pharoah
06-06-07, - 08:57 AM
http://www.freenationalmovement.org/news.php?cmd=view&id=395
Published: Tuesday June 5th, 2007
The FNM govt's 2007/2008 Budget is a Budget for the Bahamian People
Debate began Tuesday on the FNM government's 2007/2008 Budget Bill, a Bill marking an unprecedented budgetary commitment to education, healthcare, national security and the poor.
Minister of State for Finance the Hon. Zhivargo Laing raised the debate for the government, followed on the government side by Clifton MP Kendal Wright and Pinewood MP, the Hon. Byran Woodside, Minister of State for Youth and Sports, who both delivered comprehensive contributions to the House debate.
Audio coverage of the Tuesday & Wednesday sessions of the 2007/2008 Budget Debate in the House of Assembly will be uploaded later this evening.
Budget Communication by Minister of State for Finance, the Honourable Zhivargo Laing, MP:
MINISTER LAING: Mr. Speaker, my election and hence presence in this Honourable House of Assembly is by and on behalf of the good people of Marco City. It is on their behalf and on behalf of the Free National Movement Government in which I am privileged to serve that I now rise to move the second reading of a Bill for an Act...
On May 2, 2007 the people of Marco City elected me to take and sit in their seat in this place. My election has been difficult for some people to swallow. It will take those people some time to come to terms with the result of my election and that of my party, the FNM. We were elected by young and old people, black and white people, rich and poor people, churched and unchurched people.
We do not pretend to own the majority seats in this Hounourable place that we occupy nor do we feel an immutable entitlement to occupy our privileged positions. In my case, the seat I occupy belongs to Marco City; they elected me to it and it is they who can un-elect me. We are here to do the job they elected us to do – represent them, speak in their name and on their behalf and act in their collective interest at all times.
In here, in this my first presentation of my second non-consecutive term in this Honourable House, I thank Marco City and the FNM for their vote of confidence in me. I thank the Right Honourable Prime Minister too for expressing such confidence in me and making me a member of his cabinet.
As I did during the campaign, I pledge to be a committed and determined voice inside and outside this place; and to do my utmost to make a difference in the lives of the people of Marco City and their communities and to do likewise on behalf of all the people of this nation who I serve.
Commendation of Ministry of Finance Staff
Mr. Speaker, I wish at this point to commend highly the staff of the Ministry of Finance for their diligence, efficiency and dedication to the preparation and presentation of the annual budget. I know that our desire to prepare a budget that we could own ourselves placed much demands upon them. They responded effectively and I commend them.
Let me say at the outset that this 2007/2008 Budget is our budget. We constructed it. We own it. We take responsibility for it. Notwithstanding the time and financial constraints we faced, constraints which the former administration wined about when they came to office, we immediately got to work in preparing a budget that reflected our priorities and met the needs of the Bahamian people as expressed to us during our hard fought campaign.
This 2007/2008 Budget is our first financial step toward fully implementing our Trust Agenda and making life better for Bahamians everywhere.
MY ASSIGNMENT IN THIS BUDGET DEBATE
Mr. Speaker, what is my assignment at the outset of this 2007/2008 budget debate? It is to lay the foundation for the framework of this budget. That is, I will speak to our revenue projections; the appropriateness of the expenditures to be made therefrom; and to elaborate on the desirability and necessity of the overall position resulting from both. Before getting to those points, however, I wish to once again outline our economic objectives moving forward.
OUR OBJECTIVES
This Budget will support the achievement of our objectives for this our third non-consecutive term in office. Our objectives are as follow, to:
* Create good paying jobs for unemployed Bahamians;
* Encourage income growth for those who are employed;
* Increase Bahamian entrepreneurship and ownership in our economy;
* Reduce poverty, particularly in our inner city areas and in our Family Islands;
* Create balance in our economic growth by responsibly spreading prosperity to our Family Islands;
* Invest our prosperity in the improvement of our society generally: in security, in education, in health, in social welfare and in youth development; and
* Safeguard our environment and heritage for present and future generations.
THE ECONOMY
Mr. Speaker, if we are to achieve these objectives, we must have the aid of a vibrant Bahamian economy. A vibrant economy must be supported by sound fiscal management.
The International Economy
The Bahamian economy by its very structure, Mr. Speaker, is highly influenced by the global economy. Therefore, it is always helpful to review briefly global economic conditions in looking at the prospects for the Bahamian economy. The International Monetary Fund (IMF)’s global economic outlook projects real GDP growth of 4.5% in 2007 and 4.0% in 2008. This projection is for robust growth, though more moderate than the 5.4% enjoyed in 2006.
The US economy is of particular interest to the Bahamian economy because they are inextricably linked. This IMF forecast projects real GDP growth for the US economy of 2.2% in 2007 and 2.8% in 2008.
These rates are more moderate than that enjoyed last year but represent a positive outlook none the less for the US economy, which had to cope with certain corrections in its housing market. For the immediate future, declining oil prices and stability in the international financial markets support continuing momentum in both the global and US economies.
The Bahamian Economy
The growth prospects for the Bahamian economy remain favourable. This is due largely to the positive economic outlook of the world’s economy and continuing expansion of the US economy which though moderate remains strong. Such growth prospects also rest with a number of investment projects already approved. It is our full intention to facilitate the most rapid coming on stream of these and new investments to the extent they serve the best interest of our economy and people.
2007/2008 REVENUE PROJECTION
Recurrent Revenue
Mr. Speaker, the 2007/2008 Budget forecasts recurrent revenue intake of $1,490 million. This forecasted revenue is comprised of the following:
TAX REVENUE
Import and Excise Duties - $605,769,000.00 - 41%
Property Tax - $85,000,000.00 - 6%
Motor Vehicle - $35,000,000.00 - 2%
Gaming Tax - $28,500,000.00 - 2%
Tourism Tax - $105,000,000.00 - 7%
Stamp Tax - $399,400,000.00 - 27%
Company Fees - $28,000,000.00 - 2%
Bank and Trust Company Fees - $12,000,000.00 - 1%
Insurance Company Fees - $16,500,000.00 - 1%
Other Taxes - $2,600,000.00 - 0%
Sub-total - $ 1,317,769,000.00 - 88%
NON-TAX REVENUE
Fees and Service Charges - $122,500,000.00 - 8%
Revenue from Government Property - $21,666,000.00 - 1%
Interests and Dividends - $18,565,000.00 - 1%
Re-imbursement and Loan Repayment - $500,000.00 -0%
Services of a Commercial Nature - $9,000,000.00 - 1%
Sub-total - $172,231,000.00 - 12%
GRAND TOTAL - $ 1,490,000,000.00 - 100%
I note, Mr. Speaker that the 2007/2008 revenue forecast of $1,490 million is $143 million or 10.6% higher than the original forecast for this 2006/2007 fiscal period and is $134 million or 9.9% higher than the likely outturn for this period. These increases are modest compared to the 17.6% increase forecasted in the 2006/2007 Budget over the 2005/2006 Budget.
Forecasting, Mr. Speaker, is an inexact science, but a science nonetheless. The revenue forecast is the least definitive but the most critical of the budget components. It represents the best judgment of the Minister of Finance. Everything flows from the revenue. All expenditure depends on the ability to pay and that ability is subject to revenue collected by the government.
It is, Mr. Speaker, our best judgment that in examining both the historic performance of revenue in recent times as well as the economic forecast going forward, there will be sufficient buoyancy within the economy combined with continuing improvements in the efficiency of tax administration to increase intake by 9.9% over the likely outturn for this fiscal period.
Capital Revenue
Mr. Speaker, besides the recurrent revenue of $1,490 million, the government expects to take in an additional $199.81 - $10 million in capital revenue, $166.6 million in proceeds from borrowing and $23.2 million from grants and other sources.
I want to point out, Mr. Speaker, that these proceeds from borrowing projected for the 2007/2008 budget represents a decrease in borrowing compared to this current period of $38.42 million or approximately 17% compared to the last fiscal year of 2006/2007. This is certainly the direction in which this administration seeks to keep moving, a point about which I will have more to say later.
