WEDNESDAY, MAY 2: Bermuda need look no further than the UK to see how slashing public sector spending hurts rather than helps the economy, according to a PLP Senator.
The UK is slipping back into recession despite massive public spending cuts, says Junior Finance Minister David Burt.
Sen Burt spoke out as pressure is mounting on the UK Conservative/Liberal Democrat coalition to reverse its austerity strategy — while economists warned that Chancellor of the Exchequer George Osbourne’s deficit reduction plans could push back recovery by years.
The Bermuda Government has come under fire for increasing debt to a record $1 billion-plus — and for raising the debt ceiling to $1.45 billion in the last Budget.
But Sen Burt said: “Where Britain has got it wrong is that they fell into the trap of believing they could create growth by cutting government spending.
“When your economy is weak, you won’t create growth by cutting government spending. If you do that, it’s going to negatively affect your economy and what economies need at the moment is growth, not austerity.
“The Bermuda Government will continue to maintain a balanced approach – it has been demonstrated in multiple countries and throughout history that implementing severe budgetary austerity in a time of crisis will always increase the downside risk in your economy.
“What the Bermuda Government will continue to is to support jobs and support incomes – when there is severe private sector weakness the public sector must fill the gap.”
But shadow Finance Minister Bob Richards said the key to economic recovery was kick-starting the private sector.
He added: “This economy rises and falls on how well the private sector does. Our policy focuses on revitalizing the private sector rather than the idea that if you borrow money, you’re supporting the economy.
“We cannot afford a government this size — it’s obvious and I’ll debate that with Senator Burt any time, any place.”
Sen Burt added that – in contrast to Europe – Bermuda had exercised “prudence” during the boom years – which meant its credit was good when it needed to borrow.
He said: “Economies in Europe are suffering under austerity programmes, but the most important point to note is the reason these countries are suffering is that when the times were good, they still blew their budgets.
“Contrary to what the Opposition says, in Bermuda during the good times we did not increase our debt burden.
“Because of that discipline, when the crisis hit, we had the capacity to borrow money, rescue financial institutions, invest in infrastructure, give tax concessions to business and continue to fund programmes to protect the economy from more severe stress.”
Sen Burt admitted that Bermuda’s economy was much weaker than it was four years ago, when the global recession struck.
But he said: “If we cut back on Government spending when the economy is in recession, we risk further contraction.
“We made sure we supported the vulnerable and people in need with social assistance and training programmes while maintaining funding for critical services such as the police.
“Government has reduced spending — but we are not going to reduce it to the level where it will hurt the economy and cause more problems just so we can say we balanced numbers on a page.”
Sen. Burt was speaking after it was announced yesterday that Britain had gone into a “double dip” recession as the economy contracted in the first quarter of the year – the second successive quarterly fall.
That means the UK is still around 4 per cent below the levels of output prior to the 2008 meltdown – which produced the biggest slump since the Great Depression of the 1930s.
And Bank of England experts pointed out that the economy in the US, which has not implemented cuts on the level of the UK, has outperformed the UK since the 2008 crash.
According to the UK’s Independent newspaper, the former Liberal Democrat Treasury spokesman Lord Oakeshott called on the UK government to use record low interest rates to borrow more and fund a national home-building programme.
But Mr Osbourne said: “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt. Even in the grip of a double dip, there is to be no ‘Plan B’.”
Sen. Burt added: “Compare Europe to the US — the US is still running huge deficits as they know what they need to do to return the country to growth.”