WEDNESDAY, MARCH 14: Like Warren Buffett’s falling tide revealing who has been swimming naked, a naked fact has surfaced. Year-on-year, Government spending is declining.
Declining Government spending sucks the economy and GDP down. But no one from Government will tell you that.
Is that a big deal? It is. With GDP falling, your chances of seeing the economy improve and therefore your chances of improving your personal financial situation or your family’s or your business’s, is declining. Things are slowly worsening.
Government’s falling spending and rising Debt Service costs are a key part of the reason that things are still worsening.
The facts are on page C-38 of the Ministry of Finance’s “Approved Estimates of Revenue and Expenditure for the Year 2012/13”. Here they are.
FACT ONE: Spending in 2010/11 was $1,245.2m. But $84.1m of that was sent overseas or set aside to pay or repay the foreign lenders who, so far, have lent us $1,201.9m. That means that Government actually only had ($1,245.2m less $84.1m sent overseas) = $1,161.1m that was spent in Bermuda on Bermuda “infrastructure”, Government employees pay, GP cars, consultants, and lost on the Post Office etc....
FACT TWO: Spending in 2011/12 was said to be $1,137.7m. But $95.8m (*) of that was sent or set aside to pay or repay overseas lenders. So Government actually only had ($1,137.7m less $95.8m sent overseas) = $1,041.9m(*) for spending in Bermuda on Bermuda “infrastructure” and Government employees pay etc.... That $1,041.9m was $119.2m(*) LESS than the year before (about 10 percent less).
FACT THREE: In this year’s still being “debated” Budget, spending in 2012/13 is estimated at $1,081.7m. But $65.8m(**) of that is earmarked for paying or repaying those generous but insistent overseas lenders. That means that Government will only have ($1,081.7m less $65.8m for sending overseas) = $1,015.9m** available for spending in Bermuda on Bermuda “infrastructure” etc... That $1,015.9m is $26m** less than the year before and $145.2m** less than two years before. Overall, by 2012/13, spending will be down as much as 12 per cent**.
Government spending is a component of GDP. Government spending is falling. With Government’s own figures, you see how that is happening. Government’s falling spending is acting like a slow and unexpected tidal fall. This falling spending is making Bermuda’s economy shallow and shallower, therefore making it more and more difficult for individuals and businesses to swim.
Far more often than I ever wanted to, I’ve said and I’ve shown that Bermuda is in a self-inflicted, self-created, self-dug Debt Trap. What I’ve just shown you is the truth. But Government has not lied to you. Government just isn’t telling you.
In not telling you, Government is acting like a husband coming home to his wife every night, but never telling his wife that he is having an affair with his female PA. In current Bermuda ethics, it seems that the man is not doing anything wrong. He is just being unethical.
But, you ask, if Government’s spending is known to be falling, why do I — and others — insist that Government should further cut spending by reducing spending on Government personnel?
Succinctly? Because Government spending will ultimately come into line with Government revenue anyhow.
Spending will ultimately come into line either through a planned and managed process — that could result from a rocketing-up private sector economy; or it will come into line when — not if — when Government’s ability to acquire money to spend is halted by the refusal of lenders to lend on terms that are workable for the Government.
Workable means borrowing at affordable interest rates. Once interest rates become unaffordable, Bermuda will fall — not tumble, not slide, not slip — Bermuda will fall into the ultimate Debt Hole of the kind that still engulfs Jamaica.
Government can control and direct Bermuda’s financial path so that Bermuda avoids that fall, but only if Government controls its spending. That means cutting costs and bringing Government spending into closer alignment with real Government revenue. Fail? Bermuda falls. It is a near-term arithmetic inevitability.
Is Government revenue rising? No!
Government projected pie-in-the-sky revenue of $1,058m for 2010/11. Then reality slammed. By 2011/12, Government revenue was down to $870m or some $188m (or 18 percent) lower. For 2012/13 Government is praying to its pantheon that it might receive $909.6m, an amount still way below that pie-in-the-sky $1,058m of three years ago.
This consistently overspending Government is already too deep in its self-dug Debt Hole. Inexplicably, in 2012/13, this Government is still digging deeper.
“The fallin’ tide is showing naked bumpies ‘arrywhere.”
*In a December 12th 2011 Ministerial Statement, the Minister for Finance reported that this figure was $100.2m. This would change the spend figure to $1,037.5m and $123.6m less than the year before. Two clear and different answers. It’s your choice as to what and whom you believe.
** $65.8m is an ‘accounting figure’ created because $50m will also be paid in but the $50m will come from a dip into the Sinking Fund. The ‘true’ figure is $115.8m. This means that all the other figures that are double-asterisked should read: $965.9m.... $76m... $195.2m... 16 percent. Just staying ethical.