Today’s Budget won’t stop the runaway train of debt

This morning Finance Minister E.T. (Bob) Richards will read the ‘national’ Budget for the coming financial year.

It will be the first-ever Budget presented by the One Bermuda Alliance Government, but I wonder how much this Budget has been shaped by the heavy burden left by the former PLP Government.

Most people know that the previous government drove the Island down a road that was leading to a fiscal dead end.

Election time polling showed more than 80% of Bermudians expressing concern about the economic direction of the Island and 75% saying the economic policies “of the last five years” should not be continued. It’s safe to say that these concerns – even fears – had a significant impact on the December 17 election decision.

If you asked anyone about the state of the Island’s finances, I bet the first thing mentioned by most people would be the disturbing level of our public debt, now standing somewhere north of $1.2 billion – a very big number for a small population to pay off.

Soaring interest

Some people might add the fact that Bermuda this year is paying out some $85 million a year just to meet the interest payments on that debt. That’s more than $230,000 a day going to overseas creditors – a massive bill that limits the government’s ability to act for the benefit of the people.

Perhaps the most disturbing side of the PLP’s management of the public purse was its propensity to spend more than it took in, much more. This is known in the business as a Current Account deficit or an operating deficit.

In looking at the Government of Bermuda 2012/13 Budget book, we can see that the first operating deficit was recorded in 2008/09 when the Government spent $41 million more than it took in.

From then to now, the PLP Government every year spent much more than it took in, racking up massive annual deficits and driving public debt into the stratosphere.

In 2009/10, the operating deficit, minus capital spending, was $83.6 million, in 2010/11 it was $133.5 million and in revised figures for 2011/12 it came in at a whopping $202.4 million.

The year-to-year growth in deficits is staggering and tells the most casual observer that the Government had effectively lost control of the public purse. Think about it: From the fiscal years 2008/09 to 2009/10, the deficit grew more than 100%; from 2009/10 to 2010/11, it grew more than 50% and again by more than 50% from 2010/11 to 2011/12.

There is no firm figure yet on the operating deficit for 2012/13, but it’s a solid bet that it will come in at more than $200 million.

Unsustainable

What the new Government is facing, in effect, is a runaway train that cannot easily be stopped. Yes, the deficit growth rate has slowed but it is still moving away from us at an unsustainable pace. Operating deficits, in other words, are bound to continue – driving public debt even higher – until cost controls and revenue growing measures take effect and get us out of the red zone.

How long that will take is not for me to guess, but the Finance Minister is already on record with a few things that bear repeating.

The first is what he said to the people three weeks ago in a report on what the new Government found “under the hood” once it got into office.

“It is clear that the state of government finances is every bit as bad as we had feared it might be when we were on the outside,” Mr. Richards said after reviewing figures for fiscal 2011/12 that the PLP Government had failed to release to the public.

“We cannot continue with debt rising at a rate of 23% per year (as it did in 2011/12). We can no longer tolerate the budget busting practices of the past.”

Mr. Richards said the OBA Government was “committed to changing the trajectories of deficits and debt going forward” by implementing “new rules, limits and targets that will govern government debt and expenditure.”

But it is clear this first budget, which was largely locked in place before the December election, is a creature more of the past than the future.

As a Bermudian, I am comforted by the fact that we finally have in place a Finance Minister who is clearly committed to getting the public purse back under control, where we are no longer dumping our fiscal excesses onto the backs of generations not yet born.

It is serious business getting our financial house in order. It took just seven years of uncontrolled spending to create a debt problem that will affect Bermudians for generations to come. The difficult work to rectify that sorry legacy begins today. n

Thad Hollis is chairman of the One Bermuda Alliance