2007/2008 EXPENDITURE ESTIMATES
Mr. Speaker, from the revenue we expect to collect in the upcoming fiscal year, we expect to make total recurrent expenditure of some $1,465 million. The major expenditures will be made as follow:
EDUCATION
The Department of Education - $ 195,121,980.00 - 13.32%
Ministry of Education, Youth, Sports and Culture - $46,321,846.00 - 3.16%
The College of The Bahamas - $26,751,530.00 - 1.83%
Department of Archives - $3,114,873.00 - 0.21%
BTVI - $6,023,151.00 - 0.41%
SUB-TOTAL - $ 277,333,380.00 - 18.93%
PUBLIC HEALTH
Public Hospitals Authority - $ 164,364,206.00 -11.22%
Ministry of Health and Social Development - $ 18,971,627.00 - 1.30%
Department of Environmental Health Services - $ 33,187,604.00 - 2.27%
Department of Public Health - $27,591,797.00 - 1.88%
SUB-TOTAL - $ 244,115,234.00 - 16.67%
NATIONAL SECURITY
Royal Bahamas Police Force - $ 117,466,594.00 - 8.02%
Royal Bahamas Defence Force - $45,390,256.00 -3.10%
Department of Immigration - $18,392,389.00 - 1.26%
Ministry of National Security - $2,145,506.00 - 0.15%
SUB-TOTAL - $ 183,394,745.00 - 12.52%
THE PUBLIC SERVICE
The Department of the Public Service - $94,303,648.00 - 6.44%
TOURISM
Ministry of Tourism and Aviation - $82,232,541.00 - 5.61%
The Gaminig Board - $6,896,142.00 - 0.47%
Airport Authority - $1,000,000.00 - 0.07%
SUB-TOTAL - $90,128,683.00 - 6.15%
These areas combined, Mr. Speaker, account for some $889.28 million of recurrent expenditure or about 61% of the total expenditure to be made in the 2007/2008 fiscal period. They reflect in every way the intention of this administration to greatly impact on these priority areas for an improved quality of life of our citizens.
I note, Mr. Speaker, that not only will these areas enjoy the highest level of spending ever in the history of our nation, most account for the largest proportions of the increased expenditure planned for the upcoming year. The 2007/2008 Budget projects total increase in expenditure of some $78.4 million or 5.7% over the approved estimates for 2006/2007. The largest increases for various Heads are as follow:
Public Hospitals Authority, including: $ 21,893,667.00 - $142,470,539.00 - 15%
Medical Supplies and Materials - $8,126,832.00
Contractual Services at the Princess Margaret Hospital - $2,443,889.00
Department of Education - $20,711,717.00 - $174,410,263.00 - 12%
Quality Assurance - $3,500,000.00
School Busing - $848,620.00
Ministry of Lands and Local Government, including: $15,745,485.00 - $21,330,943.00 - 74%
Mailboat Service Contracts - $8,954,660.00
Increases to Elected Local Government Authorities - $2,349,454.00
Department of Public Service - $15,498,445.00 - $78,805,203.00 - 20%
Pensions to Officials & Staff Gratuities - $10,500,000.00
Insurance Premiums - Law Enforcement Officers - $6,000,000.00
Global Provision for Operation Second Chance - $500,000.00
Ministry of Education, Youth, Sports and Culture, including: - $11,614,584.00 - $34,707,262.00 - 33%
Increased subsidy to Independent Schools - 1,768,860.00
Government Scholarships - $2,600,000.00
Interest Subsidy - Education Loan Guarantee - $1,500,000.00
Royal Bahamas Police Force, including: - $9,066,939.00 - $108,399,655.00 - 8%
200 Police Recruits - $1,353,600.00
Royal Bahamas Defence Force - $4,703,002.00 -$40,687,254.00 - 12%
College of The Bahamas, including: $6,790,397.00 -$19,961,133.00 - 34%
Personal Emoluments - $3,790,397.00
Acquisition, Construction & Improvement of Capital Assets - $3,000,000.00
CAPITAL EXPENDITURE
Mr. Speaker, the 2007/2008 foreshadows total capital expenditure of $224.66 million, an increase of $29.09 million or 14.9% over the current fiscal year. The largest capital expenditure allocation will be made as follow:
Ministry of Public Works & Transport - $61,933,982.00 - 28%
Sundry Capital Expenditure - $52,936,124.00 - 24%
Ministry of Education, Youth, Sports and Culture -$26,335,000.00 - 12%
Royal Bahamas Police Force - $11,226,000.00 - 5%
Royal Bahamas Defence Force - $12,941,500.00 - 6%
TOTAL: $165,372,606.00 - 74%
Mr. Speaker, in keeping with our priority attention to national security, note should be made of the fact that the security forces will receive substantial increases in capital expenditure in the upcoming fiscal period. Such increases, along with others include:
* A $5.4 million increase for the Defence Force;
* A 2.7 million increase for the Police Force;
* A $10.5 million increase for Sundry Capital Works;
* A $4.8 million increase for the Ministry of Foreign Affairs; and
* A $3 million increase for the Ministry of Education, Youth, Sports and Culture.
Mr. Speaker, before leaving this issue of expenditure in relation to the 2007/2008 Budget, I wish to correct some erroneous statements that appeared in the press lately, comments attributed certain members opposite.
It was claimed in those press statements that we, the FNM administration, “scrapped” in this 2007/2008 Budget a number of major programmes that were initiated by the former administration, namely Urban Renewal, National Health Insurance and the Down Town Improvement Programme. Such statements are indeed false, Mr. Speaker.
The facts, Mr. Speaker, are as follow:
*
In the 2006/2007 Budget, the current fiscal year, Urban renewal was allocated $2.45 million in the Head of the Office of the Prime Minister, to date, only $1.32 million or a little more than half the amount allocated has been spent. In this upcoming fiscal year, we, the FNM administration have allocated $2.5 million, or $100,000 more, for Urban Renewal under the Head of the Ministry of Housing and National Insurance, this does not include the $200,000 provided for Marching Bands and vehicles under the programme.
*
In 2006/2007 Budget, $620,000 was allocated for Urban Renewal under the Head of the Department of Social Services of which $551,310 or 89% was spent to date. In the 2007/2008 Budget, we the FNM are providing $1,083,189 for Urban Renewal, an increase of 75%. Therefore, not only was Urban Renewal not scrapped, it has been given increased funding taking it from $3,070,000 under the former administration to $3,783,189 under this administration.
*
In the 2006/2007 Budget, the former administration allocated $1 million for the Down Town, Waterfront Prince George Wharf Centre under the capital Head of the Ministry of Public Works. Of that amount only $258,250 or about 26% was spent. In the 2007/2008 Budget we provide the same $1 million for Down Town, Waterfront Prince George Wharf Centre.
*
In the 2006/2007 Budget, there was not a single line item for National Health Insurance. I am advised that most of the expenditure related to the same came from the National Insurance Board, some $1 million. So nothing was scrapped in the upcoming budget because nothing was included in the current one.
One would have expected that those familiar with what they were doing could speak in a more informed fashion about these matters. In any event, the public should not be misinformed or misled.
KEY EXPENDITURES
UNDER THE MINSITRY OF FINANCE###
Mr. Speaker, I have under my direct charge four principal departments, namely the Ministry of Finance, the Treasury Department, Customs Department and the Department of Statistics. I wish at this time to speak to a number of specific expenditures under those Heads that would be of interest to the public. The Ministry of Finance
The Ministry of Finance’s total allocation in the 2007/2008 Budget is $30,135,588. Significant provisions in the Ministry of Finance’s allocation include:
* $1,500,000 for the Global Summer Employment Programme;
* $1,200,000 for the Caribbean Catastrophe Risk Insurance Facility, which provides participating governments in the region with immediate access to liquidity if hit by a hurricane, in the case of The Bahamas, the access is to US $25 million; and
* $250,000 for the establishment of the Office of Data Protection Commission.
The Treasury Department
The Treasury Department, Mr. Speaker, will receive an allocation of $10,592,967, an increase of some $1,243,824 or 13% over the current year. The increase reflects certain personnel and administrative requirements to ensure that the Department continues its programme of improve in the execution of its functions which are so critical to the government’s financial operations.
I note that on the capital side we have also provided some $500,000 for the purchase of a document imaging and cold storage system to be installed at the Treasury Headquarters and rolled out to the accounting areas of the various ministries and departments; as wells as provide for cost associated with larger office space in Abaco and proposed new office location in Exuma.
The Department of Statistics
The Department of Statistics continues, Mr. Speaker, to officer critical services to the country in the preparation and publishing of national statistics across a wide range of social and economic activities.
