In midst of debt crisis, pay hikes were nuts

WEDNESDAY, DEC. 14: You may recall that in March this year, in our down-turning economy, the Minister of Finance agreed a pay increases for civil servants and Government ‘industrial workers’.

You may recall that in June of this year, the Minister of Finance went back to the lending trough and borrowed another $200m, making a total of $700m borrowed since July of 2010.

You may recall that the private sector has been shedding jobs and instituting pay freezes as well as actual pay cuts.

You may recall that Bermuda’s workforce has shrunk from its 2008 high of 40,213 people filling jobs to a 2011 position where there are now probably around 37,000 people filling jobs — given that there were only 38,097 people filling jobs in 2010.

You may recall that the Minister of Finance has given payroll tax relief to retailers, hotel workers, fishermen, businesses operating in the EEZ’s, and taxi drivers.

You may recall that only the private sector creates jobs and that all civil servants and Government employees are paid from taxes collected from the private sector.

You may recall all of that. 

Pay increases

You may wonder, as I do, why, in the face of all of that reality, the Minister of Finance — with her full team of Government advisors — chose to give a pay increase, in this year, to about 5,700 Government employees — retroactive to October 2010.

You may wonder, as I do, why the Minister of Finance has not told us what the grand total pay increase award, which will be in the multi-millions, amounted to.

In Bermuda’s national economic downturn, where Bermuda’s private sector tax base is shrinking and has been shrinking for four consecutive years, why is a counter-cyclical pay increase — in the multi-millions — awarded to Government workers by a Government that is still borrowing regularly and heavily to meet its ordinary day-to-day spending?

In February 2010, Government projected revenue of $1,058,000,000. In the just out pre-Budget Report, Government reports $991m revenue for 2010/11. That makes a $67m revenue shortfall.

Government also reports higher than planned spending of $1,260m.

That means a total revenue to spending gap of $269m for 2010/11.

Government has filled this gap by doing the only thing possible — adding more debt.

Lower revenue

In the pre-Budget Report, Government says that for 2011/12, it is anticipating lower revenue — $920m to $930m — instead of the $940m that it projected in February’s Budget Statement.

Government is also saying that it does not expect an economic turnaround in 2012, and expects the economy to continue to shrink in 2011.

Where Government revenue is clearly and obviously falling; where, in just 11 calendar months on two separate occasions, Government had to scramble around and borrow a total of $700,000,000; why did the Minister for Finance agree to pay out a multi-million dollar pay increase? Why?

It is as if a private sector business, in the face of falling sales, dropping revenue, and a shrinking customer base, decided that its chances for survival can best be helped if its employees get a pay raise instead of a pay freeze or pay cut or overtime reduction.

Foolhardy

You know that is illogical and foolhardy. You know that.

So I cannot understand why, in the summer of 2011, in this national economic setting, the Minister of Finance chose to give Government workers a pay increase.

Since parliamentary and ministerial salaries are tied to civil service pay rates, these pay increases to civil servants can become pay increases for ministers and parliamentarians — all parliamentarians. 

A Government worker pay freeze would have made economic sense.

Instead, this multi-million dollar pay award now has to be funded by increased borrowing and increased payments for servicing interest and payments into the Sinking Fund.

Once Santa Claus has finished his rounds and returned to the North Pole, the cold winds of winter’s reality will start blowing.

As blues singer Lou Rawls talks it, the “hawk” will be blowing and Bermuda and Bermudians will feel the “hawk’s” cold harsh winds.

I cannot have faith that any organism involved in this kind of wrong-timed pay raise is able to continue managing Bermuda’s national finances as Bermuda and Bermudians head into the “hawk’s” cold harsh winds.