By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The 40 percent growth in the government's wage bill over the past seven fiscal years to 2018-2019 was yesterday branded "insane" and "criminal" by private sector leaders.

KP Turnquest, pictured, Deputy Prime Minister, said the $226m increase in civil service salaries since the 2011-2012 fiscal year was one factor that had created "a significant fiscal gap" for the upcoming budget year without the corrective action of a Value-Added Tax (VAT) rate increase to 12 percent.

"In light of the fact that the Government wage bill has grown by $226m, or 40 percent, between 2011-2012 and 2018-2019 in an economy that has posted little if any real growth, [there is] the necessity of exercising restraint in respect of the overall wage bill and headcount," Mr Turnquest told the House of Assembly yesterday.

Budget figures show the Government attempting to hold public sector wages, described as "personal emoluments", relatively flat year-over-year at $738.476 million for 2018-2019 - a slight decline on the prior year's $741.759 million.

However, this still represents 28 per cent of the Government's total recurrent spending for the next fiscal year. And the salary bill is expected to grow further over the next two years, rising to $757.478 million in 2019-2020 and $790.941 million in 2020-2021.

Mr Tunquest's revelations were seized on private sector leaders as illustrating just why Bahamian consumers and businesses are being forced to pay for the fiscal profligacy of past governments through a major increase in the VAT rate.

"That's just insane," Michael Maura, the Bahamas Chamber of Commerce's chairman, said of the wage bill's explosive growth since the last year of the final Ingraham administration.

Robert Myers, the Organisation for Responsible Governance's (ORG) principal, added: "That's just criminal and asinine. It's criminal. We've already paid the price, and are going to continue to pay the price. We've got to roll up our sleeves, do the hard work and get this thing going in the right direction."

While the Government is targeting $80 million in extra "above run rate" revenues for 2018-2019, via a combination of Customs duty, Excise Tax and real property taxes generated from an enforcement crackdown, Mr Turnquest said compliance efforts would not bear fruit quickly enough to meet the Government's immediate needs.

While the 10 per cent 'across the board' reduction in spending had brought the Government's wage bill, and goods and services spending, in some $120 million or 10.3 per cent below budgeted amounts for 2017-2018, Mr Turnquest said revenue performance remained weak and was set to come in $130 million below forecast.

"Given the rebound in real growth, such lacklustre performance of revenue is definitely a matter of pressing concern and speaks to the mandate given to the Ministry of Finance and its Revenue Enhancement Unit to address the areas of revenue under-performance so as to exceed the status quo run rate in the upcoming fiscal year," the Deputy Prime Minister said.

He also pledged to end what he described as "the sham" where governments deliberately under-budgeted for certain Budget items despite knowing they will cost more, resulting in the build-up of unfunded arrears that were simply 'kicked down the road' for future administrations to pick up. Mr Turnquest said, for example, that this had left the Government unable to pay school lunch vendors.

He added that the 2017-2018 fiscal deficit is now projected to come in at $310 million, a slight improvement on the $323 million forecast in the Budget. As a percentage of GDP, Mr Turnquest said this amounted to 2.5 per cent compared to the 5.5 per cent incurred in 2016-2017 - a reduction of $351 million in dollar terms.

Mr Turnquest's Budget address effectively amounted to a 'bait and switch', as he softened Bahamians up with a package of tax breaks before delivering the 'sucker punch' of the VAT rate increase to 12 per cent.

He also sought to soften that blow by promising to reduce Customs duties and Excise Taxes by $100 million when a balanced Budget is achieved within the next three years, as the Government moves to hit the Fiscal Responsibility Bill target of a 0.5 per cent fiscal deficit for 2020-2021.

"The GFS deficit in 2018-2019 is therefore projected at $237 million, some $73 million lower than in 2017-2018," Mr Turnquest said. "At 1.8 per cent of GDP, the deficit will come in at the target that will be mandated in the fiscal responsibility legislation.

"With the decline in the size of the deficit and the ongoing growth of nominal GDP, the debt-to-GDP ratio is projected to fall to 56.1 per cent in 2018-2019, down from 57.2 per cent in 2017-2018."

Looking further ahead, Mr Turnquest added: "On the basis of these planning assumptions, the GFS Deficit in 2019-2020 is projected at $85 million, or 0.6 per cent of GDP. In 2020-2021, a GFS surplus of some $10 million is forecast. As such, we will readily achieve the deficit targets for those two years.

"In addition, the debt-to-GDP ratio will decline steadily over the forecast period, to stand at 52.1 per cent at the end of 2020-2021."