NASSAU, BAHAMAS — Prime Minister Philip Davis KC yesterday said VAT receipts grew by nearly $24 million for the first half of the fiscal year 2022/2023.
During his address in Parliament on the mid-year fiscal results, Davis said that his administration’s decision to reduce the Value-Added Tax (VAT) rate from 12 percent to 10 percent has yielded positive results for the public purse despite initial pushback.
“When we announced our intention to reduce the nominal rate of VAT from 12 percent to 10 percent, there was loud pushback from members opposite, along with a selection of investors and creditors,” he said.
“They all speculated on the negative consequences of such as policy and issued dire warnings of a doomsday scenario if we implemented the cut in VAT. It gives me great pleasure to announce to the House, that our strategy is working. Our well-researched plan to reduce the nominal VAT rate from 12 percent to 10 percent is working.”
Davis said: “As we predicted, the rate cut encouraged consumer spending, and provided desperately needed relief to many thousands of Bahamians. Despite the reduction in the nominal VAT rate from 12 percent to 10 percent, for the first six months of FY2022/23, revenue from VAT receipts grew by $23.7 million to $600.2 million, compared to the same period in FY2021/22.”
The Opposition had repeatedly called on the government to remove VAT off breadbasket items, a decision which corresponded with its move to reduce the VAT rate from 12 percent to 10 percent.
Davis noted that for the first six months of the year, total expenditure is estimated to be $1.5 billion, representing an increase of $119.3 million over the previous year, for the same period. To date, total expenditure represents 45.6 percent of the annual budget target.
As for recurrent expenditure, Davis noted that preliminary estimates indicate an increase of $105.3 million to $1.4 billion. He noted that key expenditures during the period included increased spending on education
“For instance, during the period, transfers for scholarships and grants increased by $2 million and totaled $20.1 million; and subsidies to the University of The Bahamas increased by $1.1 million and totaled $15.5 million,” he continued.
“Because of the public’s reduced reliance on COVID-19 support, social assistance benefits receded by $36.9 million, and subsidies tightened by $5.6 million, particularly for the Public Hospital Authority. In fact, direct COVID-related spending during the period significantly eased to $4.7 million, a contraction of $39.5 million relative to the same period in the previous year.
“I note, however, that social assistance spending still represents a substantial increase over that of pre-pandemic years, in recognition of the enduring impact of the lockdowns on household income,” Davis said.
Capital expenditure for the first half of the fiscal year totaled $117.7 million, a $14.0 million increase over the same period in the previous year. Capital expenditure amounted to 31.7 percent of the annual budget target. Key investments during the period included investments in buildings other than dwellings, which amounted to $55.1 million and represented an increase of $21.8 million over the previous year.
Davis said: “This spending component accounted for 67.0 percent of the budget target. The higher spending mainly reflects upgrades and maintenance of hospital and medical facilities, as well as Government buildings, especially educational institutions, along with further improvements to school grounds.
“However, capital transfers declined by $6.1 million, as transfers to businesses impacted by the COVID-19 pandemic fell away. During the period, The Government experienced a net deficit of $285.7 million, which represented an increase of $7.8 million compared to the previous comparable period.”
Davis also noted that at the halfway mark in this fiscal year, the deficit stood at 50.6 percent of the budget forecast. As a result of net borrowing activities, central Government debt increased by $236.2 million to $11,036.0 million, which equated to 86.9 percent of GDP at the end of December 2022.
Davis also noted that his administration inherited almost $1 billion in unpaid bills, claims, and unfunded obligations.
“Not only did we have debt levels of near 100 percent of GDP, but we also had a drawer filled with bills of almost $1 billion, waiting to be paid. I am happy to report that our plans and strategies are working and that the era of fiscal mismanagement has come to an end. I am pleased to report that at the halfway point in the fiscal year, the Government’s unpaid bills total a mere $90.7 million or 2.7 percent of budgeted expenditure, compared to the 31.3 percent reported in the previous year.”
Davis furthered that these bills include $44.3 million in unpaid bills and other obligations for State Owned Enterprises, of which, $30.7 million in unpaid bills were to the Water and Sewerage Corporation for water purchased; $13.8 million in unpaid bills to the Ministry of Tourism, Investment, and Aviation, mainly for consultancy services, quality assurance, and global communications; $9.9 million in unpaid bills for catastrophic healthcare services and the upkeep of community clinics via the Ministry of Health and Wellness; $8 million in unpaid bills to Department of Transformation and Digitization in respect of various unfunded contractual obligations; $5.9 million to the Ministry of National Security for various security enhancement projects; $5.5 million to Bahamas Agricultural and Industrial Corporation mainly for insurance services and utility services.
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