Just over a week ago, I stood before this Honorable House to present the 2020/21 Budget Communication, which outlined a prescriptive plan for how this Administration will lead the country, from crisis to opportunity. Dubbed “Resilient Bahamas: A Plan for Restoration”, the Budget I presented sets the framework for our economic recovery.
A Salute to East Grand Bahama
I want to start my contribution today, Mr. Speaker, by thanking the constituents of East End Grand Bahama for the opportunity to stand before this House once again to open the 2020/21 Budget Debate. My constituents place their trust in me to represent their needs and to act in the best interest of the Bahamian people. I want to assure them, I wake up every morning and put my best foot forward to serve the Bahamian people, and especially the people of East Grand Bahama.
Grand Bahama has seen rough times, but last year it experienced a catastrophic event that tested the faith of my fellow constituents like nothing before. While the storm brought destruction and hardship, it also showed the resolve and resilience of the people I am honored to represent. And to you I say, we have not forgotten.
No matter how long it takes, we will rebuild together. The Government will continue to invest in Grand Bahama, and we will continue to create opportunities for our community to rise up stronger and better than before.
We cannot lose hope. We cannot lose faith. Trust in the strength of the community, and I will continue to do my best to represent you each and every day.
To my hard-working constituency team, who holds down the affairs of our constituency while I attend to national matters, I want to say a special thank you.
In my debate contribution today, I plan on delving deeper into the Government’s accelerated reforms to facilitate long-term economic growth. In particular, I will outline the performance and plans of the Ministry of Finance, which undergird a number of these reform measures.
My intention is also to correct the record and clear up several misconceptions that have been perpetuated by the Opposition about our fiscal outlook, the Government's fiscal performance, and our shift to a ‘Resilient Bahamas’ strategy. This is important to address, because our decisions in the past have positioned us to effectively manage the unprecedented crisis we face today. Lastly, I will show how this Administration plans to return to a more sustainable fiscal path once the economic recovery begins.
As my fellow Cabinet colleagues and Members of Parliament make their contributions, what you will hear throughout the entirety of the Budget Debate, is how all sectors of Government are doing their part to provide immediate, short-term solutions and, more broadly, to support a robust economic recovery overall. Together, we will present a comprehensive government perspective on how we will bridge the gap between where we are now and where we are going.
A Shift in Strategy
For the past three years, our driving objective has been sustainable economic growth over the medium and long-term. A key component of our strategy has been fiscal consolidation, which is about steering the public finances towards a balanced position over time through revenue enhancement and expenditure containment.
Prior to the double external shocks to our economy, the positive rate of economic growth allowed us to pay-off old bills, make strides in tax administration, and reduced the deficit to historic lows.
To respond to the current crises, we chose not to increase or implement new taxes; we also chose to forgo millions in potential tax revenue to provide ongoing tax breaks. The simple truth is, people are hurting today, and people will be hurting for some time. Our economic recovery is vastly dependent on when and how well this pandemic can be contained, which means the longer the health crisis lasts, not only in The Bahamas, but around the world, the deeper the economic downturn is likely to be.
In our ‘Resilient Bahamas’ plan, we chose targeted investments for public health enhancement, social support expansion, infrastructure rebuilding, job creation, and small business growth and development. This is a plan that provides a foundation of support for the Bahamian people.
Long-term Sustainable Path
Even as we focus on the immediate and short-term response, we already have in place a component of the strategy to return the country to a long-term sustainable path.
By this Mr. Speaker, I am not simply referring to the work of the Economic Recovery Committee (ERC), which was given a mandate by the Prime Minister to present a bold vision for a modern Bahamian economy and to chart a course for our full economic recovery. I am also speaking about our medium-term fiscal and debt sustainability plans.
The Government’s decisions and actions to build a more “Resilient Bahamas” has come at a significant but necessary financial cost. I outlined this in detail during the Budget Communication.
The borrowing we will have to undertake to close the deficit gap has implications for the country’s long-term fiscal health. These are facts we are not shying away from. On the contrary, we are eager and committed to resuming our plans to achieve fiscal balance.
Despite the Opposition’s theatrical dismissal of our plan, we have already considered proactive economic recovery solutions. And, despite the Opposition’s hyperbolic ravings and twisting of the facts, the bad judgment, and failures during their term in office are plain to see.
One of their most notable failures is blowing their budget target by $560 million in a pre-election spending splurge.
In addition to that, they left behind over $300 million in unpaid bills, leaving many Bahamian small businesses with wallets full of IOUs. For many of these bills, there was never any budgetary allocation or public acknowledgement until we brought them into the light and devised a plan to deal with them.
Despite their lofty talk, the Opposition never followed through on fiscal responsibility legislation nor procurement legislation even though they had talked a lot about them. They made no efforts to institutionalize any standards of fiscal discipline or accountability. The facts show that they were reckless, undisciplined, and woefully ill prepared for the task of governance.
The Bahamian people chose this Administration to be at the helm during this moment in history for good reason.
When we saw better times, we made the difficult decision to slow the growth of Government spending and to enhance Government revenue. It was the right choice then, and appropriate for the times.
Now that we are in a crisis, we are making the decision to protect families, communities, and businesses, and to invest in building a Resilient Bahamas.
We are making the tough decisions openly and transparently—as is the way in this Minnis-led Administration.
One thing has always been certain Mr. Speaker, despite all of their bombast and hypocritical rhetoric, we have demonstrated in our deeds that we are different from them—decidedly different. Bahamians know this. The world knows this. Our decisions might not always be popular, but we do the right thing, at the right time, for the right reasons.
