Ewart Brown PLP now spending more on debt than on tourism

Larry Burchall


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3/10/2010 11:48:00 AM  We're now spending more on debt than on tourism
As the country slips deeper into debt, workers are forced to dig deeper
The hike in personal payroll tax - previously at 4.75%, it effectively went up by 21% to 5.75% - confirms that Government spending remains out-of-control.

The Budget Statement [page 34] lists Public Debt as $483,262,000 on March 31, 2009. It doubles to $989,800,000 for March 31, 2010. That's in one year.

This Cabinet and cog-in-the-wheel minister have so overspent and been such poor financial managers that their government has been running on empty - on overdrafts - for part of this Financial Year. That's why they needed that huge overdraft, and that's what the overdraft story (see below) tells.

Despite that, going into this next financial year, this Budget shows that their spending policies are still ignoring the arithmetic of reality.

This Cabinet and cog-in-the-wheel minister have dumped Bermuda onto the debt roller coaster. That is shown by the Minister's projection that National Debt will rise another $111,654,000 to reach $1,101,454,000 by the end of financial year 2010/11 [Budget Statement, page 34].

With this group continuing in management, you will have another Payroll Tax hit next year - on April 8, 2011 - in addition to the 21 percent hit that you'll start feeling on April 9, 2010.

Ultimately, without a change in values and management ability, debt will continue to rise even into 2012. That is unavoidable.

Your taxes will run up faster. Bermuda will slide, more and more, into the arms of HSBC and other foreign investors - the minister's own figures are telling you that today! [Budget Statement, page 34].

Always absolute, always apolitical, the trends and arithmetic of the numbers show that Bermuda has started down a path already taken by many other countries.

This path leads to a slowing economy, fewer jobs, falling real incomes for everybody, lower real estate values.

What has just happened to BNTB shareholders - a huge loss in value - will happen to all Bermudians.

In 2010/11, spending on tourism will be less than on national debt! Exactly as predicted ten days before the Budget was announced [Bermuda Sun, Wednesday February 17].

Today, Bermuda is where Jamaica was early in the Michael Manley era. This Cabinet group has put Bermuda into a bad situation. This is a damaging budget.

Led by this group, Bermuda's situation is about to worsen.

It's our money - so what are the terms of government's overdraft with HSBC?
Let's take a closer look at the full record of Government's overdraft transactions.

The first crisis acceleration was in the 29 weeks between March 31 and October 20, 2008 when $100m was added. Second was in the 23 weeks between October 21, 2008 and March 31, 2009 when $96m was added.

From the 1970s up to March 30, 2008, the Bermuda Government had never shown an Overdraft Facility (O/D) in any Financial Statements. Then...

* March 31, 2008: For the first time ever, Government negotiated a substantial O/D. BNTB took $4.0m. HSBC took $7.5m. Shared O/D total, $11.5m.

* On October 21, 2008 Government came back and raised the O/D. BNTB takes $50m. HSBC takes $50m. New shared O/D total $111.5m

* Between December 21, 2008 and August 1, 2009 Government raised an additional $96m in O/D but only HSBC participated. O/D total rose to $207.5m

* November 1, 2009: BNTB has gotten out altogether. Only HSBC is involved.

* March 1, 2010: O/D total is now $100m. Only HSBC involved. (This is the current situation).

Clearly, HSBC has a unique financial relationship with the Bermuda Government. I'm not suggesting there's impropriety, merely raising red flags about our ever-increasing national debt and how it's being (mis)managed. Three primary questions:

* Real Government revenues are still stuck under $1,000,000,000 and HSBC is extending an Overdraft Facility covering more than 10 per cent of projected Government revenues. Does the cash-strapped government have an unhealthy relationship with HSBC?

* For whom is this relationship unhealthy? Is it Government which could be unduly influenced by a foreign-owned bank on whom it is heavily and critically dependent?

* For the people of Bermuda, the ultimate question is, does Bermuda now have an unwise and unhealthy national relationship with one foreign financier?

Government money is public money, public debt, public obligation. Not someone's personal, and therefore private and confidential, banking arrangement.

There are more questions. Does the Minister of Finance have an agreement with HSBC to fund large future overdrafts? If so, what are the terms and conditions of any agreements? It's our money and we ought to know
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Budget shows Gov't is not careful with public's cash
Towards the end of Monday's first series of debates on the Budget, I reiterated the need to anchor management of the public purse to the principles that guide a family budget - living within one's means, judicious use of debt and sound judgment.

Finance Minister Paula Cox disagreed, saying a government's budget is different. Is it really?

If Government had lived within its means, it would not be hitting the community with more than $100 million in new taxes.

If it had been judicious in its use of debt, it would not be foisting nearly $1 billion of debt onto the shoulders of future generations.

Deficits

If it had used sound judgment, it would not have continued spending in the face of recession and run, for the first time ever, $95 million in current account deficits over the past two years.

Our main concern with the Budget is that Government does not understand how to be careful with the public's money.

If it did, we might not have to hear about construction projects overshooting their budgets by tens of millions of dollars.

We might not have to hear the Auditor General say there is a "pervasive lack of accountability" in the halls of Government "creating an environment conducive to error, misappropriation and fraud". We might not have to hear about a million dollar contract with a U.S. consultant that contains "no specific deliverables".

We are also deeply concerned that Government does not recognise the need to set the right example for the country.

Hypocrisy runs through the marrow of the Budget.

So while the Finance Minister orders people to pay more in taxes, she continues increasing Government spending.

While Government encourages hotel workers to accept a wage freeze, it tables amending legislation to increase the Finance Minister's salary by more than 40 per cent.

Unsustainable

The unwillingness of Government to change its spending habits and its lax management of the public purse has put Bermuda on an unsustainable path.

In the six years since the finance minister came into the job, Government's gross debt has gone from $175 million to $830 million - an increase of more than 400 per cent. Consider too that the Finance Minister is increasing the debt again - to an estimated $973 million this year.

This means Bermudians under the age of 35 - those who will have to pay it off - will inherit a debt of $36,000 per person.

In 1998, that debt was $5,602 per person.

The fact Government did not put forward a plan to reduce its debt says it is either incapable of disciplining itself or it does not want to discipline itself. Whatever the case, without a change in the mindset of Government, Bermuda will continue losing strength. We must have change.

Damage

The Bermuda economy needs careful stewardship.

We are not big enough and we lack the economic diversification to absorb bad public management for too long without risking mortal damage to our reputation, our governance and the overall health of the economy. But bad public management is what we have had for too long.

The Budget is simply a milestone on a path we cannot continue down - a path on which we squandered money, spent more than we earned and mismanaged tourism to the point of collapse.

What is most galling is Government's failure to adjust - to recognise it is out of sync with the concerns of everyday people.

So we see no change in their travel habits, we see ministers disregarding cost-cutting measures ordered by the Finance Minister and, worst of all, no real compulsion to solve any of the problems that have plagued Bermuda for too long.

Prudent

We elect a government to solve problems, strengthen the island, maintain public safety and foster conditions to ensure people have jobs. E.T. 'Bob' Richards