Minister promises to keep unions in the loop on pay cuts

Finance Minister Bob Richards promises Government won’t “drop kick” civil servants to the curb in order to make Budget numbers work.

He was answering a question put to him as one of the panellists at the at a Budget Breakfast on Monday.

How realistic was it, he was asked, to reduce the civil service by natural attrition considering it had nearly doubled in size during the PLP’s tenure.

The Minister replied: “The civil service has grown faster than the economy. We really haven’t come to grips with that problem. We understand that these are not numbers, they are real people, they’re Bermudians, they’re us.

“This is not in the abstract here — these are real people with real lives. We just can’t drop kick them to the curve because we want to make some numbers.”

He added: “We have to go about this in a responsible, thoughtful way. That’s one of the reasons why it can’t be done overnight.”

Mr Richards said reducing the cost of the civil service needs to be in concert with discussions with the unions: “Whatever we have to do has to be done in a cooperative way with the members of the Civil Service.  They understand, just like everyone in this room, what the problems are. They understand it so we have to work with them.”

Craig Simmons, economics lecturer at Bermuda College, and one of the panellists at the Chamber of Commerce  and PwC sponsored Budget Breakfast, said part of the problem with the Bermuda economy is it is “dysfunctional” and labour costs are too high.  He said a Department of Statistics in 2006 looked at unit labour costs between 1996 and 2006. 

Mr Simmons said they “rose unsustainably” and it was “disturbing” to see that in 2006, international business unit labour costs were $1.26 to produce $1.

That “suggests that international business units as independent units are operating unprofitably,” he said, adding: “It wasn’t driven by a union, it was driven by an overheated economy. It was driven by supply and demand. We’ve got to be really careful about not getting ourselves back into the situation we were in in 2008, 2007 and 2006. There was something fundamentally wrong in which the way the economy was operating.”

Mr Simmons said he gets a sense many people want to get back to those days of an “overheated” economy, but if Bermuda wanted to get back its competitiveness, it needs to operate on a real exchange rate where a $1 worth of goods or services isn’t costing more than a buck.

“...We should really focus on that, on keeping our costs down.”

He said the Bermuda Monetary Authority in 1980 identified Bermuda as being “too costly... we seem to be very slow learners.”

His solution may require “direct intervention above and beyond the market because the market is not clearly operating efficiently — especially when it allows unit labour costs to escalate as high as they have.”

He said that can’t be blamed on the unions.

“It is because the market in many ways is dysfunctional and has been dysfunctional.”