegal migration, poaching and gun-running.
A substantial percentage of recurrent expenditure, 18 percent, is allocated to servicing the national debt. The interest on the public debt alone is budgeted at $207 million along with debt redemption of $121 million, which in the aggregate represents $66 million more than the preceding year.
Total capital expenditure for 2012/13 is budgeted at $400 million. The two largest items in this category are for the Ministry of Works & Urban Development for $229 million and Sundry Capital Expenditures for $132 million. In the Ministry of Works, the largest expenditures have been allocated for road construction, highways, streets and bridges in the aggregate of $175 million. Sundry Capital Expenditures include provisions for the Baha Mar Road Development for $48 million, as well as subventions for Capital Subscriptions to International Agencies, the Broadcasting Corporation of The Bahamas, Bahamasair Holdings Ltd. and the Water and Sewerage Corporation in the amounts of $12 million, $5.5 million, $18 million and $20 million, respectively.
Within a very short period, the Christie administration has quickly sought to address the fiscal realities left by the former administration, while simultaneously attempting to honor some of its election campaign pledges. In this first budget, the government has made a commendable attempt to balance the scales by holding off increasing taxes on Bahamians, while concurrently seeking to allocate its limited resources in an economically anemic environment.
However, the government would be wise to remember that this is a Bahamian public with great needs and little patience. As understanding as the people may be with this 2012/2013 budget, which is a hybrid of the outgoing Ingraham regime and the fledgling Christie administration, that understanding will only go so far before the expectations that were raised so high during the campaign need to be not only met but exceeded and the country put back on steadier, more fiscally secure ground to ensure the glowing future that was promised by the PLP.