The FNM Administration is taking the bull by the horns to effectively manage the social and economic fallout of two of the most catastrophic economic events in the country’s independent history - the deadly, destructive Category 5 Hurricane Dorian; and the global coronavirus (COVID-19) pandemic. Let us not forget, the FNM Administration also successfully navigated the 2008/2009 global financial meltdown. History shows that we are the party best suited to manage the county’s finances in this moment of crisis. The Bahamian people can have confidence in our record of strong, proactive, responsible fiscal management.
Guided by our values as a party, and the steady hand that characterizes our management capabilities, this Administration has proven that in the face of adversity, we are more than capable of transitioning a weakened and lackluster economy to stable footing.
In contrast to the Opposition, Mr. Speaker, we have a clear tale of two Governments—one that is ready and capable for any challenge; and the other that has nothing to show for itself but crocodile tears, broken promises and bad debts.
When we assumed Office, the domestic economy averaged meagre growth of less than half of a percentage point over the last five years. In just two years, our mix of guided economic policies delivered an average growth rate of twice that proportion. That’s right; in just two years, we doubled the average growth of the domestic economy relative to the previous five-year period.
So, Mr. Speaker, I can say with confidence today that this Minnis Administration is ready to turn this country around.
We did it before, and we can and will do it again.
FISCAL PROJECTIONS/OUTLOOK & RATIONALE
It is important to make this distinction between both the management style and record of Administrations because of the challenges we have before us.
Just as a recap, our real GDP is expected to decline by an unprecedented 12 percent this year - representing the largest single year economic contraction since these statistics have been kept. Our economy is expected to be a lot smaller at the end of December than it was in January. That means fewer business imports, lower sales revenue for businesses, and therefore lower revenue for the Government.
The 2020 outlook for the global economy is in a worse state than the 2008/09 global financial crisis. Despite the slight improvement in unemployment rates and recent rallying of stock markets, real GDP in the United States is projected to decline by 5.9% in 2020, which will have a direct impact on the pace of our tourism recovery.
The public outcry on display in the United States, as a result of racial injustice, will also no doubt add further strain to the recovery of the US economy.
The global and domestic economic environment is having a significant impact on our fiscal situation, especially our revenue performance.
The projections for fiscal year 2020/21 put total Government revenue at $1.7 billion. We are projecting a shortfall of $900 million compared to our annual projection for last year.
Although concerning, given our performance just 3 months ago, the Government is not broke, and we caution against any fear mongering that relies on such claims. Faced with this scenario, we have put in place arrangements to ensure we can adequately meet our obligations, as any responsible Government would.
The Choices at Hand
In this treacherous climate, the Government had two choices:
- We could reduce public spending and shrink the economy even further.
- Or, we could invest in public health, economic and social relief measures to mitigate the impact of the pandemic and ensure the viability of our key economic base for the recovery.
These two choices are not unique to The Bahamas. Governments around the world are facing the same decisions, and the most prudent Governments are making the appropriate shift to providing economic relief and expanded social welfare spending, even though these temporary measures will cause some deterioration to their fiscal positions.
For example, we saw the United States’ Government recently pass $3 trillion in economic relief packages to aid in their fight against COVID-19, while Canada provided up to $82 billion in support via tax incentives and direct support for consumers and businesses.
Right here in the region, Jamaica injected over US$170 million into their economy in response to the crisis, while Barbados injected some US$40 million.
Like our leading regional and international counterparts, we recognize that the Government’s contributions to the economy are a vital lifeline, so drastic cuts would do more damage to the already weakened economy. Instead, we chose to curtail non-essential spending, while focusing on targeted investments in priority areas. Because of these necessary investments, we are projecting to run a fiscal deficit of $1.3 billion, or some 11.6 percent of GDP.
Yes Mr. Speaker, as one meme being circulated says, this is “the largest deficit ever incurred in the history of The Bahamas.” But it is also in response to the largest revenue drop in the history of The Bahamas as a result of a one-two catastrophic sucker-punch to the heart of our economy.
The unprecedented level of borrowing is to fund this unpreceded deficit. It is as simple as that. We are acting responsibly to adequately fund the Government and ensure that our people do not suffer.
Bahamians, be not fooled by the rhetoric on the side Opposite.
They have been busy muddying the water and sowing the seeds of division at a time when we should all be unified against the challenges we face.
They have no new ideas, so their propaganda machinery has reverted to personal attacks; pure sip-sip about who is rich and who is elitist.
All the while, it is the side opposite that got “rich and switch.”
On one hand, they carried placards about labour rights and “the struggle” while on the other hand they were living lives of privilege, able to afford elite schools locally and internationally, and to write cheques to support deviant minds to scandalize other peoples' names in the name of partisan politics.
So when they talk about who is elitist and who is rich, don’t mind them trying to paint themselves as one of you. Instead, look at the decisions this Government has made to invest in Bahamian families, communities, and businesses.
Temporary Fiscal Accommodation
The strategic shift from fiscal consolidation to “Resilient Bahamas” was not easy to make given our success with bringing down the deficit. We understand the implications, and that is why it is only a temporary departure from the Government’s fiscal consolidation policy - and by that, I mean our commitment to move toward balanced budgets.
A few months ago, this Government was well on its way to balancing the budget. How laughable is it that the same Opposition that was criticizing our efforts at fiscal discipline now wants to accuse us of being fiscally reckless.