It is my anticipation that it will do even more in the years to come. It was in fact the IDB assisted Living Conditions Survey 2001, sometimes referred to as the Poverty Study, conducted by the Department of Statistics that has contributed to the provision in the 2007/2008 Budget of $3 million toward poverty alleviation.
It is expected that a number of recommendations arising out of that study will lead to programmes generated by the Department of Social Services that will provide relief to the poor among us, many of who are our nation’s children. The programmes so intended will likely aim at addressing the immediate needs of the persons affected while simultaneously seeking to move them out of their impoverished state.
In the 2007/2008 Budget, the Department of Statistics is to receive an allocation of $6,087,597, an increase of some $2,198,748 or 56.5%. I am pleased to announce that included in this increase is $1.5 million to fund an Economic Census, which would provide the kind of comprehensive establishment information to facilitate the creation of a national business register and assist in creating appropriate models for future annual sampling and surveying of the business sector.
This will enable us going forward to capture much better data about the commercial sectors of The Bahamian economy and therefore provide better quality data for national accounts. I might also note that for the first time we will be able to capture industry data from the Family Islands, most of which have not been surveyed before.
Increased Funding for the Bahamas Financial Services Board
Mr. Speaker, this Government’s objective for financial services is to implement a sustainable environment for growth and fair competition, consistent with international best practices and standards.
In keeping with this objective the Government has, as a first step in its plan to institutionalize greater transparency, efficiency and coherence in governance, consolidated the ministerial oversight of all matters related to financial services and attendant product development within the Ministry of Finance.
This will allow for more efficient use and allocation of resources in areas where the Government finds itself in direct competition with the private sector. Additionally, this consolidation will offer a more coordinated approach from inception to implementation of policy proposals.
Priority focus in this budget year for financial services will be on:
*
The rationalization of the current regulatory structure to improve the oversight of the sector based on the proven principles of transparency, efficiency, consistency, accountability and proportionality. Mr. Speaker, it is evident that some form of consolidation at the regulatory level not only mirrors the Government’s ministerial structural approach which allows for a more efficient methodology to tackling the horizontal issues reflected in industry trends, but is also long overdue in light of the market developments where it is common to find one provider offering a range of financial services.
*
Implementing an effective process that provides, as a proactive strategy (involving both private and public sector members), a permanent and ongoing review system of services and products designed to keep The Bahamas current and relevant as an international business center.
A recent study (The Oxford Economics Study) estimated that financial services contribute 15% directly approximately 27% indirectly to our GDP. Current worldwide projections anticipate sustained growth trends for the services industries over the next several years.
With a skillfully managed national strategy that strikes a proper balance between (1) appropriately managed regulatory risks and (2) the need to ensure the availability of the widest range of globally competitive services, this Government is committed to ensuring that the financial services contribution to GDP is commensurate with worldwide trends.
Mr. Speaker, in Manifesto 2007, we made a pledge to increase Government’s funding to the annual marketing budget of private sector-driven marketing initiatives on a 50/50 basis. I am therefore please to announce that we have increased the Government’s contribution to the Bahamas Financial Services Board from $250,000 this year to $500,000 next year, a doubling of our contribution.
DESIRE TO INCREASE PRODUCTIVE EXPENDITURE
Mr. Speaker, the reality is that we need to and do have a desire to spend even more money in a number of areas where we believe it can enhance the quality of life for our citizens.
These areas include education (after school programming), youth development, health, prison reform, national security, infrastructure, etc. However, we are constrained by our somewhat fixed obligations. The extent to which these obligations make ever greater demands on our revenue stream is the extent to which we are unable to dedicate more funds to the areas of which I spoke.
Deficit Containment
Mr. Speaker, this leads me to the necessity and desirability of the overall position we seek to achieve by this budget. The 2007/2008 calls for a planned surplus on the recurrent account of some $25 million. This surplus stands in contrast to the planned recurrent budget deficit for this year of some $39 million and a likely outturn of some $4 million, the latter of which could be higher once we fully account for all the contingency spending done in this year.
A planned surplus on the recurrent budget means that we do not have to borrow at all to finance our operating expenses. Indeed, we expect that revenue collected will fully fund our expenses on the recurrent side.
Rather than borrow to pay salaries, allowances, rent, etc. we are borrowing to cover the deficit on the capital account, which understandably in our context will almost invariably experience persistent deficits.
With capital revenue of just $10 million and capital expenditure of some $225 million, we project a capital deficit of $215 million. With recurrent revenue forecasted to exceed expenditure by $25 million, this surplus can be used to cover a part of this deficit, leaving a $190 million balance to be covered by borrowings.
As I said earlier, $190 million we expect to borrow is $38 million less than the $228 million borrowing planned for this year and is $7 million less than the likely outturn, the latter of which again I say could be higher once we fully account for all the spending done this year.
This means, Mr. Speaker, that we are reducing the Government’s deficit and not adding more to the national debt than will be added this year. Indeed, the national debt now stands at about $2.881 billion of which $2.382 billion or 83% represents a direct charge on the Government.
The direct charge on the government has grown by some $580 million or 32% from 2002 to 2006. The total deficit, taking account of the government guarantees has grown by some $656 million or 29% over the last five years.
This represents an average annual increase of some 5.8%. This level of growth of the national debt has had the consequence of pushing debt servicing in terms of interest payments upward from $103.4 million in 2002/2003 to $141.4 million in 2006/2007, an increase of some $38 million or 37%.
Mr. Speaker, the point here is that sustained deficit spending produces increased indebtedness and an increased burden on future generations to service that deficit. The consequence of all this is to tie up future revenue, increases or otherwise, making it more difficult to achieve some of the desirable spending the Government might have. We seek to reverse this trend.
Mr. Speaker, the 2007/2008 Budget calls for an overall GFS deficit of 1.8%, which is slightly lower than the planned GFS deficit of 1.9% for this year but slightly higher than the likely outturn of 1.6%.
Again I point out, however, that the 1.8% GFS deficit planned for the upcoming fiscal year is acceptable when one takes into consideration that we are projecting a planned recurrent surplus of $25 million as well as reduced borrowings of $38 million.
In looking at the overall government financial position, we remain totally committed to bringing the ratio of Government Debt to GDP down from its present level of 38.2% of GDP in 2007/08 to within the range 30% to 35% by no later than 2010/11. Indeed by 2009/10 we will have a ratio of just over 35%.
The drift in the ratio outside the range 30% to 35% began in 2004/05 when it went from 34.8% in 2003/04 to 37.3% in 2004/05. It continued climbing so that in the 2006/07 Budget it was projected to reach 37.9% of GDP.
In the 2007/08 Budget we have planned that the limit on the ratio will be no more than 37.3% of GDP, and falling in 2008/09 to 36.3% and to 35.2% in 2009/10. Thus, in 2010/11 the ratio will be back within 30% to 35% of GDP. In the remaining years of our term in office we will maintain the ratio within the range 30% to 35% as we did in the years 1998/99 to 2001/02.
The Benefits of Deficit Containment
This policy objective is based on a number of considerations.
Firstly, a low debt ratio – that is, a ratio within the range 30% to 35% - ensures that if there is any major disturbance in the global economy, The Bahamas can use the headroom provided by a low Debt ratio to tolerate some relaxation of the fiscal situation.
Consequently, in this context The Bahamas could avoid the necessity to impose tight deflationary measures which would impact severely on Bahamian incomes and Bahamian employment. On the other hand, a high ratio of Government Debt to GDP takes away this scope and leaves a government with no alternative but to impose deflationary measures.
In view of the openness of the Bahamian economy, and the responsiveness of our economy to international developments, maintaining the maximum freedom of action and initiative is crucial to the welfare of the Bahamian people. The drift upwards in the ratio in the years since 2001/02 was contrary to the fundamental interests of the Bahamian economy because it was stripping away this freedom of manoeuvre.
A second major consideration for maintaining a ratio of Government Debt to GDP to within the range 30% to 35% is the impact which a low level of Government Debt has on the economy even in more normal times. A level of Government Debt to GDP of under 35% would mean avoiding a situation in which government borrowing crowds out private borrowings that could be used for more productive purposes.
In recent years, the climb in the ratio of Government Debt to GDP arose from the increases in the Budget Deficit. This Deficit had been systematically reduced in the years 1992 to 2000/01.
Thus, in the last 2 full years of the previous FNM Administration, 1999/00 and 2000/01 the Deficit had been virtually eliminated. In the 5 years 2001/02 to 2006/07 it had exceeded 3% in 2 years, it was close to 3% in 2 years and only in the final year, 2006/07, of that administration has it fallen to under 2%.
