WEDNESDAY, FEB. 29: Bermudians are suffering as the island sinks ever lower in the soggy swamp that senior financial professionals have helped create or allowed to grow.
Problems arose on April Fool’s Day 2004.
The chart on this page gives a nine-year overview of the Ministry of Finances revenue, spending, debt growth, debt servicing costs, and general financial management record from April 1, 2004 to Friday’s Budget Statement.
The lines show the development of the huge gap between revenue and spending and the rapid ascent of debt. The lines tell the story.
On Friday, the Minister of Finance delivered the Budget Statement and revealed that revenue for 2011/12 was expected to be $870,027,000.
Just ten weeks earlier, in the Ministerial Statement of December 12th 2011, the Minister told us that for 2011/12, the “Ministry of Finance estimates that revenue ... will be between $920 and $930 million.”
The Ministry’s original estimate, made in February 2011, had been $940 million.
Forecasting in December is always easier than forecasting in the February of a year earlier. A December forecast is made with the hindsight gained from eight months accumulation of financial management information. A December forecast only looks three, not thirteen months ahead.
On December 12, 2011, the Minister and everyone else had every right to believe that the Minister was speaking the truth and that the information that she was delivering to the country was information that all reasonable people could rely on.
The fault with December’s delivery of what would turn out to be wrong information does not lie entirely with the Minister. It lies partly with the Ministry’s managers and advisors.
This is the record and time-line:
• February 18, 2011 — last year’s Budget Statement - fifty-eight weeks before 2011/12 Year End and 6 weeks before the FY even begins, the Ministry’s estimate for 2011/12’s revenue is $940m.
• December 12, 2011 — Ministerial Statement — 34 weeks into the FY and 15 weeks from Year End, the estimate for 2011/12 revenue is $930m-$920m. That is, between 1 and 2 per cent down from $940m.
• February 24, 2012 — this year’s Budget Statement — 47 weeks into the FY and now 5 weeks from YE, the estimate for 2011/12’s revenue is now $870m. Suddenly, just 5 weeks from YE, it is discovered to be 7.5 percent down from $940m.
Going from 2 per cent to 7.5 per cent means going from an error of $20m to an error of $70m.
Consider the $1,058m revenue estimate for 2010/11 and consider the $997m revenue actual; it is clear that the Ministry made a $61m error, the previous year.
Worse is the $127m gap between the $997m revenue for 2010/11 and the $870m revenue for 2011/12. Worst? The $188m miscalculation between the $1,058m estimate for 2010/11 and the $870m actual for 2011/12.
The numbers in Friday’s 2012/13 Budget stand alone. But, like all numbers, they also relate to other numbers.
The most recent figures help explain why the chart’s revenue and spending lines diverge so dramatically. Why spending is so separated from revenue.
These other numbers and the lines that they trace (see chart) raise important questions about how public finances are managed.
The Minister, of course, has the final say.
The Minister should re-structure the Ministry or tell us that she finds no fault. If the Minister finds no fault, then the Minister, alone, is fully and absolutely responsible.
Editor’s note: When asked to explain the disparity between the December 2011 revenue estimate of $920/$930m and Friday’s Budget figure of $870m, a spokesperson for the Minstry of Finance said: “The lower revenue estimate was as a result of diminished payroll tax because of job losses in the second quarter of 2011 and higher than anticipated take up of the retail payroll tax concession.
“Also, Exempted Company fees which are collected in January were lower than anticipated.”