Many people think Bermuda’s national debt issue is a matter for their children. This is so wrong it is almost comical. The reality? Bermuda’s debt situation is a problem — steadily building to a crisis — that will slap you this year, kick you hard next year and still affect your children.
Long before your children grow up and start paying, you’ll be bawling.
Seniors will start bawling this year when, as Finance Minister Paula Cox indicated last Friday, there will be no cost of living rise in seniors’ pensions.
This is despite the fact seniors got hit, and are still getting hit, with big rises in Government healthcare and other costs.
Like a cancer or a tumour, debt crises strike silently.
At the outset, there is little evidence and no discomfort. Pain comes later.
Bermuda’s debt problem is here. It is already affecting all of us.
The growing cost of servicing our huge debt means Government’s real expenditure on pay and services is actually declining.
Right now, in June 2010, it is not blatant. The first indications and hard evidence of actual spending decline will start showing in two ways.
First, at some point, the Finance Minister will tell us what has happened with the sovereign bond issue she has negotiated.
She will have to tell us that foreign investors have demanded higher interest rates.
When she does, we will finally learn that we will now pay a higher rate of interest than we were paying in 2005.
Most of that rate rise comes because our national ‘fundamentals’ are not as good as they looked in 2005.
Given today’s political standards, she may try to hide it until after the leadership wrangle at the PLP Conference scheduled for late October.
Given that she gave no notice of the $175,000,000 borrowed in May and June of 2009, she may well act in secret again.
However, if she does not tell Parliament, then you will find out anyhow in August or September, which is when Government should publish its Financial Statements of the Consolidated Fund for March 31, 2010.
Once this document appears, you will be able to read it and see just what has already happened.
When you read it and compare Government net expenditure for 2008/09 with net expenditure for 2009/10, you will discover the new and unpleasant truth.
You will discover that Government took in more dollars — by a combination of borrowing (in other words, false revenue) and real revenue — but spent fewer dollars on pay and services.
This means Government is sucking up more dollars — from all over the place — but is spending fewer dollars on real things.
This is happening because Government is now losing more dollars by paying interest on debt and setting aside dollars in the sinking fund.
This happens because with every dollar taken up in taxes or in borrowing, Government immediately slices off something to pay immediately to foreign investors or put into the sinking fund for later repayment to foreign investors.
In 2009/10, every Government dollar had five cents sliced off.
Compare that 2009 five-cent slice with 2003, when the same slice was only one-and-a-half cents.
In 2010/11, driven by the $500 million sovereign bond the Finance Minister seems so reluctant to tell us about, the slice will likely be more than six cents.
Entirely because of recent bad management (2004 to 2010), the Government dollar has become a shrunken 95c dollar — with more shrinking still to come.
This means Government must raise additional and extra income — taxes — simply to make up for that immediate five-cent slice-off. And same again, next time round.
Government is now in a borrowing and tax-raising race it cannot possibly win. This ‘catch-up’ race is the same sort of problem that hits a business or family or person whose spending habits always outstrip their earning realities.
All of us Bermudians have been sucked — suckered? — in.
We’re all stuck with this reality and the reality is here.
Unless there is a major Government cutback that starts now, this stupid and unwinnable loser’s race will go on. We will fall further and further behind.
The debt slice will move past six cents, then seven cents, then eight cents and so on (see table below).
Ultimately and inevitably — like Jamaica and the Greeks — we will still crash.
Now you can see. Now you know that paying has already begun.
Seniors are making the first down payment. Paying time for your children is still coming.
Bermuda’s hard-won prosperity has begun a slow slide.
Unstopped, the slide will seriously damage every one of us.
This Finance Minister has failed all of us, her party and herself.
But it seems she does not see this, does not understand the reality of numbers and does not see plain truths.
2003/04: $716,608,449 overall. $708,163,219 spent on pay/services equals $8,445,230 less (1.18 per cent less or 98 cents on pay/services).
2007/08: $1,143,747,258 overall. $1,116,598,092 spent on pay/services equals $27,149,166 less (2.37 per cent or 97 cents on pay/services).
2008/09: $1,187,026,869 overall. $1,159,393,400 spent on pay/services equals $27,633,469 less (2.33 per cent or 97 cents on pay/services).
2009/10: $1,128,102,000 overall. $1,089,702,000 spent on pay/services equals $66,033,469 less (5.85 per cent or 94 cents on pay/services).
Projected for 2010/11: $1,202,000,000 overall. $1,123,000,000 spent on pay/services equals $79,000,000 less (6.57 per cent or 93 cents on pay/services).