They practically harassed us to spend more and run up larger deficits. Their criticism is an obvious and patent misrepresentation that all Bahamians see through.
While they were claiming we were too focused on the numbers, that we were too busy listening to international organizations, they were all the while embarrassed by our success at bringing down deficit after deficit because they never had the political will to do so.
They were left grasping at straws to find all manner of silly excuses, essentially suggesting that we were bringing down the deficit too fast!
Thankfully, we were steady at the helm and ignored their idle prattling. By the end of our second year in office, we recorded a deficit of $222.4 million, or 1.7% of GDP, marking the lowest deficit and fiscal ratio achieved by any Administration in The Bahamas in a decade.
It was also the first time since FY2012/13 that any Government has ever met its deficit target. That is the opposite of slackness. It is because of this past success that we are in a position to aggressively respond to today’s crises.
But, Mr. Speaker, it is as if their hypocrisy knows no bounds.
It was the Opposition - through their spokesman for Finance - that recommended a $2 billion deficit as the appropriate response to COVID-19 in the first place. Although we did not agree with the Opposition’s outer number, we agreed with the premise: unprecedented times call for an unprecedented Budget.
Clearly, eager to demonstrate his leadership mettle and even larger leadership ambition, the Shadow Minister for Finance valiantly documented his recommendation on behalf of the Opposition in his submission to the Government and to the country.
He can’t cry crocodile tears now, when he was the one who insisted on countercyclical spending. Even he has acknowledged that our focus on families, communities, and businesses in the ‘Resilient Bahamas’ plan, is rightly people-focused.
So, Mr. Speaker, we recognize that it is our duty and responsibility as a Government to implement the appropriate fiscal policy measures in ordinary and extraordinary times. And this time, we believe wholeheartedly that it is in the best interest of this nation, and its people, to support the restoration of our communities and our economy with “Resilient Bahamas: Our Plan for Restoration”.
The Borrowing Implications
I must now turn to the matter of borrowing, and the fears and misconceptions that have been concocted around our debt management and related fiscal affairs.
The Opposition has taken on the habit of randomly throwing out numbers, with no basis in reality, to represent our borrowing record, which has only compounded the misinformation.
Even as they have been ridiculing our public education efforts for being too eye-catching and easy to understand, they have been publishing their memes to misrepresent the FNM’s record.
Not surprisingly, for those who do not care much for openness and transparency, they are actually complaining that we are invested in presenting the Budget to the citizens of The Bahamas in an appealing and accessible way.
The Ministry’s public education efforts for the Annual Budget are inspired by a worldwide movement towards citizens’ budgets, which is fundamentally about ensuring that budget information is accessible to non-specialist readers, and that citizens are included in the budgeting process. This is a global best practice that anyone can research.
There is a place for partisan politics and PR wars, but more importantly, there is a need for Government communications, and fulfilling our responsibility to inform, educate and listen to the public is no partisan political errand.
The Ministry of Finance’s efforts to make the Budget more visual, interactive and less technical promotes accessibility, inclusion, transparency and accountability. And, given the crisis we are navigating, these efforts have become even more vital.
So, Mr. Speaker, I ask the Opposition not to corrupt these efforts with political mockery.
Unfortunately for their political ambitions, but fortunately for Bahamians everywhere, I am proud to inform the Opposition that citizens of all ages are appreciating the lengths to which the team at the Ministry of Finance is going to create an online and social media presence. We are using this presence to inform them on a consistent basis as to how their tax dollars are being allocated in the Budget—and on how they are being spent.
I hate to be the one to break it to Members Opposite, but this country is not going back to the days when the details of the Budgets were obscured in technical documents and when persons got jargon filled reports only once or twice per year.
It’s the people’s time; what used to happen then will not happen anymore. The people are now better informed. And any Government that may follow us at some point in the future will not be able to shield the facts and the reality of the fiscal situation as they may have done in the past.
They will have at their disposal a national website for the annual budget: www.bahamasbudget.gov.bs. They will have at their disposal digital channels to provide public information directly to the Bahamian people and all stakeholders.
Having highlighted our efforts to make the Budget more accessible, let me now return to the matter of our borrowing. And let me start with the story of the real numbers. The real numbers tell a story of responsible borrowing.
Let us walk through the important questions one by one:
- How much have we increased the debt by since taking office?
- Where has this Administration invested public resources?
- Are we at risk of default on our loan payments?
On more than one occasion, the Opposition has tried to make assertions that this Government—the Minnis Administration—has borrowed roughly $1 billion per year since coming to Office. They have blasted the number $3 billion in borrowing all over social media. I want to clear up this misconception now, once and for all.
How much have we increased the debt since taking office?
- This Administration has only increased the Direct Charge (which is the technical name for Government Debt) by $977 million since taking Office. This number comprises gross borrowing and total debt repayment for the first to full years in Office. When you take the difference between gross borrowing and debt repayment, you get net borrowing, which is in fact the true and proper measure of Government borrowing.
- Furthermore, our net borrowing favourably compares to the Opposition, who increased Government Debt by $1.2 billion during their first two full years in Office.
- It only requires basic math to know that $1.2 billion is bigger than $977 million. In other words, the Opposition borrowed more money in its first two full years than this Administration has so far. So we wonder why they are contorting themselves in the way they have just to spread fake news: $3 billion is fake news.
- We can go back even further: Let us look at the first two years of the previous FNM Administration. They added $643 million to Government debt, which, even in the midst of the global financial crisis, is less net borrowing than the Opposition.
