FRIDAY, MARCH 2: The Ministry of Finance has moved swiftly to refute an assertion in the reply to the Budget speech by the Opposition.

The Shadow Minister of Finance’s graph on Page 18 of his reply shows the difference between Government Budgeted Spending & Actual Spending for the current account for various periods commencing in 1990/91. These graphs are misleading and do not present a complete picture.

For instance, if we look at the SMOF’s graph for 2004/05, it shows additional spending of just over $62 million.

If one reviews the financial statements of the Consolidated Fund for this year it is clearly noted that in 2004/05 relief was provided to the Public Service Superannuation by way of a $52.2 million write-off that was due to the Consolidated Fund from the PSSF.

This balance due from the PSSF had accumulated over the few years before 2005 and was due to PSSF contributions being less that benefits paid from the fund.

This problem has been rectified when Government increased PSSF contributions commencing in 2006. This item was recorded as a special contribution to the PSSF and was a one-off accounting entry.

The additional spend of approximately $48 million recorded in the graph for 2006/07, again includes an extraordinary accounting entry and does not represent normal recurring current account expenditure. 

If one was to review the Financial Statements of the Consolidated Fund it would be clearly observed that in the 2006/07 fiscal year Government wrote-off the Bermuda Housing Corporation (BHC) loan due of $49.5 million which was due to Government. If this one-off amount is removed, the $50 million additional spending reported would actually become a minor current account surplus.

The Government made this decision to assist the Bermuda Housing Corporation with the carrying out of its mandate to assist with the development of affordable housing, by providing relief for amounts outstanding on loan to BHC. This action also reduced the debt on BHC’s balance sheet so that they could access capital markets without Government assistance.

It was also done to relieve them of the interest they were paying to Government for the loan. This write-off had to be accounted for as a grant to the BHC even though no cash was expended in this year.

The most important thing to note is that these items above were affordable. In 04-05 the government took in $88.5 Million dollars more than budgeted, and in 06-07 the government took in $48 Million more than budgeted.

If we exclude these extraordinary on time items, the Government’s management of the public finances prior to the financial crisis is one of prudence and restraint.