Financial
Administration and Audit Bill 2010 Presentation
July
28, 2010
Introduction
Mr. Speaker …
Today
I am honoured to rise on behalf of the good people of the Elizabeth
Constituency. I would like to
thank my constituents for having the confidence in me to speak on their
behalf. Today I address a Bill
that is very important to the economy state of the country, and the future of
the country for all Bahamians. The
Financial Administration and Audit Bill 2010 sets forth the guidelines and
requirements for the Government in managing the finances of the country. It explains the requirements for
managing the country’s money, for presenting the budget, and for guidance on
what the government can borrow, or in other words, what the country can risk
the Bahamian people to repay. This
is a technical Bill, but a very important Bill for the governance of the
finances of the country.
FNM
Fiscal Miss-Management
It
is no secret Mr. Speaker that fiscally the Bahamas is very challenged. The question is how did we get in this
position Mr. Speaker? Was it just a global recession alone? Or is it as
Standard and Poor’s suggests, partially attributable to the bad policies of
this visionless and regressive Government that is more prone to personal
attacks than good plans and programs?
Every year from this FNM Government we heard false predictions about the
state of the economy and its fiscal management. This Government has mismanaged the finances of the Country
in a number of respects, including the irresponsible use of publicly borrowed
money without the maximizing of Bahamian benefits, two examples being the road
works that is being financed by borrowed funds, and paid to a foreign company;
and Arawak Cay. I want to point
out and speak on two specific instances of fiscal mismanagement, the reckless
borrowing over the period of their administration and the irresponsible
forecasting in their budgetary process.
Debt
to GDP Ratio
The
FNM Government adopted a policy of deficit spending to attempt to spend its way
out of the poor financial performance of the economy. In other words, this FNM Government thought that borrowing
money and spending it would lift us out of the recession. Well this strategy was flawed, and the
FNM Government should accept the blame for it. Our economy is no better now than when the recession
started, in fact, when I speak with constituents in Elizabeth all I hear is how
difficult it is, how there are no opportunities to just be busy. My constituents in Elizabeth tell me
how what this Government has done with the financial affairs of the country
have made things worse with no hope of recovery. I want to tell my constituents in Elizabeth, hope is
here, on this side, with the PLP.
The
problem, however, with the deficit spending strategy of this administration is
the danger in which they have put the country in with the expanding debt of the
country. We keep hearing different
statistics of what the debt to GDP ratio is, but let us be clear, one thing its
certainly not - the 47.3 per cent of GDP as of July 31, 2010 that the Prime
Minster stated in his recent Budget Communication. In fact, the Central Bank of the Bahamas stated that the
Debt to GDP ratio on December 31, 2009 was 53.6%. Also, Moody’s recently predicted that by the end of 2010, the
Bahamas debt to GDP would be at 64.2%.
The
Bahamian public needs to understand one thing, the truth is that the
government’s debt is rising faster than ever before, and we do not under the current
economic model have the ability to repay it. You might hear those from the Government say that our debt
to GDP is lower than Jamaica and other countries, well frankly, many countries
they compare us to have a much broader economy than we do. Under our current model, and with the
out of control borrowing we have witnessed with this FNM government, our
children will struggle to reduce the debt levels for generations to come. Needless
to say, intermingled with poorly thought out and executed stimulus spending,
and the wasteful abuse of the public purse, the Government embarked on a
borrowing initiative, again likely to cripple our economy and economic recovery. It is my opinion that The International
Monetary Fund defines fiscal discipline includes the “avoidance of borrowing
that exceeds debt servicing capacity.”
Surely this is the situation the FNM Government finds itself in, and
therefore, one would conclude this FNM Government has a lack of fiscal
discipline. Surely this will not
be lost on the IMF.
Inaccurate
Revenue Forecasts
Another
specific example of miss-management of the finances of the country is the
inaccurate forecasts of revenue and the budget for the Bahamas under this
administration. A Budget should be an instrument that a Country, including both
the public and private sector, can rely upon to accurately set forth the
financial course on which we will embark. It is an instrument that is to guide the Government in its
spending initiatives. As such
there is an obligation on the Government to present a Budget to the Bahamian
people that not only inspires and directs policy but one that is fundamentally
accurate.