- This Administration borrowed less than they did, even as we had to manage and mitigate two historic and catastrophic disasters; and the former FNM Administration borrowed less than them, even as they had to manage and mitigate the worst global financial meltdown in history.
Where has this Administration invested public resources?
We did not just borrow for borrowing’s sake. The spending priorities of this Administration have always been clear. In fact, on the new budget website, you can click a link to view the 2018/19 Budget, the 2019/20 Budget, and the new 2020/21 Budget. Archived for all to see, is a page called “Our Priorities,” which shows the main spending priorities in each Budget over the past three years.
In our first fiscal year, we had an agenda of inclusive growth; jobs and economic growth; social progress, environmental sustainability and public sector reform and modernization. In our second fiscal year, our spending priorities were digital transformation, inclusive education, 21st century infrastructure, jobs and economic growth and the green revolution.
This year, Mr. Speaker, we have clearly articulated our five top priorities: public health and safety, the social safety net, employment generation, the development of the domestic economy and small businesses and government reform.
In all of these areas, we have seen significant investment by this Government, as well as important outcomes. For example:
- Inclusive Education: Last year, the Government made a sizable investment in education by offering free tuition to Bahamians from ages 2 to 22. For the upcoming Budget year, we have increased our allocations toward education by some $5.1 million. Throughout the debate, the Minister for Education will provide more details as to what this investment translates into for Bahamians.
- Digitization: This Administration solidified its commitment to the digitization of Government processes by creating an entire Department to focus solely on these initiatives. Since its establishment, we have allocated nearly $20 million to our digitization efforts. The Minister of State for Grand Bahama will also provide more details to how this project is progressing in his contribution to the Budget Debate.
- Small Business Development: Over the last two fiscal years, we have allocated over $11 million in capital funding to the small business community, and have increased allocations this upcoming year to $55 million.
- Dorian Expenditure: To date, we have spent, for recurrent and capital transactions, nearly $80 million toward hurricane restoration and rebuilding efforts, including $6 million to support water restoration efforts in Abaco, and a portion of the $90 million allocated to restore electricity on Abaco.
In addition to these programs, Mr. Speaker, we managed to pay off approximately $230.1 million in arrears since FY2018/19, leaving only $85.5 million left to pay in old bills. We started our term with over $300 million in arrears left by the last Government. We committed to the Bahamian people that we would honor homegrown vendors by fulfilling their IOUs, and we did just that.
Mr. Speaker, there is no way for the Opposition to spin the numbers in their favor without misrepresenting them.
Not only have we been more responsible with our borrowing, we have put long-awaited guardrails in place to protect the public from debt mismanagement. The Opposition took advantage of the system when it had no boundaries, no rules, no standard for transparency and public disclosure. Instead, we have enacted a new standard of fiscal responsibility, which is why we have time and time again spelled out our fiscal strategy for the Bahamian people, explaining our deviations from our fiscal targets, and publishing our fiscal adjustment plans to get back on track.
I want to urge the Opposition to stop using gross borrowing numbers to mislead the public when they know that nobody in the Bahamas or around the world does this.
If we were to use gross borrowing as the true measure of Government borrowing, I could mistakenly assert that the last PLP Administration borrowed $4.5 billion when their net borrowing was in fact $2.7 billion, over the course of five years. But we would not be so misleading as to blast on social media that the PLP borrowed $4.5 billion during their last term with nothing to show for it, because we are better than that Mr. Speaker. The gross borrowing number includes regular, habitual refinancing that all Governments here and everywhere do as a matter of course. I will say it one more time for everyone in the back of the room:
- This Administration has only added $977 million to the Government’s debt obligations. That is our total net borrowing since coming into Office three years ago, and those resources were invested directly in the Bahamian people.
So, to the Opposition I say, stop it. Stop misleading the Bahamian people with fake numbers and false claims.
Are we at risk of default on our loan payments?
Now to the public concern about defaulting on our debt obligations.
Mr. Speaker, even under the most difficult of circumstances, The Bahamas has always honored its debt obligations. This is a commitment we take seriously, and we have made appropriate provisions to do so in this Budget.
It is important to recognize that the crippling events of Hurricane Dorian and COVID-19 mean everyone is under immense pressure: public sector entities, private sector entities and individual households. Just as the Government has a plan to address the overall macro-fiscal and economic environment, the prudent thing for all of us to do is to plan ahead and prepare.
The Plan to Return
I want to be clear: This Budget year will be an anomaly. We do intend to return to our fiscal consolidation efforts over the medium-term, as the Bahamian economy recovers. This new course will not simply be a pass, or an excuse to return to the old ways of fiscal mismanagement that reigned before we assumed Office. We remain committed to fiscal responsibility, and the continued transformation to sustainable fiscal management in The Bahamas.
This Mr. Speaker, along with our plans to restore a Resilient Bahamas will ensure that The Bahamas continues to be a viable, independent, developing country.
There is no doubt, this crisis is going to force us to do things differently; to move outside of our comfort zone; to approach things we have done the same way for many years in a completely new manner. The Prime Minister will speak more to these details when he talks about the work of the ERC; however, on the fiscal front, we need to examine where the opportunities are for fundamental shifts.
Of course, private sector growth is our ultimate solution to grow the economy, which will create sustainable public financial outcomes. It is our intention to come out of this pandemic with a strong recovery; with a tide that will raise all boats. However, we have to be honest and sober about our short-term growth prospects, and our historical growth trends.