However, even that figure is open to question because the fiscal year 2006/07 is not yet completed and we know that in its dying days the previous administration had sanctioned massive amounts of expenditure. In the Mid-Year Budget Statement which we will present to Parliament in January or February 2008, we will be able to give a complete account of the happenings in the fiscal year 2006/07.
A part of our strategy to reduce the ratio of Government Debt to GDP involves targeting a reduction in the Budget Deficit from 1.8% in 2007/08 to just over 1% in the next 2 fiscal years, and then in 2010/11 to the virtual elimination of the Deficit.
We are satisfied that we can achieve these most desirable fiscal goals, the elimination of the Budget Deficit and the reduction of the ratio of Government Debt to GDP to within the range 30% to 35%. Furthermore, and this is of critical importance, we are satisfied that we can achieve these goals without the necessity for raising additional taxation or by cutting back government expenditure on essential services.
We can achieve our goals by ensuring that the present taxation system is consistently, strictly and honestly enforced so that there can be no recourse to loopholes or other means of evading or avoiding taxation. Recall, our revenue system is as mandated by Parliament and has the full support of the Bahamian people. There is no excuse for consistently, strictly and honestly enforcing the taxation system mandated by the will of the Bahamian people.
In addition to enforcement of the present revenue system, it is our intention in Government to accelerate the growth of the Bahamian economy, and in that context to ensure that this growth is well balanced and of the highest quality. We are convinced that revenue buoyancy will flow from this approach.
It means that all developments will be consistent with our wondrous environmental and cultural heritage for the enjoyment of present and future generations of Bahamians and of visitors. High quality investments are likely to be enduring and of appeal to visitors who cherish the environment. Thus, the quality of the investments and of the resulting economic growth is a much sounder approach to sustainable economic development.
To summarise this, we are committed to strict sound fiscal policies which will result in eliminating the Budget Deficit and reduce the ratio of Government Debt to GDP between 30% and 35% by 2010/11.
We consider that these commitments are in the very best interests of the Bahamian people because they give the Government scope to maintain a high rate of growth of employment and incomes even if external circumstances are very unfavourable and unsettled.
We know that these policies are achievable with the present system of taxation which we intend to enforce consistently, strictly, and honestly. We can accelerate the growth of the economy by ensuring that all projects are of high quality in terms of their impact on the environment and the communities in which they are located.
We believe that the projects will provide a more sustainable rate of economic progress, and that the benefits will show up in terms of preserving the environment for present and future generations of Bahamians and visitors, and in terms of greater revenue buoyancy.
One final point with which I wish to deal with outlining the Government’s overall fiscal strategy is in relation to taxation policy. I have already stated that we are committed to enforcing the present system consistently, strictly and honestly, because it reflects the will of the Bahamian people as expressed through the rule of law.
We believe that the present system has served the Bahamian people very well over many years. It has the benefit of being widely-understood, relatively simple, and reasonably equitable when taken in conjuction with government expenditure policies.
We see no reason to change this system to one more complex such as an income tax. Indeed, the absence of an income tax system – with its complexities and uncertainties – has enabled The Bahamas to offer the Bahamian people a standard of living unrivalled among the independent states of the Commonwealth Caribbean, and to attract high-quality productive direct foreign investment which underpins our standard of living. We know that the consensus of the Bahamian people is that there shall be no income tax regime in The Bahamas. Thus, Bahamian taxpayers, Bahamian businesses and foreign investors can be assured that there will be no significant change in our system of taxation.
MID-TERM ACCOUNTABILITY & TRUST
Also a major part of our strategy is to ensure proper control and management of Government expenditures. My colleagues are totally committed to this requirement which the Rt. Hon. Prime Minister has demanded. To demonstrate the Government’s commitment, there will be no hidden supplementary appropriations as occurred under previous administrations.
Budgets in those administration served as a device for moving through Parliament a whole list of Supplementary Appropriations which should have been presented separately at a much earlier date than the Budget. However, the Budget process was used to disguise from open view and debate the details of these Supplementary Appropriations.
Most of the expenditures involved would not qualify as “unforeseen” within the meaning of Article 133 (1) of the Constitution and Section 9 of the Financial Administration and Audit Act. Furthermore, even if some of them were truly “unforeseen’ within the meaning of the relevant Article of the Constitution and Section of the Act, the other requirements for approval were not followed, namely the timely presentation of the Supplementary Appropriations to Parliament.
Instead, the Supplementary Appropriations were permitted to build up into a virtual mountain and then rushed through Parliament as part of the Budget process.
That untidy and opaque process has come to an end with the entry of this Administration. We will present the Mid-Year Budget Review to Parliament early in 2008. At that time Supplementary Appropriations may be presented but only if they truly qualify as “unforeseen”.
There will be no Supplementary Appropriations which do not qualify as “unforeseen” and there will be no mound of Supplementary Appropriations submitted to Parliament under the cover of the 2008/09 Budget. Transparency and Accountability are being restored and enforced.
CHALLENGES AHEAD
Mr. Speaker, we live in days of challenge. There are a number of issues that continue to demand our attention. I wish to speak to these briefly before closing out my contribution.
International Trade Arrangements
International free trade will continue to be a push of the international community and we will have to determine our posture as it relates to the various international arrangements proposed in the global community. For our part, we expect to continue negotiating our entrance into the World Trade Organization (WTO); a process began during our second term in office.
We believe that the WTO provides an acceptable international trading platform for our participation in the international trading system. In fact, any consideration of any other trade arrangement must be comparable to this platform at the very least to receive consideration by us.
I hasten to say here that we will continue to monitor the for now stalled FTAA process. We are giving urgent attention to the European Partnership Agreement.
We will not join the Caribbean Single Market and Economy (CSME), fully convinced that it is not in keeping with our national interest.
International Tax Matters
Mr. Speaker, The Bahamas has made exemplary strides in implementing transparency standards that act as a deterrent to potential abusers of its financial system, having received due public acknowledgement for these efforts in its Tax Information Exchange Agreement with the United States.
Mr. Speaker, The Bahamas has also been a member of the OECD Global Forum on Taxation dealing with the Harmful Tax Initiative since March 2002. This involvement arose when the Government submitted a conditional commitment to implement principles for transparency and effective exchange of tax information within the context of a global level playing field, so as to safeguard this country’s economic interests.
The concept of the level playing field as agreed at the Berlin Global Forum in 2004 is that it is fundamentally about fairness, with the aim of achieving equity and fair competition in the provision of financial services. The Berlin GF Report also noted that cross-border tax cooperation is generally achieved through bilateral negotiations, “which permits the parties to take account of the totality of their bilateral relations, their respective legal systems and practices and their mutual economic interests”.
Mr. Speaker, it is important to re-affirm this Government’s commitment to ensuring that the economic interests of this country will continue to guide its policies in relation to any further cross-border cooperation arrangements.
IT’S ALWAYS ABOUT PEOPLE
Mr. Speaker, there are those who try to draw an artificial distinction between a focus on fiscal discipline and balanced budgeting and caring about people. The truth is that seeking to manage the government’s finances properly is in every way about people.
First, it’s the People’s money and we do not have the right to recklessly spend it, not out of incompetence or political expedience. Secondly, the bulk of this money is spent on people, some 21,000 civil servants who have been hired to serve the People. Finally, the expenditure on programmes and capital works are all for the benefit of the People who use the schools, roads, clinics, etc.
There are those, Mr. Speaker, who believe that it is not important to pay attention to the machinery of government. They believe that we do this to the neglect of the people. I wish to advise them that every machine is made by people and used by people, so that if attention is not paid to the workings of those machines, the people suffer.
Neglect the machinery of motor vehicles and people crash and burn as opposed to get successfully from one point to the next. Neglect the machinery of airplanes and people crash and burn rather than enjoy global travel. Neglect the machinery of medical equipment and people lose their lives as opposed to lengthen them. What is true for such machinery is also true for government.
Neglect the machinery of government and critical medical supplies are not provided for the sick; teachers and schools are not provided for students; constitutional salary reviews are not provided for the judiciary; the executive branch of government is uncoordinated; monies get wasted; ethical breaches occur; and trust in government is lost. In that kind of environment the People demand change, as they should and as they have.