This
Government has had a history of inaccurate budget projections –underestimating
expenditures and over estimating revenue. The most recent example is last
year’s Budget where expenditure was 24 million dollars more than forecasted and
revenues were an alarming 94 million dollars less than projected. But one only
needs to look carefully at this Budget to observe what will also be
inaccuracies this upcoming fiscal year.
This
Government would like us to believe that in the middle of a recession where
they are potentially damaging significant portions of the Bahamian economy
through their taxes that they will increase revenues by an astonishing 197
million dollars. So not only do they miss-state expenses, but they are
forecasting unrealistic revenue amounts.
This is despite the Bahamas over the last decade even in the best of
times never achieving this growth in revenues. The inaccurate forecasts in the
Budget is a serious issue with the financial management, or might I say,
miss-management of the country. It
creates expectations that are not achievable, and since spending for a year is
based on revenue estimates, inaccurate Budgets results in increased
deficits. It is a dangerous trend
in the fiscal management of the country.
Unfortunately, there are provisions in this Bill that appear to set the
stage for this much greater concern in the upcoming years under this
administration.
Overview
of the Bill
As
mentioned, the Financial Administration and Audit Bill 2010 outlines the
requirements of the Government with respect to the financial management of the
country, including, to maintain spending accounts, the requirement for the
Government to produce a annual budget and a mid-term budget, and the ability
for and limits on the Government to borrow. I would like to begin with the final item mentioned.
Section
17 of the Bill provides the guidelines and requirement for the Government to
borrow money. Specifically,
sub-section (1) provides, and I quote:
“
The
Minister may, for the purpose of meeting the current requirements of the
Consolidate Fund, borrow by means of advances from any bank, insurance company
or money lending institution money to an amount not exceeding fifteen per
centum of the average ordinary revenue of the Government or fifteen per centum
of the estimated ordinary revenue of the Government, whichever is less.”
The
important component of this section is that the lending limits for the
Government have increased, as the limit that is based on estimated revenue has
increased from 10% to 15%, an alarming 50% of the original limitation. This is of grave concern. Over the past 2 years we have witnessed
unprecedented borrowing by this Government, borrowing that has not achieved the
goal of sustaining the economy, borrowing that has resulted in dangerous levels
of debt as compared to GDP. Can we
trust this Government with significantly higher levels of borrowing ability based
on the situation the excessive borrowing by this administration currently has
the country in?
Another
concern about the increase in the spending limits that is in this Bill is that
the increase in limits is based on estimated revenue. As I have described, this Government has a track record of
inaccurate revenue projections in its Budget. This is of concern when the Bill increases the limits based
on estimated revenues as the Budget forecasts, like their inventors are
unreliable, unbelievable and irresponsible and the increase in limits could
further put the country’s finances at risk. Also, excessive Government borrowing decreases the money
supply for private enterprise and all must admit that it is a robust private
sector likely to that will create jobs and decrease unemployment, not
government.
This
Bill also sets out the guidelines and requirements for the Government in
presenting a Budget. The
Opposition made a point this year’s Budget exercise that the Government should
consult the public and the Opposition in the preparation of its Budget,
especially when unprecedented tax increases on Bahamians is involved.This Government refused. This Bill provides in Section 20 that “
the
estimates of revenues and expenditures shall be referred to Committees of
Parliament for review.” I ask whether the intent of this
provision is that the Budget be presented to a bi-partisan Committee before its
debate, as in my opinion the intent should be. The important note is that the term “Committee” is not
defined in the Act. I would argue
that this provision requires consultation with the Opposition on the
presentation of the budget, which allows for input from all Bahamians
represented in this Honourable House of Assembly. I encourage the Government to clarify this provision of the
Bill.
Fiscal
Discipline and Transparency
This
Government has claimed to be a Government of Transparency, but when it comes to
the financial management of the country, there has been a serious lack of
transparency and certainly a lack of discipline. I have some recommendations with respect to this Bill and
how the Government manages the finances of the country that will require
discipline and more importantly, transparency so the Bahamian people can
understand and have access to the financial decision of the Government.