In 2018, we reached an economic growth peak in about a decade of 1.6% real GDP growth. This shows that, even in the best of times, our economy is stymied by structural barriers.
In addition to pursuing diversification within our main economic sectors, and through new niche markets where we have competitive advantage, our strategy is also to look at areas and structural shifts that are within our immediate control that can release growth-promoting opportunities.
Every year, the Government spends over $400 million subsidizing State-Owned Agencies (or SOEs), many of which are inefficient and uncompetitive. In some cases, there is either an overlap in mandates and responsibility; or the mandate has not been reviewed and updated in many years. The reform agenda for SOEs is a major component of the Government's planned return to fiscal consolidation. Not only will this make SOEs more dynamic, efficient and self-sufficient, it will also reduce the amount of money the Government allocates to subsidize these entities. To this end, we have targeted a $100 million annual reduction in subventions over the next four years, as these entities move to optimize efficiency and cost recovery strategies.
SOEs will have to adopt new business practices; they will have to look at their fee structures; and they will have to explore opportunities to consolidate operations to better use public funds.
The Ministry of Finance is already encouraging this movement within agencies that support the small business sector. The Bahamas Development Bank, the Small Business Development Centre, the Bahamas Venture Fund Limited, and the Bahamas Agricultural Industrial Corporation (BAIC), for example, are being tasked in the upcoming budgetary year to find ways to work more closely together to reduce operational costs and improve efficiencies. These will allow us to serve more Bahamian entrepreneurs more quickly.
In addition to SOE reform, we continue to work on our revenue enhancement initiatives, exploring new sources of revenue from commercial services that the Government may provide and to ensure that we are maximizing our existing sources. We also intend to support both domestic and foreign direct investment to help us to grow the economy. Together, these efforts will eventually allow us to achieve and sustain our fiscal consolidation or balanced budget objectives.
We will deliver a more detailed fiscal adjustment timeline in the 2020 Fiscal Strategy Report; however, our initial forecasts show an improvement in the deficit ratio from 11.6 percent in the imminent fiscal year to 6.7 percent in the subsequent year, with a further reduction to 2.9 percent in FY2022/23.
THE MINISTRY OF FINANCE'S 'RESILIENT BAHAMAS' RESPONSE
I now turn to the work of the Ministry of Finance and the many legislative, policy and programmatic initiatives we are undertaking as part of the ‘Resilient Bahamas’ response.
Our strategic plan for rebuilding and restoring this nation has five critical aims: It is about protecting the health and safety of Bahamians; it is about providing adequate social support to vulnerable members of our community; it is about stabilizing the domestic economy; it is about sustaining employment, and it is about accelerating our Government reforms.
The Ministry of Finance is going to play a major role in improving the ease of doing business and modernizing several areas of public service. At a time when the country needs to put its best foot forward, each Ministry and department must lead in this area.
By accelerating its adoption of modern technologies and facilitating private sector expansion and investment in the Ministry and across government, the 'Resilient Bahamas' plan will support a more robust economic recovery overall.
At the Ministry of Finance:
- We are modernizing legislation and improving systems to be a better catalyst for economic growth
- We are adopting cashless technologies, improving our service delivery, and enhancing the overall ease of doing business
- We are increasing efficiency and adopting new tools and practices to reduce leakage and corruption
Some of the work is not glamorous or flashy, but it is far-reaching and long overdue.
Legislative Changes within the 2020/21 Budget
At the time of the 2020/21 Budget Communication, we tabled a number of proposed legislative changes as a part of our revenue measures. The bulk of these changes are administrative by nature, inclusive of typographical changes, insertions and deletions, and amendments for clarification purposes and alignment with Acts that may, in some instances, intertwine across processes. In some cases, they provide an extra layer of requirements for some entities, as a means of strengthening reporting and governance across the public sector.
Changes in the Financial Administration & Audit Act, 2010 (FAA)
- To support the Government’s goal to strengthen public financial management, we will amend the Financial Administration and Audit Act, 2010 (FAA) to require that all Government authorities, companies, and corporations that receive more than 50 percent of their operating budget from the Central Government, produce and submit monthly and quarterly financials. This amendment will not only allow for a more programmatic approach to Government budgeting but will also aid in the cost rationalization project currently being conducted on SOEs.
- Similarly, we will amend the FAA to allow all financial warrants to be endorsed or approved electronically. This supports the Government’s overall push for digitization, particularly within the new norm set by COVID-19. This amendment will also help to increase the ease of doing business, as the time associated with approving financial warrants will be less, thereby making the payment processes and settling of Government bills more convenient and efficient.
Changes in the VAT Act, 2014
- We are amending Section 31 of the VAT Act, 2014 to include an expressed provision for the treatment of insurance settlements, which only allows insurance companies to claim settlement payouts as an input tax when the claimant is a VAT registrant. This will clear up a matter that has generated much confusion in the industry.
- We will also amend the Act to show that VAT is now payable on instruments and transactions related to loans under the Bahamas Cooperative Credit Unions Act, 2015, though zero-rated.
- Furthermore, to legislate the provisions under the Exigency Orders and Special Economic Recovery Zones (SERZ), we are amending the first schedule of the Act to provide for goods stipulated under these Orders or Zones to be zero rated for VAT.
- We will also amend the VAT Act, 2014 to clarify that all e-commerce operators are required to register for VAT, whether they provide their services through an agent, or directly to consumers. Although this had always been implicit within the VAT Act, we thought it best to clarify the requirement given that the footprint of digital commerce will continue to expand in the domestic economy.
