Borrowing figures point to a bleak future

WEDNESDAY, OCT. 10: The Government-of-this-day created a unique self-crippling problem — and it sits inside its unannounced “austerity” programme.

The problem? Government is borrowing $0.49 out of every dollar that it is spending on its operational costs.

In its February 2012 Budget Statement, Government projected (hoped!) that between April 1, 2012 and March 31, 2013 it would collect $909,634,000 revenue. But that won’t happen! Government may get about $885m — or $35 million less. 

Because of non-sales of Government real assets (-$10 million) and lower than projected Payroll Tax and Customs Duty receipts (-$25 million), Government’s real — honest — actual revenue is more likely to be $885,000,000 — or even lower. But Debt Service Costs [DSC] will remain the same. Below I give the audited figures for 2010/11; the unaudited but reported (**) figures for 2011/12; and my realistic revenue figure for 2012/13 (*).

Funds available

Revenue minus DSC = Funds available for Personnel and  Operational Costs

2012/13

$885.0m - $115.8m = $769.2m

2011/12

 $870.0m – $ 95.7m = $774.3m

2010/11

$996.7m - $  84.6m = $912.1m

The absolute and undeniable consequence is that further and now inevitable Government borrowing will simply make this problem worse. That’s Government’s baseline problem.

Superimposed on Government’s baseline problem is the high cost of what the Seventh Minister for Finance calls a “rigid expenditure” — Government’s personnel costs. Here is what is happening — I give you the audited figures for 2010/11, the unaudited but reported (**) figures for 2011/12 and the “hoped for” figure for 2012/13.

Operations funds

Funds for Personnel and Operations costs minus  Personnel Costs = amount available for Operations

2012/13

$769.2m - $567.0m = $202.2m

2011/12

$774.3m - $599.7m = $174.6m

2010/11

$912.1m - $577.4m = $334.7m

Since April 2008, most Government borrowing has been for its operational costs – after paying for personnel and for small, and reducing, capital works. Again, just looking at the figures for the same three years, this is what has happened.

Borrowing

Total spending minus DSC and personnel = money available for operations plus borrowing required.

2012/13

$1,081.7m - $115.8m - $567.0m = $202.2m + $196.7m

2011/12

$1,137.4m - $95.7m - $599.7m = $174.6m + $267.4m

2010/11

$1,242.7m - $  84.6m - $577.4m = $334.7m + $246.0m

  In 2012/13, after meeting its first priority payments of $115.8m for DSC, and its second priority of payments of $567.0m for Personnel costs, Government will only have $202.2m left over for Government’s third priority, which is its overall Operational Costs. In its February 2012 Budget, Government said it intends to spend $398.9m on Operational Costs. But this is $196.7m more than it has left over. Since $202.2m is insufficient, Government will have to borrow that $196.7m in order to meet its projected spend of $1,081.7m for financial year (FY) 2012/13. So in this FY, out of every $1 spent on Operational Costs, Government will be borrowing $0.49. In the reported but still unaudited year 2011/12, Government spent $444.4m on Operational Costs and borrowed $267.4m to do that — meaning that out of every $1.00 spent on Operational Costs in 2011/12, $0.60 had to be borrowed.

In the audited year 2010/11, Government spent $580.7m on Operational Costs and borrowed $246.0m to do that. So Government actually borrowed  $0.42 out of every $1.00 spent on Op. Costs.

Look at those three-year figures again. Op. Cost spending in 2010/11 was $580.7m.  The following year, 2011/12, it was $444.4m.  Now, in 2012/13, it’s down to $398.9m ($202.2m + $196.7m).  Do you see how spending on Op. Costs is declining? Again, it’s that secret “austerity” programme.

Worse? Even with this spending trend, in 2012/13, to meet its Operational Costs, Government still has to borrow at least $0.49 in every dollar spent on operational costs. 

In plain and simple language, here is what all of that stuff means: Government reports (***) that in 2010/11, the “average monthly value of Child Day Care allowance” was $793.00.  It also reports that the “total number of Child Day Care Recipients” was 1,946 [Reported as 964 in 2009/10, and 856 in 2008/09.]

In 2010/11, this “operational cost” was $793.00 per month x 12 months x 1,946 recipients = $18,518,136 total operational cost for one year for this item.

Recall that in FY 2010/11, out of every operational cost dollar, 44 cents had to be borrowed. This means that this “day care” line item had this cost profile: From Government funds - $10,370,156 ($0.56); borrowed from overseas - $8,147,980 ($0.44).

In plain language, in 2010/11, for each recipient for each month, $444.08 was from Government funds. $348.92 was borrowed from overseas. At its simplest, in 2010/11 the said-to-be-free Child Day Care allowance was 44 percent funded by borrowed funds. In 2010/11 Government borrowed to “give away” a “free” allowance. In 2012/13, Government is still borrowing to “give away” the same ‘free’ allowance.

The recently announced $500,000 contract to maintain Gibb’s Hill Lighthouse is a 2012/13 operational cost. So $255,000 will come from Government. $245,000 has to be borrowed from overseas.  A $100 fill-up of a GP car means $51.00 comes from Government funds and $49.00 has to be borrowed from overseas.

The Government-of-this-day owns this unique self-created self-crippling problem. This problem is operating within Government’s unannounced “austerity” programme. This relationship between real Revenue, consistently rising DSC, and non-lowering Personnel Costs is unsustainable.

Like a malignant tumour, this huge, real and immediate problem is festering within Government’s unannounced “austerity” programme, which sees Government actually reducing its year-on-year expenditure.

This spending reduction is acting as a huge brake on Bermuda’s struggling economy. This spending reduction is prolonging and sustaining Bermuda’s economic recession.

Government cannot continue to borrow in order to “give away” or buy gas or groceries or car polish.

As long as the Government-of-this-day refuses to acknowledge this plain fact and continues this self-defeating practice, it will continue to damage and harm each of us Bermudians – irrespective of our age, race, political ideology, religion, or gender.

(*) $115,750,000 = $85,000,000 Annual Interest + $30,750,000 Sinking Fund Contribution = Debt Service Cost [DSC] … continuously adding up at $220 a minute.

(**)  Reported in the June 2012 Bond Prospectus (revenue & spending & DSC) and February 2012 Budget statement.

(***) Government of Bermuda - Estimates of Revenue and Expenditure for the Year 2012/13 & 2011/12 – pages B-253 & B-264.