By MARTELLA MATTHEWS,Guardian Business Reporter martella@nasguard.com

The projected deficit for The Bahamas for the 2004/2005 fiscal year is expected to be $164 million, or 2.9 per cent of Gross Domestic Product (GDP), a 0.6 per cent increase over last year's projections, according to Wednesday's Budget Communication.

Presenting the new budget to members of the House of Assembly, Prime Minister Perry Christie said that the projection for this year's deficit was equal to the projected outturn for the current budget.

Describing the projected deficit as reasonable, Mr Christie said that in view of the expansionary state of the economy it would make sense not to take measures to deflate the economy at the present time.

For the 2004/2005 Budget, total expenditure is projected at $1.324 billion, while total revenue is expected to be around $1.063 billion. He noted that while initially this figure would yield a deficit balance of $261 million after the subtraction of the planned redemption of $97 million in Government-issued debt instruments, the actual deficit amounted to the projected $164 million.

In defending the 2004/2005 deficit, the Prime Minister said that the projected deficit was lower that previous deficits realized in the years 2001/2002 and 2002/2003. "In 2001/2002 under the previous administration, the GFS Deficit reached 4.1 per cent and in 2002/2003...the GSF deficit reached 3.5 per cent," he said.

Prime Minister Christie also noted that the 2004/2005 budget is expected to position the country to take advantage of the surge expected to occur in the Bahamian economy with proposed developments like the $1 billion Atlantis Phase III project and other capital projects expected to materialise for New Providence and the Family Islands in the near future.

"The expanding Bahamian economy will provide stability and growth to the key sectors, tourism and financial services and generate additional government revenues for essential services without any necessity to raise the level of taxation," he said.

To improve future revenue streams to the Government, the Prime Minister stated his intent to upgrade and modernise the existing revenue system. He outlined a plan to strengthen revenue collection in the areas of stamp duty collection and customs. To ensure greater revenue collection at the borders, a Trade Information Management System is currently being installed by Bahamas Customs. This new system will allow customs officers with better tools for the identification and control over areas that are high risks for revenue leakages.

Making a plea to Bahamians for honouring of their tax obligations, Prime Minister Christie said: "The taxes levied in The Bahamas are in accordance with the laws passed by this legislature and the monies raised are required to meet essential expenditure." He continued that honouring tax obligations was the responsibility of every taxpayer.

Despite the plans by the prime minister to clamp down on tax collection to increase revenue streams, international observers such as the International Monetary Fund (IMF) and policy makers, including the Minister of State for Finance James Smith have repeatedly called for a change in the current taxation system to ensure the future sustainability of the country.

In its July 2003 country report on The Bahamas, the IMF stated the current reliance on customs and tourism duties increased the vulnerability of the tax revenue to cyclical fluctuations and facilitated tax evasion. The IMF recommended shifting to a broad-based value added tax or sales tax.

In a recent interview with The Guardian, Senator Smith said a good tax regime should increase along with GDP, something he continued the current taxation system did not do. He said because of the higher level of per capita income within the Bahamian economy, the majority of consumption consisted of service – a normal trend for richer countries.

The minister of state for finance pointed out that given this reality, the current taxation system, currently based on goods consumption, only accounted for a small level of the country's actual consumption.

However in his Budget Communication, Prime Minister Christie said that although the "difficult revenue position" has presented considerable constraints to his administration in implementing planned policies he has deliberately avoided increasing taxes.

"I believed that the proper course was to concentrate on strengthening revenue administration rather than on increasing the burden of taxation on Bahamians," he said, adding that this strategy would be continued for the proposed budget.