- Other regulatory changes to the VAT Act, 2014 include: Allowing the Minister of Finance to temporarily allow for the zero rating, exemption or deferral of VAT on the local supply of goods and services; this amendment is what will provide—for example—the legislative means to execute the planned two week Back to School VAT holiday on select items scheduled for late August.
- In addition, we will clarify that the sale of real property in Freeport is in fact subject to VAT, as it is not included as an exemption in clause 2 of the Hawksbill Creek Agreement.
Further details on these and other related changes are included in several blog posts on the Budget website. And just as an aside, we also have a page on the new website with the full list of proposed Customs duty reductions (or tariff changes), as promised during the Budget Communication.
Changes in the Business Licence Act, 2010
- To bring the Business Licence Act in line with other tax structures, we are amending the Act to now allow for 30 days to appeal an assessment, as opposed to 21 days.
- Furthermore, we are clarifying that Business Licence tax is calculated on the total turnover of a legal entity and not the business type within the Act by inserting a new subsection in Section 8.
- We are also amending the Act to strengthen the Government’s ability to collect unpaid taxes and address non-compliant taxpayers.
Other Administrative Changes
- In the area of Customs administration, we will amend the Customs Management Act to make it mandatory that pleasure vessels obtain a Certificate of Clearance before departing The Bahamas, in an effort to strengthen control and oversight of this sector.
- We will also amend the City of Nassau Revitalization Act to clarify the southern boundary to include the extension of the eastern boundary from Mackey Street to Montague Beach.
Altogether, these legislative amendments will achieve greater governance by strengthening the clarity and administrative application of these laws.
Revenue Enhancement Initiatives
Over the past two years, this Administration has developed and implemented a number of initiatives toward increasing tax compliance, and ultimately revenue collections.
While we have provided substantial measures for tax deferral and relief, the Government remains responsible and accountable to ensure existing laws are respected and that all taxpayers pay their fair share.
As both myself and the Financial Secretary stated at the post-Budget Press Conference, cracking down on tax cheats and ensuring the Government obtains every cent due to it, is one area where the Public Treasury’s income might improve amid the COVID-19 pandemic’s fall-out.
I want to pause now to provide a brief update on the progress in each of the Ministry’s priority initiatives.
Customs Modernization Program
The Customs Modernization Program was designed to transform the old, antiquated administration system within the Customs Department, with a view to increase compliance, as well as revenue collections. Under this program, the phased introduction of the new Electronic Single Window dubbed ‘Click2Clear’ has made clearing goods more efficient, and faster.
Last year we implemented a national public education campaign, including several stakeholder engagements to ensure all importers were registered on the system, and trained to use it properly. This campaign successfully registered 26,747 individual users on the system, and over 4,000 commercial entities. Last fiscal year, Click2Clear processed over $1.0 billion in Government revenue for the Customs Department. Up to April of the current fiscal year, which factors in the impact of Hurricane Dorian and COVID-19, the system has collected just over $800 million.
Revenue Compliance & Enforcement Unit (RCEU)
I am pleased to inform this Honourable House the ongoing work of the Revenue Compliance & Enforcement Unit (RCEU), formalized by this Government, continues to achieve exceptional results in their contribution to the enhancement of revenue and the building of internal capacity. The Unit has had a total fiscal impact of $39.2 million in the first ten months of the 2019-20 fiscal year. The RCEU is currently composed of 35 persons; and we have approved additional staffing for12 more qualified Bahamians.
The Field Audit Team identified and assessed an additional $9.9 million. Part of their process is to ensure taxpayers understand the reasons for the changes to their filings with the intention that they will be able to report accurately going forward. These results were achieved with the hiring of 12 Bahamian auditors in August 2019. We have approved additional staffing of 4 auditors, who are expected to be onboarded when business returns to normal. I remind this House that this Bahamian audit team will be replacing the team of foreign auditors that the former Government had engaged with absolutely no plan to recruit and train Bahamians for the job.
The Collections Team, amplified by additional hirings last year, collected $11.7 million. Prior to the pandemic, we were in the process of hiring an additional three collectors to address the existing accounts receivable backlog.
We intend to proceed upon resumption of normal business activities.
Lastly, the RCEU was recently given responsibility for the collection of all outstanding real property taxes. In addition to the current complement of 8 call center agents who actively pursue these debts, we have dedicated resources to hire an additional 5 Bahamians to increase the number of collection calls. In the first ten months of 2019/20, this team had a fiscal impact of $17.6 million.
At the onset of the current fiscal year, the Government appointed a Revenue Auditor, who was tasked to perform an in-depth review of the revenue and cash management processes and procedures within the Government.
Preliminary findings of this review identified a few persistent shortfalls in the current cash management system, which have led to challenges in revenue reporting. Many, if not most of these challenges go back many, many years without resolution.
A key contributing factor of the shortfalls in the cash management system is a lack of human capital, as the major revenue agencies often find themselves unable to adequately man the revenue management process due to lack of staffing. Thus, as I mentioned in the 2020/21 Budget Communication, the Government will be introducing a dedicated Revenue and Cash Management Unit, which will be responsible for the management and implementation of effective strategies to realign the revenue and cash management cycle of the Bahamas Government.
The Unit will be led by a Director of Revenue, who will lead a team of Revenue Officers stationed in the Treasury and in each of the large revenue generating Government departments, agencies or ministries to implement and control the processes that need to be in place to properly manage the Government’s revenue.
