By FAY SIMMONS

Tribune Business Reporter

jsimmons@tribunemedia.net

The Ministry of Finance’s top official yesterday asserted that the Government is still on target to meet its 2024-2025 fiscal targets despite the near ten-fold rise in the deficit during the year’s first two months.

Simon Wilson, the financial secretary, told the Bahamas Institute of Chartered Accountants’ (BICA) accountants week conference that the early increase in the deficit will “moderate” over the full 12 months and the Government “fully expects” it will come in below $100m.

“On the fiscal front, the Government is still operating within the bounds of its fiscal plan, as presented in the 2024-2025 Budget,” said Mr Wilson. “Due to the cyclical nature of revenues and the improved programme execution, there has been an increasing year-over-year deficit in the first quarter but this will moderate over the course of the fiscal year.

“As for the debt strategy, there’s been no significant change. Again, the timing of debt instruments [in] the fiscal cycle is not driven solely by immediate cash needs and also future needs. We fully expect a net increase of debt of less than $100m in line with the Budget projections.”

The combined $129.3m deficit incurred for the two months through August 2024 is 85.3 percent, or $59.5m, higher than the $69.8m that the Government is targeting for the full 12-month fiscal year that closes at end-June 2025. And it is also means that the Government has incurred more ‘red ink’ during the initial two months of the 2024-2025 fiscal year than it did during the first four in the prior year.

The deficit, which grew almost ten-fold from the $13.2m incurred during the first two months of the prior 2023-2024 fiscal year when the Government actually ran an $18.3m surplus for July, was entirely driven by a surge in total spending which hit $614.6m compared to $481.2m for the previous 12 months. And the Government’s debt also rose by $323.4m during the first two months of the 2024-2025 fiscal year.

However, the Government’s fiscal performance for July and August is not necessarily an indicator of how the full 2024-2025 fiscal year will pan out. Due to the cyclical nature of the Budget cycle, the first half of the year - from July 1 to end-December - has traditionally always been weaker and a period when the Government - regardless of which party was in power - often incurs heavy deficits.

These are then slashed by the revenue-rich first four months of the calendar year, which coincides with the winter tourism season high and peak economic activity as well as the payment of Business Licence fees, the bulk of real property taxes, and commercial vehicle licensing in March. Thus it is too early to write-off the Government’s chances of hitting its $69.8m full-year deficit target.

Mr Wilson, meanwhile, said the Ministry of Finance has seen “excellent results” from the new audit requirement for companies with turnover in excess of $5m.

While the business community has complained about the enhanced Business Licence reporting regime unveiled by the Prime Minister in the 2023-2024 Budget debate, Mr Wilson said those full audited financial statements have benefited many businesses by assisting them in opening credit lines to expand their firms.

He added that due to the Government’s increased attention to tax compliance, the goal of achieving a 25 percent revenue-to-GDP ratio is “very likely” in the medium term.

“In terms of tax administration, we’ve seen excellent results from the new audit requirements for Business Licence holders. The overall impact on the economy has also been positive, as many businesses have been able to use these audits for other purposes, such as getting credit, which is necessary for the expansion of business,” said Mr Wilson.

“The Ministry of Finance believes that it is seeing a structural adjustment in tax compliance in The Bahamas, thus makes achieving 25 percent revenue-to-GDP very likely in the medium term.” He added that the new 15 percent corporate income “heralds a new era for fiscal reform” in the country.

Mr Wilson said although there are less than 10 multinational entities making 750 million or more euros that will be required to pay the 15 percent tax, its impact will be “far reaching” as the Government is now considering new tax incentives for all businesses.

“The passage of the domestic minimum top-up tax (DMTT) legislation heralds a new era for fiscal reform for the Government. The DMTT is the first tax on income in The Bahamas, and while the tax base will be relatively small, perhaps less than 10 companies, it will have far reaching implications,” said Mr Wilson.

“We are now considering a new framework of tax incentives, which will benefit the DMTT taxpayers, as well as Business Licence holders.”