Revenue
and Spending Bills
It
is my opinion that any tax or revenue Bill and any Bill that requires
additional Government departments and spending be accompanied by an estimate of
either the revenue it will generate, or the costs to Bahamians. For example, earlier this year we
passed the Forestry Bill that requires expanded Government departments in order
to manage the forests of the country.
I would have liked to know, and Bahamians would like to know what the
cost to Bahamians would be, especially in the middle of this recession, by the
passage of this Act.
Likewise,
when new tax revenue measures are tabled in this House of Assembly, an estimate
of anticipated additional revenue should be disclosed. As I mentioned above, the recent Budget
forecasts an increase in Government revenue by almost $200 million, while the
Prime Minster states that the tax increases in the Budget were going to
generate an additional $100 million during the upcoming year. My question is where is the additional
$100 million going to come from.
We just finished debating The Business License Act where we saw
instances in which business license fees were to increase, such as to
fishermen, lawyers and accountants.
What is the anticipated increase in revenue from The Business License
Act? The Bahamian people deserve
this level of transparency in the financial management of the country.
Deficit
and Debt Rules
The
Bahamas should have specific deficit rules that would address the maximum
deficits that the Government can run on a year-to-year basis. This would protect the future of the
Bahamas and provide constraints on a Government to put at risk our future. The reality is that the future
generations will bear the burden of paying this escalating debt by this
administration. My generation, my
children and my grandchildren. We
need to ensure adequate checks and balances are in place to prevent careless
borrowing and spending, a deficit cap would be a start in this direction. Likewise, similar restraints should be
put in place to control overall debt levels as they relate to GDP.
Need
for a National Plan in Partnership with All Bahamians
Mr. Speaker, as you know, I continue in this honorable place
to advocate for a National Economic Plan.
I do so because I believe it is absolutely necessary for the economic
and financial advancement of the country and all Bahamians and I will continue
to agitate for one. This Bill, as
I have mentioned, addresses the obligations of fiscal responsibility of the Government,
but in it, allows for heightened borrowing capacity by the Government. Laying the predicate for increased
borrowing is not the practical way to manage the finances of the country.
Economic expansion through a National Economic Plan not
only, as I have said many times, provides economic opportunities and
empowerment for Bahamians, but provides a broader tax base for the
Government. We as a country, in
these tough times, in times where the Government cannot collect enough revenue
to meet its obligations, in an era where comprehensive guidance to private
enterprise is lacking, requires a national economic plan. This is fundamental to any good revenue
policy.
I would like to take a brief opportunity to
explain what I mean. If we,
through a National Economic Plan, encourage the expansion of the economy, what
we do is expand the amount of revenues in the economy that can be taxed to
generate government revenues. This
could in all actuality create lower tax rates for Bahamians and Bahamian companies. With a larger tax base, less can be
collected per citizen to support the Government obligations, and equally
important, the Government would require less borrowing and not putting the
future of this country at risk.
Through a National Economic Plan, business
owners would participate in a plan to advance the Bahamian economy as well as
create a plan for the sustainable and responsible fiscal management of the
country. There would be a plan for
private investment in economic development an expansion.
Conclusion
The
legislative agenda of this Government is very clear, and becoming clearer with
every Bill. The agenda of this
Government is to increase taxes on working Bahamians while borrowing more and
more without benefit to ordinary Bahamians.Time has come for the end of financial miss-management of
the Bahamas, the Government needs to be responsible in spending. Vision on economic development in ways
to maximize tax revenue not at the expense of Bahamians.
The
International Monetary Fund provides that Fiscal Responsibility Laws should
include an aim to consolidate a government’s commitment to fiscal discipline by
attaching legal force to its fiscal policy objectives. Such laws are intended to provide a
clear signal about a government’s commitment to monitorable fiscal policy
outcomes and/or strategies. In my
opinion, and based on the track record of reckless borrowing and spending by
this administration, we could go further with this legislation.
Having
said that Mr. Speaker, Elizabeth supports this Bill.
