Projected growth was pie in the sky

Six months later, December 3, 2010, the Ministry of Finance’s own Department of Statistics [DoS] released blockbuster facts in its December 2010 Report, stating that in 2009, Bermuda’s GDP fell 5.8 per cent in dollar terms; but 8.1 per cent after factoring for inflation. Put simpler — and it is now ‘official’ and not supposition — in 2009 there was less money moving around and being spent than in 2008.

Recall, also, that the DoS reports that (after allowing for inflation) GDP had fallen 0.3 per cent in 2008. That means that Bermuda’s GDP has fallen for two years in a row. That means that the minister’s one per cent projection couldn’t possibly make up for the overall 8.4 per cent total two-year loss.

Even if the minister’s projection of one per cent came true, Bermuda’s GDP would still be 7.4 per cent lower than it was in 2007, and 7.1 per cent lower than it was in 2008.

A forlorn hope

The Minister’s projection of one per cent growth was pie in the sky. It was a forlorn hope in a world where, in the past three years, every financial giant and every country, has had its backside whipped and its wings clipped.  

In 2010, all of Bermuda’s big economic indicators — the still reducing footprint of international business; still abysmally low tourist revenues; still non-growing private sector; still growing government sector — point to a national economy that is still shrinking and shrivelling to another lower level.

For 2010, it is likely that Bermuda’s GDP will decrease — not grow — by another one or two per cent.

That means that GDP is already on its way to being around $5,600,000,000 — which is very close to where it was, four years ago, in 2006. That means that government’s ability to raise revenue will grow even weaker. 

Just for the record, and as reported by the DoS, this is what has already happened to Government’s ability to increase its revenue:

• 2007 — year on year, GDP went up (+4.2 per cent). With a strengthening tax base, government could have increased its tax revenue in that year;
• 2008 — year on year, GDP went down (-0.3 per cent). With a slightly shrunken tax base, government needed to balance its spending;
• 2009 — year on year, GDP went down (-8.1 per cent). Government revenue went down (-1.9 per cent). With a definitely shrunken tax base as well as reduced revenue, government needed to cut spending and not raise taxes;
• 2010 — year on year and now eleven months into that calendar year, GDP is certainly headed further down (-1 per cent?). With a deeply shrunken tax base, government needs to cut spending.

But what actually happened? The unbelievable — but real — happened! In February 2010, Government raised taxes and projected pie in the sky economic growth that went against reality and plain common sense. Worse, government also projected that it would take in a huge 13.3 per cent more in taxes and fees than it says it took in 2009/10. That 13.3 per cent more translated into an additional $124,000,000 in government revenue. (If you do not believe me — re-read the February Budget Statement and re-read the DoS Reports.)

Pie in the sky. Imagination run wild. Reality out the window. That February Budget Statement reads, now, like a Harry Potter novel. The Budget Statement makes sense only if one shuts out the real world and ignores economic reality.

In that Statement, the Minister of Finance opined that 2009’s GDP was down about 2.5 per cent. In fact, GDP went down more than three times as much. The minister projected that in 2010, GDP would rise by one per cent. That, too, will prove wrong. GDP is going the other way and will decline by at least another one per cent.

Now, in 2010, the minister faces a revenue shortfall that may easily top $80,000,000. That shortfall has to be dealt with either by cutting spending, or by incurring more debt so as to fund current expenditure.  

Like the Grim Reaper, 2011 is silently stalking towards the government. Mistakes will be paid for. Mistakes have to be acknowledged. So far, no one is acknowledging a mistake. So far, government is still hanging on to its pie in the sky.

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