You see, Mr. Speaker, governance is always about people, every part of it. The money comes from the people. It is collected by people. It is spent on people
Published: Tuesday June 5th, 2007
The FNM govt's 2007/2008 Budget is a Budget for the Bahamian People
Debate began Tuesday on the FNM government's 2007/2008 Budget Bill, a Bill marking an unprecedented budgetary commitment to education, healthcare, national security and the poor.
Minister of State for Finance the Hon. Zhivargo Laing raised the debate for the government, followed on the government side by Clifton MP Kendal Wright and Pinewood MP, the Hon. Byran Woodside, Minister of State for Youth and Sports, who both delivered comprehensive contributions to the House debate.
Audio coverage of the Tuesday & Wednesday sessions of the 2007/2008 Budget Debate in the House of Assembly will be uploaded later this evening.
Budget Communication by Minister of State for Finance, the Honourable Zhivargo Laing, MP:
MINISTER LAING: Mr. Speaker, my election and hence presence in this Honourable House of Assembly is by and on behalf of the good people of Marco City. It is on their behalf and on behalf of the Free National Movement Government in which I am privileged to serve that I now rise to move the second reading of a Bill for an Act...
On May 2, 2007 the people of Marco City elected me to take and sit in their seat in this place. My election has been difficult for some people to swallow. It will take those people some time to come to terms with the result of my election and that of my party, the FNM. We were elected by young and old people, black and white people, rich and poor people, churched and unchurched people.
We do not pretend to own the majority seats in this Hounourable place that we occupy nor do we feel an immutable entitlement to occupy our privileged positions. In my case, the seat I occupy belongs to Marco City; they elected me to it and it is they who can un-elect me. We are here to do the job they elected us to do – represent them, speak in their name and on their behalf and act in their collective interest at all times.
In here, in this my first presentation of my second non-consecutive term in this Honourable House, I thank Marco City and the FNM for their vote of confidence in me. I thank the Right Honourable Prime Minister too for expressing such confidence in me and making me a member of his cabinet.
As I did during the campaign, I pledge to be a committed and determined voice inside and outside this place; and to do my utmost to make a difference in the lives of the people of Marco City and their communities and to do likewise on behalf of all the people of this nation who I serve.
Commendation of Ministry of Finance Staff
Mr. Speaker, I wish at this point to commend highly the staff of the Ministry of Finance for their diligence, efficiency and dedication to the preparation and presentation of the annual budget. I know that our desire to prepare a budget that we could own ourselves placed much demands upon them. They responded effectively and I commend them.
Let me say at the outset that this 2007/2008 Budget is our budget. We constructed it. We own it. We take responsibility for it. Notwithstanding the time and financial constraints we faced, constraints which the former administration wined about when they came to office, we immediately got to work in preparing a budget that reflected our priorities and met the needs of the Bahamian people as expressed to us during our hard fought campaign.
This 2007/2008 Budget is our first financial step toward fully implementing our Trust Agenda and making life better for Bahamians everywhere.
MY ASSIGNMENT IN THIS BUDGET DEBATE
Mr. Speaker, what is my assignment at the outset of this 2007/2008 budget debate? It is to lay the foundation for the framework of this budget. That is, I will speak to our revenue projections; the appropriateness of the expenditures to be made therefrom; and to elaborate on the desirability and necessity of the overall position resulting from both. Before getting to those points, however, I wish to once again outline our economic objectives moving forward.
OUR OBJECTIVES
This Budget will support the achievement of our objectives for this our third non-consecutive term in office. Our objectives are as follow, to:
* Create good paying jobs for unemployed Bahamians;
* Encourage income growth for those who are employed;
* Increase Bahamian entrepreneurship and ownership in our economy;
* Reduce poverty, particularly in our inner city areas and in our Family Islands;
* Create balance in our economic growth by responsibly spreading prosperity to our Family Islands;
* Invest our prosperity in the improvement of our society generally: in security, in education, in health, in social welfare and in youth development; and
* Safeguard our environment and heritage for present and future generations.
THE ECONOMY
Mr. Speaker, if we are to achieve these objectives, we must have the aid of a vibrant Bahamian economy. A vibrant economy must be supported by sound fiscal management.
The International Economy
The Bahamian economy by its very structure, Mr. Speaker, is highly influenced by the global economy. Therefore, it is always helpful to review briefly global economic conditions in looking at the prospects for the Bahamian economy. The International Monetary Fund (IMF)’s global economic outlook projects real GDP growth of 4.5% in 2007 and 4.0% in 2008. This projection is for robust growth, though more moderate than the 5.4% enjoyed in 2006.
The US economy is of particular interest to the Bahamian economy because they are inextricably linked. This IMF forecast projects real GDP growth for the US economy of 2.2% in 2007 and 2.8% in 2008.
These rates are more moderate than that enjoyed last year but represent a positive outlook none the less for the US economy, which had to cope with certain corrections in its housing market. For the immediate future, declining oil prices and stability in the international financial markets support continuing momentum in both the global and US economies.
The Bahamian Economy
The growth prospects for the Bahamian economy remain favourable. This is due largely to the positive economic outlook of the world’s economy and continuing expansion of the US economy which though moderate remains strong. Such growth prospects also rest with a number of investment projects already approved. It is our full intention to facilitate the most rapid coming on stream of these and new investments to the extent they serve the best interest of our economy and people.
2007/2008 REVENUE PROJECTION
Recurrent Revenue
Mr. Speaker, the 2007/2008 Budget forecasts recurrent revenue intake of $1,490 million. This forecasted revenue is comprised of the following:
TAX REVENUE
Import and Excise Duties - $605,769,000.00 - 41%
Property Tax - $85,000,000.00 - 6%
Motor Vehicle - $35,000,000.00 - 2%
Gaming Tax - $28,500,000.00 - 2%
Tourism Tax - $105,000,000.00 - 7%
Stamp Tax - $399,400,000.00 - 27%
Company Fees - $28,000,000.00 - 2%
Bank and Trust Company Fees - $12,000,000.00 - 1%
Insurance Company Fees - $16,500,000.00 - 1%
Other Taxes - $2,600,000.00 - 0%
Sub-total - $ 1,317,769,000.00 - 88%
NON-TAX REVENUE
Fees and Service Charges - $122,500,000.00 - 8%
Revenue from Government Property - $21,666,000.00 - 1%
Interests and Dividends - $18,565,000.00 - 1%
Re-imbursement and Loan Repayment - $500,000.00 -0%
Services of a Commercial Nature - $9,000,000.00 - 1%
Sub-total - $172,231,000.00 - 12%
GRAND TOTAL - $ 1,490,000,000.00 - 100%
I note, Mr. Speaker that the 2007/2008 revenue forecast of $1,490 million is $143 million or 10.6% higher than the original forecast for this 2006/2007 fiscal period and is $134 million or 9.9% higher than the likely outturn for this period. These increases are modest compared to the 17.6% increase forecasted in the 2006/2007 Budget over the 2005/2006 Budget.
Forecasting, Mr. Speaker, is an inexact science, but a science nonetheless. The revenue forecast is the least definitive but the most critical of the budget components. It represents the best judgment of the Minister of Finance. Everything flows from the revenue. All expenditure depends on the ability to pay and that ability is subject to revenue collected by the government.
It is, Mr. Speaker, our best judgment that in examining both the historic performance of revenue in recent times as well as the economic forecast going forward, there will be sufficient buoyancy within the economy combined with continuing improvements in the efficiency of tax administration to increase intake by 9.9% over the likely outturn for this fiscal period.
Capital Revenue
Mr. Speaker, besides the recurrent revenue of $1,490 million, the government expects to take in an additional $199.81 - $10 million in capital revenue, $166.6 million in proceeds from borrowing and $23.2 million from grants and other sources.
I want to point out, Mr. Speaker, that these proceeds from borrowing projected for the 2007/2008 budget represents a decrease in borrowing compared to this current period of $38.42 million or approximately 17% compared to the last fiscal year of 2006/2007. This is certainly the direction in which this administration seeks to keep moving, a point about which I will have more to say later.
