Getting there: Both the OBA and PLP Budgets both have the near same ending point financially. *Illustration courtesy of Larry Burchall
With the Parliamentary battle of the Budgets effectively over, with both Budgets projecting three years out to 2016/17, Bermuda and Bermudians can now concentrate on climbing out of Bermuda’s economic hole. Both Budgets showed that, uniquely, both parties are almost exactly on the same general path.
Three years out, there is less than three per cent difference between their outcomes and end objectives.
Minister Bob calls it the ‘glide path’. If both parties maintain fiscal discipline, both Budgets aim to achieve a balanced budget, or a budget surplus, by 2019/20. Provided fiscal discipline holds, there will be no material difference in their final landing. The chart illustrates the small variations in the ‘glide paths’ seeking to achieve the same landing.
The most important point that all Bermudians must recognize is that both Budgets decree a long-term reduction in net spending. This is spending on Personnel, Operations, and Services.
Long-term, both Budgets see a further increase in Debt Service Costs, but with Debt remaining under the $2.5bn limit.
The PLP would start out by net-spending $1,051m this year, but would be down to spending $954 by 2016/17. The OBA should start out net-spending $1,008m this year and should be down to spending $904m in 2016/17.
The most important thing to understand is that by 2016/17, either party would be spending around $100m LESS in 2016/17 than it will or would be spending in 2014/15 — if fiscal discipline holds. A tiny difference in amounts. No difference in trends.
Problem with growth in GDP
Climbing out of its Debt-caused economic hole, Bermuda faces at least five years during which Bermuda must live through the strong negative impacts of the anti-growth effects that this reduction of Government spending will have on growth in GDP.
What this means is that as the private sector struggles to push GDP up, the Government’s spending cutbacks will be acting to pull GDP down. This push/pull will go on for at least the next five years.
Essentially, for Bermuda to achieve two per cent real GDP growth, there must be at least three per cent general GDP growth.
This, because there will be about a 1 per cent Government suck-down caused by the ongoing reductions in Government spending combining with the suck-within-a-suck caused by high Debt Service Cost. The result will be an overall or net growth of just 2 per cent in GDP.
It will be like that and it will stay like that until Revenue begins to exceed Spending. Until then, it will be this two steps forward one step back economic growth.
GDP must reach $7.1bn
For Bermuda to get out of the hole, Bermuda’s GDP must rise to at least the $7.1 billion level. Staying under $7.1bn means staying in the hole. Why $7.1bn?
Because, whichever party is in power and with present tax rates unchanged, at $7.1bn GDP, the Government can expect to receive about $1,200m in Revenue. $1,200m in Revenue will allow net spending of an increased $1,000m on Personnel, Operations, and Services. The remaining $200m has to be allocated to Debt Service Costs. That $1,000m net spending will represent real growth in spending from the $865m/$910m levels to which, on current trajectory, net spending will have fallen by 2019/20.
For whoever is governing, the fresh national objective is to get GDP up to the $7.1bn level.
How? Grow Bermuda’s residential population [ResPop]. [I’ve been writing about ResPop since September 2012]. Grow ResPop back up to and then through the 68,000 mark which is where, by my calculations, ResPop peaked in 2008. ResPop at 68,000 means a filled jobs count around 41,000 or higher.
Bermuda’s GDP will never ever reach the required minimum $7.1bn with ResPop stuck around its current low of 60,000/61,000, which results in an under-employed workforce and a filled jobs count around 35,000. Both these numbers, ResPop and filled jobs, must go much higher. Because of how Business Park Bermuda works, Bermuda must add people.
The alternative? A national economic implosion.
What does a national economic implosion look and feel like?
You’re staring at and are part of the beginnings of one now. Experience it in Government’s declining net spending. See it in slowing GDP. Feel it in continuing job losses and people taking pay cuts. Bermudians losing confidence in their futures.
You are currently on the leading edge of a national economic implosion now.
What happens if this impending implosion is not arrested and reversed? Look south to Barbados and Grenada, currently in the early stages of implosion. Or Jamaica, which imploded almost four decades ago.
The Fix? Grow ResPop.