Page six of the SAGE reports states “Just as importantly, any plan for expense reduction must be supported by a plan for generating revenue, increasing the island’s population and thereby the economy and establishing jobs for Bermudians.”
In short — SAGE needs RAGE to succeed — a Revenue And Government Earnings commission.
This statement is not new. I have written about it before and many others have echoed the sentiment.
My purpose is to add emphasis prior to the ‘take note’ debate in the House of Assembly on Friday December 13.
I hope as many residents as possible read the report and attend or listen to the debate on Friday.
Without RAGE, SAGE cuts will have to be higher than the proposed $320m!
The rationale for RAGE is that SAGE recommends a total $320m reduction in Government spending between April 1, 2014 and March 31, 2018 (four years).
By the SAGE analysis, each $1 reduction in spending will result in a $1.28 reduction in the Bermuda economy.
Thus the total impact will be $410m over 4 years ($320m x $1.28). Bermuda cannot easily withstand a $410m reduction in GDP in the next 4 years.
R is for Revenue
A primary objective for RAGE would be to examine opportunities to increase Bermuda’s revenues.
The minimum target would be for revenues to increase as a direct offset to any government expense reductions.
Thus RAGE would develop a four-year plan to at least increase GDP by $410m.
The net result would be stable GDP. The difficulty is that increases in revenue are more difficult to determine than decreases in expenses.
The Bermuda experience of the BMA working in tandem with the business community for changes to the Companies Act 1981 in the recent past is instructive for RAGE.
Potential revenue opportunities should be invited from the public.
They should be reviewed for both reasonableness and practicality.
Key criteria would include encouraging new entrepreneurs and job creation.
Some believe that Governments are inherently inefficient.
Others say let the markets find their own balance.
RAGE should provide a happy medium in the short term.
Critical decision? Choosing the right RAGE chair and selecting commissioners that are entrepreneurs.
E is for Earnings
The earnings mandate for RAGE would be an ‘outside the box’ review of how the Bermuda Government earns taxes.
All options should be on the table in the first instance. Any options should be examined for reasonableness and practicality in a Bermudian context. Why an earnings mandate?
The expense reductions targeted by SAGE (if they were all implemented) would require government expenditure in 2018 of $855m.
This $855m is calculated as the 2014 budget of $1.2bn less SAGE savings of $320m and the recently negotiated $25m savings in salaries. The following explanation will show why the cuts are not enough.
Earnings represent the amount that government ‘earns’ through taxation. For 2013(14) government earns approximately 15 per cent of GDP ($871m total revenue / $5.5bn GDP).
Using 15 per cent as a rough guide, government earnings in 2018 will be $765m (2013 GDP - $5.5bn less $410m impact as shown above = $5.1bn x 15 per cent). This amount is less than government expense reductions, which only get to $855m.
Thus we will be short by an estimated $90m — i.e. a deficit. The alternative is more cuts or higher taxes — 17 per cent.
H is for Hope
One of the most riveting comments I have heard about SAGE is “Where is the hope? We hear so much about cost cutting and salary reductions!”
My response — RAGE is the hope we all need.
A documented Revenue And Government Earnings plan that complements SAGE.
Anthony Richardson is the former Accountant General of Bermuda. Please send feedback to firstname.lastname@example.org