Brave ‘Papa Tax’ Davis and his mid-year budget
The mid-year budget communication has come and gone. As expected, the government sought to pat itself on the back and convince the populace that they are doing a great job as stewards of the people. It was apparent that the objective was to ensure that the populace saw the current state of affairs through the same rose-tinted glass as members of the governing side. However, what this mid-year presentation and previous budget exercises confirmed is that the Prime Minister truly deserves the title of “Papa Tax.” Papa Tax delivered a speech that confirmed to any doubting Thomas that his administration was the same tax, spend, and borrow government.
Deficit blown
As expected, the deficit at the mid-year point was almost double the amount projected for the full fiscal year. The deficit stood at $258.7 million when compared to the $131 million projected for the 2023/24 fiscal year. This does not include unpaid arrears, invoices, and expenditures to the tune of $166 million, which will have to be covered in the second half of the fiscal year. In defending the deficit numbers, the Financial Secretary (FS) doubled down on his projections and cited the cyclical nature of the budget year as well as the expected increase in revenues for his bullish position.
The Ministry of Finance’s stance on hitting its deficit targets despite contrary views by international bodies, rating agencies and local professionals will be one of the main things to watch this year. Perhaps the government has placed its hopes on revenue enhancements from planned aggressive measures to sell the properties of delinquent taxpayers, increased departure taxes, the crackdown on smugglers, or the new corporate income tax. In addition to these, will the government curb its expenditure and excessive spending, in particular during the second half of the fiscal year, to achieve its targets? Time will tell.
Catching flights
Preliminary aggregate spending for the first six months of the fiscal year increased by $24.7 million to $1.56 billion. However, it was the increase in travel budget that dominated the national discourse. The PM has repeatedly drawn the ire of critics and the Bahamian people for his excessive travels since assuming office in 2021. From his large delegation to Dubai to the touring of Egyptian pyramids and feeding of chimpanzees in Uganda while Bahamians were struggling to make ends meet, the PM’s adventures have been well documented by his public relations team. And let’s not forget the controversial Bermuda trip embarked upon by members of the PLP and funded by taxpayers. It is unclear whether that political trip, which was financed by an unapproved loan from the government, has now been fully paid.
However, Bahamians did not know the extent to which the public purse had footed the bills for these accumulated travel miles. The revelation that the travel budget had ballooned from $568,000 to $2.2 million was a lot to stomach for the masses who have felt abandoned by their government. What makes this even worse is that there have been no tangible benefits seen from the world tour embarked upon by the nation’s leader. A further review of the various trips and their associated costs suggests that our political leaders believe they are royals whose lavish lifestyles should be funded by their subjects.
Defending the indefensible
The backlash from the blown travel budget on social media and from the citizenry was so great that the government had to embark on a major damage control initiative. The Office of the Prime Minister once again failed in an attempt to justify the excessive travel of the PM. It is simply impossible to sensibly explain how spending $200,000 on a trip to Florida to receive a personal award was in the public interest. Even more egregious was the suggestion that the PM’s travel had anything to do with the recent removal of The Bahamas from the EU blacklist; this was an insult to our intelligence.
In recruiting the FS to address the travel budget increase, the government made a mockery of that office and established protocols. The FS remarked that the initial travel budget was more in line with the COVID period but failed to confront the fact that it was the Ministry of Finance that prepared the 2023/24 budget. It is common practice that historical patterns and planned expenses are factored into the preparation of budgets. Hence, to suggest that the increase in the travel budget was to adjust for an extraordinary occurrence points to a deficient budgeting process and demands accountability. The reference to the travel obligations of the Minister of Finance also falls flat on the premise that the current PM is not the first leader to hold such a position, and the numbers just don’t add up, not to mention that a lot of the travels were not in his capacity as Minister of Finance.
Taxes can’t done
The government is collecting the taxes. Tax revenue improved by $72.9 million to $1.2 billion. Value Added Tax (VAT) collected increased by $47.2 million from the same period last year to $646 million. When compared to the period before the imposition of VAT on breadbasket items, VAT collections have increased by a whopping $101.4 million. Excise tax collected also grew by $14.3 million to $15.4 million and departure taxes by $13.3 million to $84.8 million in comparison to the previous year. The business community feels overtaxed, and Bahamians, in general, feel overburdened by the numerous taxes they have to pay under the Davis-led administration. When combined with the cost of living, which is just too high for many to bear, and the stress created by the high crime rate, it only makes matters worse for the masses.
Papa Tax’s appetite for taxes was on full display as the new fees for International Business Companies (IBCs), increased departure taxes, and the new corporate income tax were highlighted with much excitement by the Minister of Finance. These taxes are in addition to existing taxes, particularly the high-earning VAT, which the current administration imposed on breadbasket items upon assuming office. The insatiable appetite of the government and its propensity to spend at the people’s expense is not conducive to a prosperous society for the average Bahamian.
Borrowing
It was announced that central government debt increased by $156.9 million to $11.4 billion and 84% of GDP as at December 31, 2023. A comparison to the COVID pandemic period during which economies across the globe shrunk is misleading. The government continues to borrow to fund the difference between its revenue and expenditure. This has been the norm for a number of administrations as deficit spending has been normalized despite the increase in taxes year after year. An important component of this borrowing worth watching is the impact it has on the national debt; specifically, the foreign currency portion of the national debt. There is no free lunch, and these loans will have to be serviced and repaid at some point in the future. Our government has incurred debts that our children and future generations of Bahamians will have to repay.
The PM has confirmed that the recent $500 million Inter-American Development Bank (IDB) guarantee loan will not be used to pay off the $300 million liability that became due in January 2024 or debt financing but rather for budgetary expenditures in the current fiscal year. It is worth noting that the IDB loan is denominated in foreign currency, and with the foreign currency component of our national debt hovering around 45%, the government ought to be mindful of the implications. It remains unclear why such a significant amount was secured in foreign currency rather than being sourced locally and in Bahamian dollars. Is this a reflection of the domestic appetite or capacity for government debt?
Conclusion
There is a direct correlation between our sovereign rating and the interest rate we have to pay on loans obtained. It is against this backdrop that we must ask whether the government has forgotten whether our nation still has a junk bond rating, and if they have not forgotten, what are they doing to restore our credit rating to investment grade? The entire mid-year budget statement made no mention of plans to improve our sovereign rating, presumably because the government has no plan.
In the final analysis, instead of increasing their travel budget in the supplemental budget, the government should have prioritized initiatives or adjustments aimed at improving the lives of the average Bahamian. The PLP seems to have taken the word “party” in their name literally, finding every opportunity to party and spend our tax dollars on manufactured events. Alas, we are under the rule of Papa Tax, whose administration’s mantra is tax, spend, and borrow, albeit they have a greater affinity and gravitation towards the spending aspect of their guiding principles.
Written by: Arinthia Komolafe
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