Bermuda is in a ‘debt hell-hole’

In this day and age it is hard to believe that in Germany the study of economics is considered to be a part of moral philosophy. 

In that context, economic growth is regarded as the reward for sound prudent financial behaviour such as frugality, saving, minimal taxation and the avoidance of inflation. The height of economic stupidity, and immorality, is considered to be the creation of debt.   

In Greece, Argentina, Detroit, and in the last few years in Bermuda things are viewed differently. 

Economics is a branch of human ingenuity.  Everyone knows politicians are corrupt and foolish, so what is the purpose of public integrity. It does not exist. The way to advancement is not economic growth but borrowing, bribery and knowing the right people. This is aided by creating massive public debt, with only the vaguest intention of repayment.

This could have been the unstated view of the Interim Report of the SAGE Commission which all Bermudians with an interest in the future should read. Amongst the alarming statements drawing attention to our own financial recklessness were the following:

The Government de?cit for:

• a. 2012: was $228.7 million.

• b. 2013: is estimated at $243.5 million.

• c. 2014: is projected to be $331.6 million.

This amounts to a total of $803.9 million over the 3 year period to March 31, 2014. When you realise that government debt is already $1,400 million the brain begins to rebel. 

But that is not the end of the story. For the first time I can recall the SAGE Commission has drawn attention to the massive deficits on government retirement benefit schemes. 

Check these figures and comments out:

Based on best estimate projections, the Bermuda Contributory Pension Fund (the public pension) will last until 2041 and then be exhausted. This means that any person aged 37 or younger will not receive a pension upon retirement at aged 65. As of July 31, 2008, this fund had a funded ratio of 40.6% assets to liabilities. This means that the unfunded liability as at July 31, 2008 was $1,901,000,000.  This is a debt owed to seniors and those shortly about to become seniors. That liability has grown since 2008 but nobody yet knows what that amount is.

But there are more time bombs. Based on the most recent best estimate projections, the Public Services Superannuation Fund for Government employees (meaning civil servants, teachers, police officers and others) if continued in its current form, will last until 2046 and then be exhausted. This means that any person aged 27 who retires at the plan’s retirement age of 60 and who worked in Government and whose contributions have vested, will ?nd that there will be no assets in the fund to pay a pension. As of March 31, 2012, this fund had an unfunded liability as at that date of $983.1 million.

If I was a retired civil servant, teacher, or police officer I would be concerned about the security of my pension. But that is another story.  

One more time bomb. Based on best estimate projections, the Ministers and Members of the Legislature Pension Plan Fund, as of March 31, 2012, had a funded ratio of only 32.7% assets to liabilities. The unfunded liability for this fund as at March 31, 2012 was $22.5 million.  

This means that the total amount owing to the three Government pension funds is a staggering $2,906 million. When you add is the official Government debt of $1,400million this makes the total Bermuda Government debt $4.3 billion. This is not chickenfeed. This is serious stuff. And I have not even mentioned the immense costs of Government health spending.

Let’s move away from Bermuda for a moment and go to Detroit – or Motown. Detroit’s pension plans have a $3.5 billion debt in unfunded pension payment obligations about the same as that of Bermuda.  Detroit went bankrupt.  So why should we care? After all it was decades-long gross political mismanagement, corruption and incompetence that pushed that benighted city over the cliff into bankruptcy.  

It was same characteristics that felled Detroit that put Bermuda in the bind that Bob Richards is trying to find an escape from. Detroit has a population of about 800,000, about 13 times as much as Bermuda — and with roughly the same debt level. What that tells us is that we are in big trouble – 13 times that of Motown.    

Larry Burchall, Sir John Swan and myself have been giving that message through our Sun columns for about two years now. Few people have paid attention. 

With the Interim Report of the SAGE Commission I hope the people of Bermuda begin to realise what a hell-hole we are in.