Every Bermudian owes Government's creditors $92,000

The subject of Government debt dominates the news. Not only in Bermuda but almost everywhere — the U.S., U.K., Greece, Ireland even Romania.

The Irish, upon whom austerity has been imposed as a condition of an E.U. bailout, saw their government fall with elections slated for March.

Voters do not like hearing about debt. Politicians do not like talking about it. It gives creditors nightmares.

In a kind of collective suicide pact, they have all agreed not to talk about it or even worry about it.

But debt is at the centre of the world’s financial troubles. Paying off debt is like dying — you try to put it off for as long as you can.

But nobody can run an open bar tab forever.

Eventually, reality strikes. Bermuda is now facing reality.

All over the world, the impossible promises governments have made to their populations are beginning to unravel — promises built on the shaky foundation of debt.

Bankrupt

Millions of people have arranged their lives in the expectation of various forms of government support, such as pensions and healthcare, that will be mathematically impossible for governments to provide since they will have to repay huge debts that have been foolishly incurred. 

Many countries, and states within them such as New Jersey in the U.S., are broke, busted, bankrupt, in serious trouble financially. 

It is an obvious fact but always neglected that governments cannot spend money without first taking that money from someone else by means of taxation. That includes Bermuda.

How bad it is in Bermuda and why do we have similar problems?

Those under 40 are being robbed. The public, politicians, bureaucrats, religious leaders, business leaders and foolish journalists speak with a single voice on government debt — “screw the next generation”.

The chart below sets out in some detail what I estimate to be the Bermuda Government debt.

My calculation is that our debt is $4,589 million.

This means each Bermudian (excluding non-Bermudians there are about 50,000 Bermudians) owes to the creditors of the Bermuda Government $91,780. 

These are frightening figures, scary because young Bermudians are going to have to pay it back in the foreseeable future.

I say Bermudians because non-Bermudians are not going to stick around to pay off the debts of someone else, especially when they are demonised by politicians.

The policy of the Bermuda Government to its massive debt is like that of U.S. military policy with regard to gay people — don’t ask, don’t  tell.

I have asked many times and the Bermuda Government will not tell me. 

So I had to do some surreptitious detective work by getting my hands on actuarial reports that have been swept under the carpet.

First, the easy part, called the budget deficit. This is the difference between what is spent in any one year and what is collected in taxes. 

The Bermuda Government spends more than they collect in taxation. 

The accumulated deficit, that means overspending, comes to $990 million, according to the latest Government accounts. 

The public should have more up-to-date figures when the Budget is presented to the House of Assembly this month.

But why do we overspend and get into debt?

Politicians love deficits and borrowing because spending makes them look good in the eyes of voters.

The main business of politicians is to seek votes — success is garnering votes, oblivion and loss of jobs is the inevitable consequence of losing votes. 

Raising taxes annoys voters, who then vote against honest politicians who are in favour of fiscal responsibility.

So governments spend and governments get into debt.

That is, as long as the tourists come and spend and international business continues to operate and provide jobs to Bermudians.

Taxation

But that is by no means certain. In corresponding over e-mail with a local, non-Bermudian investment manager recently, he bluntly stated the following: “If Bermudians want a thriving, growing economy with more investment and better jobs, a return to lower Government spending and less onerous taxation is essential.

“Burdensome taxation such as the recent 14 per cent increase in employment tax kills jobs and the six-year work permit policy is a collective suicide pact.” 

“Personally, I think Bermudians have their heads in the sand about this and are just hoping for a revival in the area that drives the economy — international business.

“However, Brown single-handedly drove them away and they are not coming back.

“This Government would have to do something totally radical to at least try to change things but I don’t see that happening, do you?

“For example, the six-year rule for expats is a disaster for big business.

“It’s bad enough working with the threat that they might be told to go home anytime, but to know that after you have just got your staff used to Bermuda, got them settled and trained, know which ones are going to be loyal to your company, you then have to send them home and start the hiring process all over again.

“That is is just plain nuts. It’s measures like these that have totally damaged Bermuda.”

Next week: The huge problems associated with pensions and healthcare.

*Source notes:

1. Budget Statement 2010-2011, page 34.

2. Members of the Legislature Pension Fund Actuarial Valuation March 31, 2008 page 3

3. Public Service Superannuation Fund Actuarial Valuation as at March 31, 2008 pages 3 and 4. Bermuda Contributory Pension Fund Actuarial Review August 1, 2008 pages 56 and 57.

No estimate has been made for promised health costs such as HIP and Future Care.