All told, this Unit is intended to underscore the accurate and timely capture and reporting of Government revenue, as well as reduce the potential for fraud and collusion through enhanced oversight.
Audit Review Committee
I mentioned at the time of the Mid-Year Budget Statement that the Cabinet had approved the re-establishment of the Audit Review Committee, which will be tasked with overseeing and facilitating the successful implementation of all recommendations presented in existing and future audit reports by the Auditor General, and other internal and external reports. The appointment of this new committee will modernize and improve the archaic structure we met in place when we assumed Office, thereby increasing compliance and oversight reporting.
I am happy to announce today that the committee has been finalized, and we have appointed Mr. Pedro Delaney as Chair and Mr. L. Sydney Saunders as the Deputy Chair. As a result of the impact of COVID-19, committee operations are now anticipated to begin in July.
MSMEs Growth & Development
The development of the small business sector has been a key tenet of our transformational socio- economic agenda. As the backbone of the private sector, the more we facilitate the development of MSMEs, the more job creation opportunities are available, which ultimately results in increased economic activity and higher productivity. Most importantly, the more we support Bahamian entrepreneurs and small businesses, the more we empower and give real and powerful voices to Bahamians as owners in their country.
At the time of the 2019/20 Budget Communication, I announced that the Government was considering a $25 million loan guarantee to the SBDC through the Inter-American Development Bank (IDB) to expand the financing of MSMEs, as well as to add technical capacity. I am happy to assert today that the Government has chosen to proceed with this arrangement, which will help to provide funding to hundreds of MSMEs. This loan will help to fund in part, up to $50 million in funding requests for 2020, to assist small businesses with hurricane recovery, COVID-19 recovery, and continued business support through loans, grants, and equity arrangements.
I want to take this time to commend the SBDC for its exemplary service and remarkable achievements to date. As the first of its kind in The Bahamas, they have done an exceptional job at executing business advisory and training, as well as helping to bridge the funding gap for small businesses. In addition, I want to congratulate them for the way in which they were able to pivot in a moment’s notice to respond in the aftermath of both Hurricane Dorian and COVID-19 by creating and efficiently administering programs designed virtually from scratch specifically to provide relief to MSMEs.
As of mid-May, the SBDC had registered over 9,700 persons into their program for business advisory, disaster recovery support, and under the newly established business continuity program for COVID-19 impacted businesses. The SBDC approved nearly $40 million in funding across its programs, with just short of $6.0 million approved for hurricane-impacted businesses specifically, and another $29 million for those impacted by COVID-19. Further, the SBDC has disbursed close to $20 million in funding, of which $3.4 million assisted businesses in Abaco and Grand Bahama after Hurricane Dorian, and $10.4 million to businesses affected by the virus. For those businesses seeking advisory and funding outside of the hurricane and COVID-19 programs, some $2.8 million has been disbursed.
Digitization in the Financial Sector
Cruising & Related Fees
As aforementioned in the 2019/20 Budget Communication, we will be moving the purchase, processing and payment of cruising permits, fishing permits, and foreign charter licenses to an online solution.
In line with our efforts to digitize Government processes, we have ventured to do this through a joint project spearheaded by the Ministry of Finance, the Ministry of Transport and Local Government and the Ministry of Tourism.
Not only will this move increase the convenience to customers looking to acquire these permits and licenses, but it will also help to undergird a more efficient collection of these fees for the Government, thereby supporting the revenue base. The new system will also collect the 4 percent tax levied on all charters carried out by foreign charter license holders, which is an area the Government has been seeking to increase compliance in for quite some time. We expect the initial phase of this solution to be rolled out before the fourth quarter of the year.
From the onset of the COVID-19 pandemic, this Government delivered a compassionate, strategic, and robust response plan to help and support the citizens of the Commonwealth of The Bahamas. Leaving no sector untouched, the pandemic quickly derailed many from their normal lives, by completely wiping out the only source of income for some, and considerably reducing the wages of others.
In particular, nine months into the aftermath of Hurricane Dorian and then riddled by a pandemic, the island and the people of Grand Bahama are still hurting, still vulnerable, and still vying for change. Again, I want to reassure all Grand Bahamians that this Administration has been and is still here for you.
I want to reassure all Bahamians that this Government—your Government—has drawn together every resource at its disposal to protect this country and support its people through this ongoing health and economic crisis.
I said on the morning of May 27th, and I want to reiterate again, that no Bahamian will be left without food, no Bahamian will be left without hope, and no Bahamian will be left to total desperation as a result of the twin crises this country currently faces.
Each and every Bahamian will benefit from the fruits of our plan for a Resilient Bahamas.
Economic Support Measures
All told, we have allotted some $86 million in direct support to Bahamians in the 2020/21 Budget through the extension of the COVID-19 policy measures we implemented in March of 2020. This is in addition to the nearly $60 million allocated in the current fiscal year for social assistance directly related to COVID-19. So, altogether, this Government expanded its social safety net by some $140 million in the wake of COVID-19. An unprecedented measure, for an unprecedented time.
To be sure, our approach to ensuring the health and safety of all Bahamians is multifaceted. Whether it is business continuity or the health of our public finances, the welfare of our people must be at the center of our efforts.
They are the bedrock of our future success.
Along with providing a support system to the vulnerable among us, it is also our duty to facilitate a strong and healthy economic recovery, through the development and implementation of sound policies. The only way the vulnerable can one day fend for themselves is through the expansion of opportunity not continued dependence on the state. We believe in the dignity of work.
