It will be “game over” for Bermuda if Government debt is not being reduced within five years.
That was the stark analysis of panelists at Monday’s Budget Breakfast sponsored by the Chamber of Commerce and PwC.
The panel of Finance Minister Bob Richards, Craig Simmons, Peter Everson and George Hutchings pulled no punches at just how bad a mess the economy was in.
Mr Everson, chair of the Chamber of Commerce’s Economic Division, in reply to the question when will Bermuda produce a balanced budget said: “If, in five years time we can’t do it, then that’s pretty much the end of the road. Jamaica defaulted yet again last week on their debt.
“If we can’t balance our Budget in five years time, we either failed to grow the economy or we can’t agree amongst ourselves to pay more taxes for the services we want.”
He said it wasn’t a matter of numbers but a question on whether the current Government will put forth the policy and then have the will to make it happen.
Mr Everson said we are “A small island economy with a very narrow base — you won’t find lenders outside of Bermuda in five years time because it’s a never-ending piece of paper.
“The problem is all the larger countries are covering the world with paper. No one is going to want Bermuda’s paper in five year’s time. The US, Europe is printing too much so we have to address and we have to have a serious conversation amongst ourselves.”
Mr Richards said the base case scenario requires the Government to start paying down its debt within five years. In order for that to happen we have to stop running deficits and start running surpluses to pay down the dent.
“Yes, we’re looking at start reducing the debt within five years.
“I agree 100 per cent with Peter, if we don’t, it’s game over.
“We love to pat ourselves on the back and say what a great place we are. We’re flyweights and we’re punching with heavyweights and all that is really cool stuff, but we can’t lose sight of the fact we’re a dot on the map.
“There are only 65,000 or less people on this island. The rules that apply to big countries don’t apply to us.
“We’re going forward on the basis we have to wrestle this thing down to the ground within five years.”
Mr Simmons, economics professor at Bermuda College, debt reduction can begin in 2015 or 2016 but the debt could end up ballooning to $3 billion before it starts to come down.
He cautioned that if it does, then Bermuda would be exposed to catastrophic risk.
“It would appear to be the policy of this Government is to offer tax breaks, that’s the kind of stimulus that I see the Government pursuing as opposed to increases in capital spending.
“Just because of the stimulus packages this Government seems to favour in terms of tax cuts, I’m not sure we really should be focusing on a balanced Budget as opposed to a time when we begin debt reduction.
“Debt reduction can begin in earnest in 2015 and you will probably not see the benefit of it before 2016, 2017.
“It’s going to be a long haul to get the debt under control. I hope people would understand that this is a medium to long-term process.”
Mr Simmons added stimulus has a price and that means higher taxes are on the way.
“It’s going to be higher taxes, lower Government spending and it will take an easy decade.
“The whole issue of debt management comes from the realization that increasing the debt from $1.5 billion to $2 billion involves a certain amount of risk. The rise of debt from $2 billion to $2.5 billion involves an increase risk but it is a disproportionate increase in risk similar if, heaven forbid, we’re forced to raise debt above $2.5 billion we will be exposing this economy to some catastrophic risk so for that reason we need to proceed extremely carefully.”