Larry Burchall
Larry Burchall

Like it or not, we’re all in a race. Some of us may not understand what’s happening and what’s at stake. However, like it or not, understand it or not, we are all still in that race.

The race is between rapidly rising Debt Service Costs [DSC] and sluggish Gross Domestic Product [GDP]. Here’s what you need to know and understand. The chart displays key facts.

If Finance Minister Richards caps Government spending at $1.2bn and leaves Personnel Costs at the true $580 million of the two years past, then he must borrow over $250 million a year – every year.

Bob’s ability to “get more money” is limited by Bermuda’s GDP and the taxes that he can extract without damaging Bermuda’s economy. 

For absolute clarity, this is what I mean. 

From 1968 to 2009, successive Bermuda Governments extracted between 15% and 17% of GDP as Tax Revenue. Bob will be safe trying for a maximum 17% of GDP.  Bob must not repeat the tax-raising error of 2010/11 when Government grabbed for 18.4%.

With GDP hovering around 2013’s $5.3 billion, or only growing 10% over four years, Bob’s Tax revenue will be stuck around the $900 million mark. (See chart)

So the race is between the absolute and guaranteed increases in DSC and possible growth in GDP.  If GDP grows 5% a year, year-on-year, Bermuda can win. If Bermuda only achieves a total 10% increase by 2017, Bermuda can lose. Materially less than 10% by 2017, Bermuda does lose.

It really is that simple.

Recipe for growth

What will make GDP grow? Two things. Increased on-Island demand for goods and services coupled with increased foreign exchange earnings.

That requires re-growing Bermuda’s still declining residential population. Between 2008 and 2012, Bermuda’s real residential population dropped from about 66,000 to about 60,000 people. As long as Bermuda’s residential population and on-Island consumer demand stays low, GDP will stay low. Any further population decrease means GDP will drop some more. 

And remember that siphoning off that huge DSC of $134 million of foreign exchange every year – and due to go over $180 million a year in 2014 - all on its own, degrades any growth in GDP. 

The fix? Add people.  Hundreds of people. Add Business Residents in the form of investors and high net worth people. Get more businesses to set up here and attract new Business Residents and high-skill workers to live and work in Bermuda. This combination will increase foreign exchange earnings. 

Adding these kinds of people creates job opportunities for those 4,500 currently unemployed Bermudians, increases on-Island demand, brings in more foreign exchange, and grows GDP. 

Real world reality

Unemployed Bermudians who read this may think that this approach only considers business. But this is a real world situation. It is about nuts and bolts. Not feelings and theory.

All Bermudians understood, and still understand how Tourism worked. Fewer Tourists = lower incomes. More Tourists = higher incomes. 

It’s exactly the same now, except that we now live in Business Bermuda. More Business Residents =  higher incomes and more job opportunities. Fewer Business Residents = lower incomes and fewer job opportunities. More Business Residents = re-growing Bermuda’s residential population.

The race is between rising DSC and incoming Business Residents. Bob fired the starting gun on Friday 22nd February. But many Bermudians are not yet in the ‘starting blocks’. Some Bermudians are not even in the stadium.

In order for us all to step into the starting blocks, we’ve all got to do some learning and thinking so that we all can at least get into the stadium and then get into the starting blocks. So a public information process has to get underway — and get going fast. 

The race, though, has already started.