Don't blame runaway debt on the recession

FRIDAY, JUNE 17: In the infamous chinese water torture, a harmless drop of water falls on the victim’s forehead at precisely regular and frequent, or irregular but still frequent intervals. The torture consists of the victim beginning to anticipate the next — unpreventable — drop. The victim’s body is unharmed. The victim’s mind becomes unhinged.

So it is with the economic nibbles and bites now beginning to hit and hurt Mr and Mrs and Ms Ordinary Bermuda. The family next door. Your own family and friends.

Ninety-seven people let go within the public education system. People laid off at Port Royal Golf Course. Cuts in the service provided by ferries and buses. Overtime in fire and police and prisons cut right back. The Bermuda Regiment mounting a ‘half Guard’ for April’s Peppercorn Parade and June’s Queen’s Birthday Parade.

Like water torture drips, the consequences began arriving in 2009. In the Government’s own figures as set out in Government Reports, these are the facts:

• Fact ONE:  Late in 2010, Government announced that GDP had ‘unexpectedly’ fallen much more than had been thought. Instead of the 2.5 percent projected in the February 2010 Budget Statement, GDP had actually fallen 5.8 percent. Huge boo-boo! More than 200 per cent wrong! For 2010, Government thinks there was another decline between 4 and 5 per cent. In February’s National Economic Report, Government is projecting a further decline of 0.5-1 per cent for 2011.*

• Fact TWO: In 2009 and 2010, Government spending on pay, goods, and services, actually FELL. In 2011, it will fall even further. That means three consecutive years of steadily declining Government spending. Here are the numbers — Government’s numbers. Not mine. After servicing Debt, this is what Government actually spent, or is budgeting to spend, in each year(**):

• In 2009/10, $1,124,350,000 — this was $42,318,000 less than the $1,166,668,000 spent in 2008/09.

• In 2010/11, $1,116,149,000 — this was $8,201,000 less than the $1,124,350,000 spent in FY 2009/10.

• In 2011/12, Budgeted spending is $983,770,000 — that will be $132,379,000 less than the $1,116,149,000 spent in FY 2010/11.

• Fact THREE: In this FY year (2011/12), partial Debt Servicing Costs (counting Interest only) are budgeted at $70,000,000. This means $191,781 every day in interest payments alone. This figure is Government’s own reported figure - not mine (**).

• Fact FOUR: In order to cover still building debt, Government must go back to the trough and borrow more long-term money this year. This will happen before Santa Claus comes. Consequence? Daily interest cost will fly over the $200,000 a day level.

• Fact FIVE: Because borrowing and Interest costs are still increasing, less and less money will be available for pay, services, and goods.

• Fact SIX: Because of Fact FIVE, GDP growth will continue to be inhibited.  Generally, incomes will continue to drop. But because we import 98 per cent of all that we need, costs will continue to rise.

• Remember that the numbers for the first three facts are Government’s own numbers. Putting everything together, the consequence is that economic nibbles and bites will continue and will get bigger.

Nibbles and bites

In Bermuda’s workforce, over one out of every four black Bermudians, and over one out of every five Bermudians, is actually in direct or indirect [Quangos] Government employ. So these nibbles and bites have a unique impact. This Government is in the early stages of a unique problem that it self-created during the buildup years 2004 to 2008 when GDP was still rising.

There is a global recession and it did not begin to affect Bermuda until 2008. However, by 2008, this Government’s five-year overspending pattern had already created the mountain of debt that is now dragging it down and that will continue to drag it downwards until Government spending at least matches Government revenue.

The truth that no Government person will publicly admit, is that this Government’s self-created debt problem — self-created between 2004 and 2008 — is acting like a DE-stimulus to Bermuda’s national economy. That is the unavoidable consequence of steadily falling Government spending. Now and going forward, after meeting Debt Service Costs in each year, Government will have less to spend on everything else.

Drip. Drip. Drip.

* Budget Statements and National Economic Reports for 2009/10, 2010/11, 2011/12.

 ** ‘Approved Estimates of Revenue And Expenditure For The Year 2011/12’, page C-40.

Editor’s note: Congratulations to Larry Burchall for once again being voted ‘Best Columnist’ in The Bermudian Magazine’s Best of Bermuda Awards. The recognition is thoroughly deserved and follows Larry’s success last year in the same category.