We'll now spend more on interest than fighting crime

Bermuda will now and henceforth spend more on paying interest to moneylenders than it spends on combating the Bermuda crime wave that caused the appointment of a Joint Select Committee to investigate the rise in crimes of violence that saw eleven people shot and killed since May 2009.

Remember ‘Pacman’? That fast-moving chomping mouth that raced around the screen in early computer games? ‘Pacman’ gobbled up anything that got in its path. The game set you, the player, as the object of ‘Pacman’s’ desire. You had to get ‘home’ before ‘Pacman’ gobbled you up.

Annual Debt Interest costs are now officially recognized as $70,000,000 (page 18 of the Budget).  The police budget is officially limited to $58,203,000 (page 19 — corrected!). The Government has officially confirmed that repaying debt is of greater importance than combating crime. Government says this in two ways.

Government increases the amount set aside for Interest payments. In 2010/11 Government paid out $38.4m in Interest, but in 2011/12 Government will pay out $70m in Interest - an increase of $31.6m.  Contrarily, the Government slashed the Police budget. From $64.3m in 2010/11, Police were cut back to $58.2m in 2011/12. Police cut. Debt increase.

‘Pacman’ reappears as “Debtman” and the ‘thin blue line’ must now stretch thinner and run faster.

Sins of past overspending are catching up.

Taken together, this Budget tells us that the combination of the needs to grow tourism as well as fight crime have been overtaken by the need to pay for the sins of seven years of consistent and large overspending. This Budget says the Government will spend $95m total on debt interest and payments into the Sinking Fund (page 18); but only $88m total on tourism and policing. “Sins of the past.”

For over six months, I’ve been advocating real Budget cuts. But take that perennial and well-known money-loser — the Post Office. Since 2004 and up to March 2010, the Post Office has accumulated an aggregate loss of about $47,500,000. 

It’s reasonable to expect that a ‘cost-cutting’ and expenditure ‘reducing’ Budget such as this Budget promises, would have eliminated huge obvious ‘cash drains’ like the present Post Office operation. Look at pages 17 and 20.  Examine the line item for ‘Post Office’.

Look at the numbers in the sidebar above and you’ll see a planned increase in Post Office losses! This money-losing Post Office - with its now fifteen year money-losing track record — is not only being paid for with cuts in Policing, Financial Assistance, Tourism, etc....; but is also being kept afloat with borrowed funds.

However, I am not completely unhappy with this Budget. Two facts please me.

First, the huge reduction in anticipated revenue. Last year, first in March and again in June, I wrote that the $1,058m in anticipated revenue was a ‘pie-in-the-sky’ revenue projection. On Friday 18 February 2011, the Finance Minister confirmed my two public statements. The minister reported that revenue for all of 2010/11 was expected to be $977m or $81m LESS than the earlier ‘pie-in-the-sky’ projection of $1,058m. (That $977m is likely to go even lower. The final figure will only be known when the annual Financial Statements are audited and released — which should be in October 2011.)

Economic reality

For this coming year, the minister is projecting revenue of $940m. At long, long, last, the minister appears to be beginning to connect with Bermuda’s economic reality.

Second, the promise of spending reductions. As garbled as this Budget Statement was, I am led to believe that the minister intends that in 2011/12, about $1,080m will be spent. However, based on a consistent seven year track record of gross overspending (reaching its zenith in 2009/10 when the gap between revenue and spending was $365m) this eighth consecutive promise of just spending $1,080m has to be accepted, for an eighth time, at face value — because there is no other choice.

It is a promise that I am slightly less sceptical about — this day —than I was twelve months ago. Why? Because that huge cutback to $940m of anticipated revenue suggests the Minister may now be seeing economic reality.

Also, even though this Budget will result in yet another tranche of borrowing (another $147m), at least this Budget does show a real reduction in planned spending. Spending drops from the estimated $1,115m net spending in 2010/11 to a promised $985m net spending in 2011/12. That looks like a real spending reduction of about $130m — if it really happens.  This $130m reduction in spending is less than the promised and stated $150m.

Proof, though, will be in the execution. Execution depends on a quality of fiscal management that has been missing since 2003 when a different Finance Minister was in charge.

That, I’ll discuss in Part Two on Friday (February 25).