2007/2008 EXPENDITURE ESTIMATES
Mr. Speaker, from the revenue we expect to collect in the upcoming fiscal year, we expect to make total recurrent expenditure of some $1,465 million. The major expenditures will be made as follow:
EDUCATION
The Department of Education - $ 195,121,980.00 - 13.32%
Ministry of Education, Youth, Sports and Culture - $46,321,846.00 - 3.16%
The College of The Bahamas - $26,751,530.00 - 1.83%
Department of Archives - $3,114,873.00 - 0.21%
BTVI - $6,023,151.00 - 0.41%
SUB-TOTAL - $ 277,333,380.00 - 18.93%
PUBLIC HEALTH
Public Hospitals Authority - $ 164,364,206.00 -11.22%
Ministry of Health and Social Development - $ 18,971,627.00 - 1.30%
Department of Environmental Health Services - $ 33,187,604.00 - 2.27%
Department of Public Health - $27,591,797.00 - 1.88%
SUB-TOTAL - $ 244,115,234.00 - 16.67%
NATIONAL SECURITY
Royal Bahamas Police Force - $ 117,466,594.00 - 8.02%
Royal Bahamas Defence Force - $45,390,256.00 -3.10%
Department of Immigration - $18,392,389.00 - 1.26%
Ministry of National Security - $2,145,506.00 - 0.15%
SUB-TOTAL - $ 183,394,745.00 - 12.52%
THE PUBLIC SERVICE
The Department of the Public Service - $94,303,648.00 - 6.44%
TOURISM
Ministry of Tourism and Aviation - $82,232,541.00 - 5.61%
The Gaminig Board - $6,896,142.00 - 0.47%
Airport Authority - $1,000,000.00 - 0.07%
SUB-TOTAL - $90,128,683.00 - 6.15%
These areas combined, Mr. Speaker, account for some $889.28 million of recurrent expenditure or about 61% of the total expenditure to be made in the 2007/2008 fiscal period. They reflect in every way the intention of this administration to greatly impact on these priority areas for an improved quality of life of our citizens.
I note, Mr. Speaker, that not only will these areas enjoy the highest level of spending ever in the history of our nation, most account for the largest proportions of the increased expenditure planned for the upcoming year. The 2007/2008 Budget projects total increase in expenditure of some $78.4 million or 5.7% over the approved estimates for 2006/2007. The largest increases for various Heads are as follow:
Public Hospitals Authority, including: $ 21,893,667.00 - $142,470,539.00 - 15%
Medical Supplies and Materials - $8,126,832.00
Contractual Services at the Princess Margaret Hospital - $2,443,889.00
Department of Education - $20,711,717.00 - $174,410,263.00 - 12%
Quality Assurance - $3,500,000.00
School Busing - $848,620.00
Ministry of Lands and Local Government, including: $15,745,485.00 - $21,330,943.00 - 74%
Mailboat Service Contracts - $8,954,660.00
Increases to Elected Local Government Authorities - $2,349,454.00
Department of Public Service - $15,498,445.00 - $78,805,203.00 - 20%
Pensions to Officials & Staff Gratuities - $10,500,000.00
Insurance Premiums - Law Enforcement Officers - $6,000,000.00
Global Provision for Operation Second Chance - $500,000.00
Ministry of Education, Youth, Sports and Culture, including: - $11,614,584.00 - $34,707,262.00 - 33%
Increased subsidy to Independent Schools - 1,768,860.00
Government Scholarships - $2,600,000.00
Interest Subsidy - Education Loan Guarantee - $1,500,000.00
Royal Bahamas Police Force, including: - $9,066,939.00 - $108,399,655.00 - 8%
200 Police Recruits - $1,353,600.00
Royal Bahamas Defence Force - $4,703,002.00 -$40,687,254.00 - 12%
College of The Bahamas, including: $6,790,397.00 -$19,961,133.00 - 34%
Personal Emoluments - $3,790,397.00
Acquisition, Construction & Improvement of Capital Assets - $3,000,000.00
CAPITAL EXPENDITURE
Mr. Speaker, the 2007/2008 foreshadows total capital expenditure of $224.66 million, an increase of $29.09 million or 14.9% over the current fiscal year. The largest capital expenditure allocation will be made as follow:
Ministry of Public Works & Transport - $61,933,982.00 - 28%
Sundry Capital Expenditure - $52,936,124.00 - 24%
Ministry of Education, Youth, Sports and Culture -$26,335,000.00 - 12%
Royal Bahamas Police Force - $11,226,000.00 - 5%
Royal Bahamas Defence Force - $12,941,500.00 - 6%
TOTAL: $165,372,606.00 - 74%
Mr. Speaker, in keeping with our priority attention to national security, note should be made of the fact that the security forces will receive substantial increases in capital expenditure in the upcoming fiscal period. Such increases, along with others include:
* A $5.4 million increase for the Defence Force;
* A 2.7 million increase for the Police Force;
* A $10.5 million increase for Sundry Capital Works;
* A $4.8 million increase for the Ministry of Foreign Affairs; and
* A $3 million increase for the Ministry of Education, Youth, Sports and Culture.
Mr. Speaker, before leaving this issue of expenditure in relation to the 2007/2008 Budget, I wish to correct some erroneous statements that appeared in the press lately, comments attributed certain members opposite.
It was claimed in those press statements that we, the FNM administration, “scrapped” in this 2007/2008 Budget a number of major programmes that were initiated by the former administration, namely Urban Renewal, National Health Insurance and the Down Town Improvement Programme. Such statements are indeed false, Mr. Speaker.
The facts, Mr. Speaker, are as follow:
*
In the 2006/2007 Budget, the current fiscal year, Urban renewal was allocated $2.45 million in the Head of the Office of the Prime Minister, to date, only $1.32 million or a little more than half the amount allocated has been spent. In this upcoming fiscal year, we, the FNM administration have allocated $2.5 million, or $100,000 more, for Urban Renewal under the Head of the Ministry of Housing and National Insurance, this does not include the $200,000 provided for Marching Bands and vehicles under the programme.
*
In 2006/2007 Budget, $620,000 was allocated for Urban Renewal under the Head of the Department of Social Services of which $551,310 or 89% was spent to date. In the 2007/2008 Budget, we the FNM are providing $1,083,189 for Urban Renewal, an increase of 75%. Therefore, not only was Urban Renewal not scrapped, it has been given increased funding taking it from $3,070,000 under the former administration to $3,783,189 under this administration.
*
In the 2006/2007 Budget, the former administration allocated $1 million for the Down Town, Waterfront Prince George Wharf Centre under the capital Head of the Ministry of Public Works. Of that amount only $258,250 or about 26% was spent. In the 2007/2008 Budget we provide the same $1 million for Down Town, Waterfront Prince George Wharf Centre.
*
In the 2006/2007 Budget, there was not a single line item for National Health Insurance. I am advised that most of the expenditure related to the same came from the National Insurance Board, some $1 million. So nothing was scrapped in the upcoming budget because nothing was included in the current one.
One would have expected that those familiar with what they were doing could speak in a more informed fashion about these matters. In any event, the public should not be misinformed or misled.
KEY EXPENDITURES
UNDER THE MINSITRY OF FINANCE###
Mr. Speaker, I have under my direct charge four principal departments, namely the Ministry of Finance, the Treasury Department, Customs Department and the Department of Statistics. I wish at this time to speak to a number of specific expenditures under those Heads that would be of interest to the public. The Ministry of Finance
The Ministry of Finance’s total allocation in the 2007/2008 Budget is $30,135,588. Significant provisions in the Ministry of Finance’s allocation include:
* $1,500,000 for the Global Summer Employment Programme;
* $1,200,000 for the Caribbean Catastrophe Risk Insurance Facility, which provides participating governments in the region with immediate access to liquidity if hit by a hurricane, in the case of The Bahamas, the access is to US $25 million; and
* $250,000 for the establishment of the Office of Data Protection Commission.
The Treasury Department
The Treasury Department, Mr. Speaker, will receive an allocation of $10,592,967, an increase of some $1,243,824 or 13% over the current year. The increase reflects certain personnel and administrative requirements to ensure that the Department continues its programme of improve in the execution of its functions which are so critical to the government’s financial operations.
I note that on the capital side we have also provided some $500,000 for the purchase of a document imaging and cold storage system to be installed at the Treasury Headquarters and rolled out to the accounting areas of the various ministries and departments; as wells as provide for cost associated with larger office space in Abaco and proposed new office location in Exuma.
The Department of Statistics
The Department of Statistics continues, Mr. Speaker, to officer critical services to the country in the preparation and publishing of national statistics across a wide range of social and economic activities.
It is my anticipation that it will do even more in the years to come. It was in fact the IDB assisted Living Conditions Survey 2001, sometimes referred to as the Poverty Study, conducted by the Department of Statistics that has contributed to the provision in the 2007/2008 Budget of $3 million toward poverty alleviation.
