By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday asserted that the 2023-2024 fiscal year is “very, very critical” for solidifying market confidence in The Bahamas with the cruise passenger departure tax hikes vital to achieving this.

Simon Wilson, the financial secretary, told Tribune Business that hitting the $131.1m deficit target for the 12 months to end-June 2024 will provide “a huge boost” to hopes of improving this nation’s creditworthiness with the rating agencies and investors following years of downgrades into ‘junk’ status.

With this fiscal year designated as a key stepping stone to ambitions of generating a $109.2m surplus in 2024-2025, where the Government’s income actually exceeds its spending, he added that the current fiscal year’s second half “will tell” whether the Davis administration is on track since the cruise passenger departure tax will only kick-in from New Year’s Day 2024.

Speaking as the Ministry of Finance yesterday revealed a near-$76m deficit for May 2023, a year-over-year decline of $5m, Mr Wilson said the Government’s finances had performed “better than expected” during that month and provided “some cushion” for the final month of that fiscal year.

Administrations typically incur substantial deficits in June, as ministries, agencies and departments rush to present bills for payment that the Ministry of Finance never knew existed before the fiscal year closes at that month’s end. Conceding that “just one thing can blow everything up”, Mr Wilson said that while the ministry was “doing the final bits of clean-up” for 2022-2023, the Government appears “well-positioned” to meet its revised year-end deficit target of $520.6m.

And, looking ahead to 2023-2024, the financial secretary said “the real measure” that will determine whether the Government achieves its objectives is the ambition to near-triple revenues earned from departing cruise passengers to $145m compared to the $50.642m initially projected for the last fiscal period.

This is to be accomplished via a series of new and increased fees, introduced with the May Budget, that involve a hike in the existing $18 per passenger departure tax. That is being increased to $23 for “every cruise passenger” leaving The Bahamas via Nassau and Freeport, and to $25 per head for all those who exit “by sea from a private island not visiting any other port in The Bahamas”.

The revised tax structure, while designed to incentivise the cruise lines to call on Nassau and Freeport, and thus better spread the wealth through their passengers spending with more Bahamian companies and their employees, imposes departure tax increases of $5 and $7, respectively. They are equivalent to a 27.8 percent and 38.9 percent rise, and take effect from January 1, 2024.

While 2022-2023’s likely outcome provides “some confidence” that the Government can hit the current year’s target, Mr Wilson told this newspaper: “In this fiscal period the real measure is going to be after January, when new departure taxes take effect. We will not know what the real fiscal performance will be until after January. 

“That’s a huge part of us achieving our target. These couple [sic, six] months will not really give you a good idea. We are seeing some improvement in some areas, but the real thing will be come January. Next year January will tell. That increased revenue from cruise ships is critical.”

Cruise departure taxes for the nine months to end-March 2023 stood at $87.847m, some 73.5 percent ahead of the full-year’s $50.642m target, with three months in the fiscal year still to go and the $18 rate still in effect. The former figure, which represents 61 percent of this year’s $144.89m target, will likely have given the Government further confidence that its revenue goals will be achieved.

And Mr Wilson’s comments, highlighting the importance of this line item and the associated revenue increase, also explain why the Davis administration resisted cruise industry pressure to push the implementation date back beyond New Year’s Day 2024.

Mr Wilson, meanwhile, said the current fiscal year “is very critical” to both setting The Bahamas on a path to a Budget surplus and further restoring its credibility with international and local capital markets as a precursor to improved creditworthiness.

“Markets only remember what you’ve done lately,” he acknowledged. “Yes, we’ve made tremendous improvements, but markets tend only to remember your latest results. Prior results do not count for anything. We can say that we’ve recovered tremendously, but markets revert to what you’ve done lately, which is why the focus is on this year and not the prior year.”

The Government’s monthly fiscal report for May 2023 revealed a $75.9m deficit, with total revenue of $256.6m exceeded by total spending worth $332.5m. The monthly deficit represented a $5m, or 6.2 percent, year-over-year decline compared to the $80.9m worth of ‘red ink’ incurred in May 2022.

“May’s performance was good. It was better than expected,” Mr Wilson disclosed. “We have a narrow window where we have these months of fiscal surplus, and that window is essentially February, March and April. Those three months determine what happens to your deficit.

“What we got in May was a bonus. We are comfortable. May was comfortable for us, and gives us some cushion for the June numbers because June is typically when you do clean-up and catch up with postings and so forth.” The Government generated small Budget surpluses, worth a combined $32.3m, during the first four months of the 2023 calendar year as this period typically coincides with the peak winter tourism season and bulk of economic activity.

It also includes Business Licence fee payments, a significant amount of real property tax collections and commercial vehicle licensing month. This surplus, albeit modest, helps to slow the deficit’s expansion and keep it on track to hit the Government’s full-year target, with May’s near-$76m worth of ‘red ink’ taking the deficit for the first 11 months to $321.4m.

Mr Wilson said the Davis administration remains “well-positioned” to hit the revised 2022-2023 full-year deficit target of $520.6m, which was almost $200m away with one month left in the period. “We are still doing the final bits of clean up, but I think we’re well positioned,” he added, while acknowledging the toll June can inflict.

“We can’t rest on our laurels. June is its own beast,” Mr Wilson said. “You can fool yourself and say you will be OK, but it takes only one thing in June to blow everything up.” The Government incurred a $318.7m deficit for June 2022, and a repeat performance this year would take the 12-month deficit to $640m - above both the revised $520.6m target and the initial $575.4m.