In this vein, complimentary to our host of direct social support, we are expanding our tax relief measures, which are intended to act as incentives to increase economic activity. In this environment, we know that it is especially hard for small and medium sized businesses to retain staff. We know that it is particularly challenging for startups, who may have only been in existence for a year, to keep up with their operational expenses.
In our Fiscal Adjustment Plan following Hurricane Dorian, we outlined that the impact of the storm would last over a few years. Consequently, even after 2019/20, we expect to see continued revenue loss and increases in expenditure as we continue our rebuilding efforts. COVID-19 has not changed that reality. In fact, it has exacerbated it.
Thus, we have extended some of the relief measures specific to the hurricane-ridden islands in the 2020/21 Budget.
That is why we have extended the Special Economic Recovery Zone (SERZ) to the end of December 2020 and have made provisions for only building materials concessions to apply from January 2021 to June 2021. This means that for the rest of the calendar year, Abaco and Grand Bahama will continue to benefit from:
- The duty-free import of materials, fixtures, furniture, vehicles and equipment for approved commercial projects and residential construction;
- Business Licence waivers for all new businesses and existing businesses that retain at least 60 percent of their employment level pre-Dorian;
- Real Property Tax waivers on eligible properties; and
- Up to 50 percent in VAT credits on the sale of qualifying property
In addition, we have allocated funding of some $66 million toward continued restoration efforts. Specifically, some $46 million is provisioned for the continued restoration of Abaco, $4.7 million for Grand Bahama and another $15 million for disaster management, which includes efforts by the new Ministry of Disaster Preparedness Management and Reconstruction.
We will continue to rebuild critical infrastructure in the second city, which will facilitate a growing and striving economy. The Prime Minister spoke to this last week, indicating that a new hospital for Grand Bahama is in the pipeline. However, as a new hospital can take up to 3 years to construct, we will continue upgrades and renovations to the Rand Memorial Hospital in the near term until construction can begin on the new facility. Further, we are continuing school repairs throughout the island of Grand Bahama, as well as road repairs.
The Grand Bahama Utility Company continues to work earnestly to ensure that potable water supply is restored throughout the entire island and has made stellar progress in the months leading up to the pandemic.
In the same vein, the Grand Bahama Power Company has also been working steadfastly to restore the transmission and distribution system in East Grand Bahama.
At the beginning of this month, they began the connections of temporary accounts from Equanor Terminal to High Rock for customers with approved Ministry of Works permits and approved GBPC temporary power accounts. GBPC has indicated that they are commencing extension of the service into Pelican Point shortly and in the opposite direction to Gold Rock Creek in the next few weeks.
As I conclude, I want to reiterate the significance of this Budget, and its critical role in these unprecedented times.
As a representation of the Government’s priorities and plan for the next 12 months, this Budget sets the framework for the restoration of a better, more resilient Bahamas.
In this Budget, we have committed to supporting the Bahamian people in these extraordinary times, while setting and implementing a dynamic mix of policies that will underpin the development and advancement of Bahamian families, Bahamian businesses, and the overall Bahamian economy.
Fair-minded Bahamians realize the challenges we are facing as a nation. Again, and again, we have met the tough circumstances head-on, and made the tough decisions in the best interest of our beloved Bahamas.
Mr. Speaker, those Opposite have unfortunately positioned themselves to spin the narrative. But no political spin can erase the stubborn and sobering facts. This Government, within three years, has faced what no Government has tackled in our modern history. Both Dorian and COVID-19 have proven deadly, and recovery continues in both instances.
Abaco was enjoying an incredible growing economy and Grand Bahama was positioning itself to rebound from Hurricane Matthew. Sadly, Mr. Speaker, those Opposite, who now speak doom on our efforts and have miraculously found all the right solutions, did very little for those impacted by Matthew.
We have clear evidence of how poorly those Opposite have mismanaged the people's money. Their apathy and uncaring abuse is widely known, yet, if you listen to them, they purport to hold a monopoly on love, passion, care, and concern for the Bahamian people. The facts are stubborn Mr. Speaker.
Notwithstanding what we met when we came to Office, driven by our compassion, competent approach, and commitment to strengthening our economy, we have placed our money and resources to ensure opportunities for all Bahamians.
This Budget provides for the less fortunate among us. Those who cannot work, those now without jobs in search of work, and those who just flat out find themselves on hard times. We are not providing handouts, Mr. Speaker; we are rallying together to unite the community and provide the support Bahamians need. This Government did not create Dorian or COVID-19, and neither did the thousands of Bahamians displaced in their wake. Mr. Speaker, this is a Government and a Budget that meets Bahamians where they are and rises to the times we now face. This is a Government with a heart for the people - all of our people - and this Budget is a testament to that fact.
These tough times call for tough decisions Mr. Speaker. We will not be distracted, Mr. Speaker. We remain accountable. And, when history marks these trying times, this Government will be noted as leaders who faced unprecedented circumstances and gave their all to maintain and build an even better Bahamas.
I remain ever grateful to the people of East Grand Bahama who sent me here Mr. Speaker. The fine people of the East and the wider Grand Bahama should know, this Government will see to it that our adversities are harnessed to create opportunities. We have faced many adversities beyond our control, but God never fails. With his guidance and our commitment, better days lie ahead.
Mr. Speaker, I look forward to an interesting and fruitful Budget Debate.