Lack of good financial management is our biggest problem

WEDNESDAY, JUNE 6: Bermuda’s biggest problem is a hidden problem that is delivering serious consequences now and with spinoff problems roiling higher.

The problem? Lack of good national financial management.

In 2009, during the Uyghur fuss, Bermuda’s seventh Minister of Finance described herself as ‘politically neutered’.

In January 2010, she described herself as a ‘cog in the wheel’. Each self-portrait painted a picture of a weak and powerless person who considered herself an insignificant part of a group of Cabinet Ministers.

This self-selected weak position was completely at variance with the very strong and constitutionally protected positions taken by all six of her predecessors. Each of those six ancestor ministers saw themselves and behaved as a strong minister who could, would, and did take and maintain strong positions on all matters involving Bermuda’s national finances.

Minister Seven blew away 36 years of precedent. Without cause, she self-selected a weak position. The first time that Minister Seven publicly enunciated her weak position was in February 2009, when, after five years in office, she described herself as ‘politically neutered’.

However, anyone examining Bermuda’s national finances would see that she actually had been functioning as a weak Minister for Finance as far back as 1st April 2004; because that is when Bermuda’s government began continuously overspending.

Weak

From April 1, 2004 until this day in 2012, Minister Seven has sustained her weak management of the public purse. This build-up shows just one consequence of Minister Seven’s weak financial management:

• Gross National Debt on her first Budget 01 April 2004 — $160m (handed on by Mr Eugene Cox) with an annual Debt Service Cost of $11.4m ($31,000 a day)

• Gross National Debt after eight years of her management — $1,287m (Debt grew $140m a year or almost $12m every month) with annual Debt Service Cost now $115,800,000 ($317,000 a day).

In March 2008, the national financial ‘chickens’ flew ‘home’. For the first time in Bermuda’s 388 year history, the Bermuda Government actually ran out of money.

In March 2008, Minister Seven had to rush, hat in hand, to the two local banks and beg for coin. The overdraft crisis of March 2008 saw the Bermuda Government, for the first time ever, beg for alms.

Alms started with an $11m overdraft facility. In less than twelve months, that facility shot up to $200m. In 2012, the Minister still needs an overdraft facility.

While accumulating $1,287m debt, national financial tax-raising policies helped chase away key elements of international business who provide 85 per cent of Bermuda’s foreign exchange.

This happened in 2010 with the ill-timed and unwise 14 per cent increase in Payroll Tax and the equally unwise and huge jump in the Payroll Tax cap from $350k to $750k.

Tax grab

A large number of Bermudian-owned businesses were harmed by this extraordinary tax grab. Hundreds of Bermudian private sector jobs disappeared as hard-hit local businesses downsized in response to this unwise tax grab.

2010 saw an accumulation of financial management mistakes piling up on financial management errors. Both exacerbated a strategic and national financial miscalculation.

2010 showed the consequences of a six year accumulation of bad financial management. The clumsy attempt to raise taxes displayed the hallmark of bad financial management.

In 2012, neutered financial management continues. No action on Government personnel cost reductions — still just floating along. No decision on genuine Government cutbacks — instead, $36m of fresh borrowings to provide additional housing units in a national housing market that currently suffers from a huge national oversupply of housing that is both for sale and for rent.

Junkets to expensive overseas conferences continue. After growing Debt by over 1,000 per cent, there are still only promises of better financial controls.

Error

One more hidden financial error. Minister Seven says Government will sell $10m worth of real estate holdings to Bermuda’s private sector.

Minister Seven seems unaware that Bermuda already has a huge oversupply of commercial spaces for sale and rent. As in 2010/11 and especially in 2011/12, her $910m revenue projection for 2012/13 is much too high.

This accumulation of numbers confirms that Minister Seven is politically as well as financially neutered. Since 2008, things have gone farther downhill.

In 2012 Minister Seven performs like a worn down cog on a gear that is stuck in neutral.

It seems that nobody — certainly not Minister Seven — is in control; and Bermuda’s national finances are being handled behind a wall of silence and under a veil of secrecy.