It is expected that a number of recommendations arising out of that study will lead to programmes generated by the Department of Social Services that will provide relief to the poor among us, many of who are our nation’s children. The programmes so intended will likely aim at addressing the immediate needs of the persons affected while simultaneously seeking to move them out of their impoverished state.
In the 2007/2008 Budget, the Department of Statistics is to receive an allocation of $6,087,597, an increase of some $2,198,748 or 56.5%. I am pleased to announce that included in this increase is $1.5 million to fund an Economic Census, which would provide the kind of comprehensive establishment information to facilitate the creation of a national business register and assist in creating appropriate models for future annual sampling and surveying of the business sector.
This will enable us going forward to capture much better data about the commercial sectors of The Bahamian economy and therefore provide better quality data for national accounts. I might also note that for the first time we will be able to capture industry data from the Family Islands, most of which have not been surveyed before.
Increased Funding for the Bahamas Financial Services Board
Mr. Speaker, this Government’s objective for financial services is to implement a sustainable environment for growth and fair competition, consistent with international best practices and standards.
In keeping with this objective the Government has, as a first step in its plan to institutionalize greater transparency, efficiency and coherence in governance, consolidated the ministerial oversight of all matters related to financial services and attendant product development within the Ministry of Finance.
This will allow for more efficient use and allocation of resources in areas where the Government finds itself in direct competition with the private sector. Additionally, this consolidation will offer a more coordinated approach from inception to implementation of policy proposals.
Priority focus in this budget year for financial services will be on:
*
The rationalization of the current regulatory structure to improve the oversight of the sector based on the proven principles of transparency, efficiency, consistency, accountability and proportionality. Mr. Speaker, it is evident that some form of consolidation at the regulatory level not only mirrors the Government’s ministerial structural approach which allows for a more efficient methodology to tackling the horizontal issues reflected in industry trends, but is also long overdue in light of the market developments where it is common to find one provider offering a range of financial services.
*
Implementing an effective process that provides, as a proactive strategy (involving both private and public sector members), a permanent and ongoing review system of services and products designed to keep The Bahamas current and relevant as an international business center.
A recent study (The Oxford Economics Study) estimated that financial services contribute 15% directly approximately 27% indirectly to our GDP. Current worldwide projections anticipate sustained growth trends for the services industries over the next several years.
With a skillfully managed national strategy that strikes a proper balance between (1) appropriately managed regulatory risks and (2) the need to ensure the availability of the widest range of globally competitive services, this Government is committed to ensuring that the financial services contribution to GDP is commensurate with worldwide trends.
Mr. Speaker, in Manifesto 2007, we made a pledge to increase Government’s funding to the annual marketing budget of private sector-driven marketing initiatives on a 50/50 basis. I am therefore please to announce that we have increased the Government’s contribution to the Bahamas Financial Services Board from $250,000 this year to $500,000 next year, a doubling of our contribution.
DESIRE TO INCREASE PRODUCTIVE EXPENDITURE
Mr. Speaker, the reality is that we need to and do have a desire to spend even more money in a number of areas where we believe it can enhance the quality of life for our citizens.
These areas include education (after school programming), youth development, health, prison reform, national security, infrastructure, etc. However, we are constrained by our somewhat fixed obligations. The extent to which these obligations make ever greater demands on our revenue stream is the extent to which we are unable to dedicate more funds to the areas of which I spoke.
Deficit Containment
Mr. Speaker, this leads me to the necessity and desirability of the overall position we seek to achieve by this budget. The 2007/2008 calls for a planned surplus on the recurrent account of some $25 million. This surplus stands in contrast to the planned recurrent budget deficit for this year of some $39 million and a likely outturn of some $4 million, the latter of which could be higher once we fully account for all the contingency spending done in this year.
A planned surplus on the recurrent budget means that we do not have to borrow at all to finance our operating expenses. Indeed, we expect that revenue collected will fully fund our expenses on the recurrent side.
Rather than borrow to pay salaries, allowances, rent, etc. we are borrowing to cover the deficit on the capital account, which understandably in our context will almost invariably experience persistent deficits.
With capital revenue of just $10 million and capital expenditure of some $225 million, we project a capital deficit of $215 million. With recurrent revenue forecasted to exceed expenditure by $25 million, this surplus can be used to cover a part of this deficit, leaving a $190 million balance to be covered by borrowings.
As I said earlier, $190 million we expect to borrow is $38 million less than the $228 million borrowing planned for this year and is $7 million less than the likely outturn, the latter of which again I say could be higher once we fully account for all the spending done this year.
This means, Mr. Speaker, that we are reducing the Government’s deficit and not adding more to the national debt than will be added this year. Indeed, the national debt now stands at about $2.881 billion of which $2.382 billion or 83% represents a direct charge on the Government.
The direct charge on the government has grown by some $580 million or 32% from 2002 to 2006. The total deficit, taking account of the government guarantees has grown by some $656 million or 29% over the last five years.
This represents an average annual increase of some 5.8%. This level of growth of the national debt has had the consequence of pushing debt servicing in terms of interest payments upward from $103.4 million in 2002/2003 to $141.4 million in 2006/2007, an increase of some $38 million or 37%.
Mr. Speaker, the point here is that sustained deficit spending produces increased indebtedness and an increased burden on future generations to service that deficit. The consequence of all this is to tie up future revenue, increases or otherwise, making it more difficult to achieve some of the desirable spending the Government might have. We seek to reverse this trend.
Mr. Speaker, the 2007/2008 Budget calls for an overall GFS deficit of 1.8%, which is slightly lower than the planned GFS deficit of 1.9% for this year but slightly higher than the likely outturn of 1.6%.
Again I point out, however, that the 1.8% GFS deficit planned for the upcoming fiscal year is acceptable when one takes into consideration that we are projecting a planned recurrent surplus of $25 million as well as reduced borrowings of $38 million.
In looking at the overall government financial position, we remain totally committed to bringing the ratio of Government Debt to GDP down from its present level of 38.2% of GDP in 2007/08 to within the range 30% to 35% by no later than 2010/11. Indeed by 2009/10 we will have a ratio of just over 35%.
The drift in the ratio outside the range 30% to 35% began in 2004/05 when it went from 34.8% in 2003/04 to 37.3% in 2004/05. It continued climbing so that in the 2006/07 Budget it was projected to reach 37.9% of GDP.
In the 2007/08 Budget we have planned that the limit on the ratio will be no more than 37.3% of GDP, and falling in 2008/09 to 36.3% and to 35.2% in 2009/10. Thus, in 2010/11 the ratio will be back within 30% to 35% of GDP. In the remaining years of our term in office we will maintain the ratio within the range 30% to 35% as we did in the years 1998/99 to 2001/02.
The Benefits of Deficit Containment
This policy objective is based on a number of considerations.
Firstly, a low debt ratio – that is, a ratio within the range 30% to 35% - ensures that if there is any major disturbance in the global economy, The Bahamas can use the headroom provided by a low Debt ratio to tolerate some relaxation of the fiscal situation.
Consequently, in this context The Bahamas could avoid the necessity to impose tight deflationary measures which would impact severely on Bahamian incomes and Bahamian employment. On the other hand, a high ratio of Government Debt to GDP takes away this scope and leaves a government with no alternative but to impose deflationary measures.
In view of the openness of the Bahamian economy, and the responsiveness of our economy to international developments, maintaining the maximum freedom of action and initiative is crucial to the welfare of the Bahamian people. The drift upwards in the ratio in the years since 2001/02 was contrary to the fundamental interests of the Bahamian economy because it was stripping away this freedom of manoeuvre.
A second major consideration for maintaining a ratio of Government Debt to GDP to within the range 30% to 35% is the impact which a low level of Government Debt has on the economy even in more normal times. A level of Government Debt to GDP of under 35% would mean avoiding a situation in which government borrowing crowds out private borrowings that could be used for more productive purposes.
In recent years, the climb in the ratio of Government Debt to GDP arose from the increases in the Budget Deficit. This Deficit had been systematically reduced in the years 1992 to 2000/01.
Thus, in the last 2 full years of the previous FNM Administration, 1999/00 and 2000/01 the Deficit had been virtually eliminated. In the 5 years 2001/02 to 2006/07 it had exceeded 3% in 2 years, it was close to 3% in 2 years and only in the final year, 2006/07, of that administration has it fallen to under 2%.
However, even that figure is open to question because the fiscal year 2006/07 is not yet completed and we know that in its dying days the previous administration had sanctioned massive amounts of expenditure. In the Mid-Year Budget Statement which we will present to Parliament in January or February 2008, we will be able to give a complete account of the happenings in the fiscal year 2006/07.
A part of our strategy to reduce the ratio of Government Debt to GDP involves targeting a reduction in the Budget Deficit from 1.8% in 2007/08 to just over 1% in the next 2 fiscal years, and then in 2010/11 to the virtual elimination of the Deficit.
We are satisfied that we can achieve these most desirable fiscal goals, the elimination of the Budget Deficit and the reduction of the ratio of Government Debt to GDP to within the range 30% to 35%. Furthermore, and this is of critical importance, we are satisfied that we can achieve these goals without the necessity for raising additional taxation or by cutting back government expenditure on essential services.
We can achieve our goals by ensuring that the present taxation system is consistently, strictly and honestly enforced so that there can be no recourse to loopholes or other means of evading or avoiding taxation. Recall, our revenue system is as mandated by Parliament and has the full support of the Bahamian people. There is no excuse for consistently, strictly and honestly enforcing the taxation system mandated by the will of the Bahamian people.
In addition to enforcement of the present revenue system, it is our intention in Government to accelerate the growth of the Bahamian economy, and in that context to ensure that this growth is well balanced and of the highest quality. We are convinced that revenue buoyancy will flow from this approach.
It means that all developments will be consistent with our wondrous environmental and cultural heritage for the enjoyment of present and future generations of Bahamians and of visitors. High quality investments are likely to be enduring and of appeal to visitors who cherish the environment. Thus, the quality of the investments and of the resulting economic growth is a much sounder approach to sustainable economic development.
To summarise this, we are committed to strict sound fiscal policies which will result in eliminating the Budget Deficit and reduce the ratio of Government Debt to GDP between 30% and 35% by 2010/11.
We consider that these commitments are in the very best interests of the Bahamian people because they give the Government scope to maintain a high rate of growth of employment and incomes even if external circumstances are very unfavourable and unsettled.
We know that these policies are achievable with the present system of taxation which we intend to enforce consistently, strictly, and honestly. We can accelerate the growth of the economy by ensuring that all projects are of high quality in terms of their impact on the environment and the communities in which they are located.
We believe that the projects will provide a more sustainable rate of economic progress, and that the benefits will show up in terms of preserving the environment for present and future generations of Bahamians and visitors, and in terms of greater revenue buoyancy.
One final point with which I wish to deal with outlining the Government’s overall fiscal strategy is in relation to taxation policy. I have already stated that we are committed to enforcing the present system consistently, strictly and honestly, because it reflects the will of the Bahamian people as expressed through the rule of law.
We believe that the present system has served the Bahamian people very well over many years. It has the benefit of being widely-understood, relatively simple, and reasonably equitable when taken in conjuction with government expenditure policies.
We see no reason to change this system to one more complex such as an income tax. Indeed, the absence of an income tax system – with its complexities and uncertainties – has enabled The Bahamas to offer the Bahamian people a standard of living unrivalled among the independent states of the Commonwealth Caribbean, and to attract high-quality productive direct foreign investment which underpins our standard of living. We know that the consensus of the Bahamian people is that there shall be no income tax regime in The Bahamas. Thus, Bahamian taxpayers, Bahamian businesses and foreign investors can be assured that there will be no significant change in our system of taxation.
MID-TERM ACCOUNTABILITY & TRUST
Also a major part of our strategy is to ensure proper control and management of Government expenditures. My colleagues are totally committed to this requirement which the Rt. Hon. Prime Minister has demanded. To demonstrate the Government’s commitment, there will be no hidden supplementary appropriations as occurred under previous administrations.
Budgets in those administration served as a device for moving through Parliament a whole list of Supplementary Appropriations which should have been presented separately at a much earlier date than the Budget. However, the Budget process was used to disguise from open view and debate the details of these Supplementary Appropriations.
Most of the expenditures involved would not qualify as “unforeseen” within the meaning of Article 133 (1) of the Constitution and Section 9 of the Financial Administration and Audit Act. Furthermore, even if some of them were truly “unforeseen’ within the meaning of the relevant Article of the Constitution and Section of the Act, the other requirements for approval were not followed, namely the timely presentation of the Supplementary Appropriations to Parliament.
Instead, the Supplementary Appropriations were permitted to build up into a virtual mountain and then rushed through Parliament as part of the Budget process.
That untidy and opaque process has come to an end with the entry of this Administration. We will present the Mid-Year Budget Review to Parliament early in 2008. At that time Supplementary Appropriations may be presented but only if they truly qualify as “unforeseen”.
There will be no Supplementary Appropriations which do not qualify as “unforeseen” and there will be no mound of Supplementary Appropriations submitted to Parliament under the cover of the 2008/09 Budget. Transparency and Accountability are being restored and enforced.
CHALLENGES AHEAD
Mr. Speaker, we live in days of challenge. There are a number of issues that continue to demand our attention. I wish to speak to these briefly before closing out my contribution.
International Trade Arrangements
International free trade will continue to be a push of the international community and we will have to determine our posture as it relates to the various international arrangements proposed in the global community. For our part, we expect to continue negotiating our entrance into the World Trade Organization (WTO); a process began during our second term in office.
We believe that the WTO provides an acceptable international trading platform for our participation in the international trading system. In fact, any consideration of any other trade arrangement must be comparable to this platform at the very least to receive consideration by us.
I hasten to say here that we will continue to monitor the for now stalled FTAA process. We are giving urgent attention to the European Partnership Agreement.
We will not join the Caribbean Single Market and Economy (CSME), fully convinced that it is not in keeping with our national interest.
International Tax Matters
Mr. Speaker, The Bahamas has made exemplary strides in implementing transparency standards that act as a deterrent to potential abusers of its financial system, having received due public acknowledgement for these efforts in its Tax Information Exchange Agreement with the United States.
Mr. Speaker, The Bahamas has also been a member of the OECD Global Forum on Taxation dealing with the Harmful Tax Initiative since March 2002. This involvement arose when the Government submitted a conditional commitment to implement principles for transparency and effective exchange of tax information within the context of a global level playing field, so as to safeguard this country’s economic interests.
The concept of the level playing field as agreed at the Berlin Global Forum in 2004 is that it is fundamentally about fairness, with the aim of achieving equity and fair competition in the provision of financial services. The Berlin GF Report also noted that cross-border tax cooperation is generally achieved through bilateral negotiations, “which permits the parties to take account of the totality of their bilateral relations, their respective legal systems and practices and their mutual economic interests”.
Mr. Speaker, it is important to re-affirm this Government’s commitment to ensuring that the economic interests of this country will continue to guide its policies in relation to any further cross-border cooperation arrangements.
IT’S ALWAYS ABOUT PEOPLE
Mr. Speaker, there are those who try to draw an artificial distinction between a focus on fiscal discipline and balanced budgeting and caring about people. The truth is that seeking to manage the government’s finances properly is in every way about people.
First, it’s the People’s money and we do not have the right to recklessly spend it, not out of incompetence or political expedience. Secondly, the bulk of this money is spent on people, some 21,000 civil servants who have been hired to serve the People. Finally, the expenditure on programmes and capital works are all for the benefit of the People who use the schools, roads, clinics, etc.
There are those, Mr. Speaker, who believe that it is not important to pay attention to the machinery of government. They believe that we do this to the neglect of the people. I wish to advise them that every machine is made by people and used by people, so that if attention is not paid to the workings of those machines, the people suffer.
Neglect the machinery of motor vehicles and people crash and burn as opposed to get successfully from one point to the next. Neglect the machinery of airplanes and people crash and burn rather than enjoy global travel. Neglect the machinery of medical equipment and people lose their lives as opposed to lengthen them. What is true for such machinery is also true for government.
Neglect the machinery of government and critical medical supplies are not provided for the sick; teachers and schools are not provided for students; constitutional salary reviews are not provided for the judiciary; the executive branch of government is uncoordinated; monies get wasted; ethical breaches occur; and trust in government is lost. In that kind of environment the People demand change, as they should and as they have.
You see, Mr. Speaker, governance is always about people, every part of it. The money comes from the people. It is collected by people. It is spent on people