We either brake now or smash later

If you’ve understood Parts One and Two, Part Three will be easy to understand. If you have not understood Parts One and Two, then re-read them until you do or e-mail me at [email protected] with your puzzlements. 

The key problem that refuses to go away is that in relation to Government’s real Revenue, the combination of Debt Service Costs [DSC], Quasi-Debt [QD], and Personnel Costs [PC] are way too high. This originates from the fact that Government’s Personnel Costs are way too high and DSC has climbed too high. 

DSC (from April 2014 temporarily fixed at $165m) + PC (still around $580m) means that the Bermuda Government will be committed to spending ($165m + $580m = $745m) $745m out of its Revenue on just those two costs. 

With Revenue hovering around $900m, and commencing April 1, 2014, about $83 out of every $100 will be spent on just PC and DSC+QD.

I’ve been writing about high Personnel Costs since December 2010. Back then I suggested a 10 per cent pay cut for all Government personnel. Thirty months later, a 30 per cent cut in PC is needed.

The money ‘saved’ from PC must be re-allocated to Operations (goods, services, infrastructure). The aim is to match spending with revenue. 

So if Government’s revenue is stuck around $900m; then the combination of PC and Operations should balance out to $900m. Ideally, $450m or less on Personnel and about $450m on Operations.

However, DSC is taking a huge chunk out of revenue, and all DSC money goes straight overseas to foreign investors. So Government’s real or net revenue is $900m LESS full DSC of $165m. That means that from April 1, 2014, Government’s real (net) revenue will be around $735m. Certainly, net revenue is unlikely to be over $800m in FY 2014. 

Government is currently paying $580m for Personnel. Clearly, from $735m revenue, there would only be $155m left for Operations. Since $155m is too little for all the stuff that Government carries as Operational costs, Government must borrow to make up the difference. This has been the reality and the pattern since 2004.

One way or another that will stop. It’ll either stop by hard-braking — which is what Minister Bob must now do by March 2017; or it will stop with a crash in 2018 when we find — and find absolutely — that Bermuda no longer has the ability to borrow millions and billions at any reasonable rate of interest — i.e. anything under 8 per cent.

Sob stories about personal hardships in the Civil Service and elsewhere really don’t matter anymore. Bermuda is too far downhill and going much too fast. It’s either brake hard today or crash tomorrow! Either way, we’ll all get shook up. 

Accept that inevitability. Get used to it. A jarring ending and consequent pain is now inevitable.  We’ll suffer the pain because we wasted thirty months in electioneering, politicking, and denying.

The numbers don’t give a hoot about politics, personalities, and people. Like a column of soldier-ants, those numbers just march straight on devouring everything in its path. 

What is desperately needed is that those 49,000 Bermudians who are still here, understand what is happening. Note, I said understand. I did not say accept or like or approve. 

What’s coming, is coming. Brake today or smash tomorrow. 

We either work together and together climb out of the Debt Trap or we die in it.

It is that simple. 

Final point, that UK Cameron guy recently added to our problems. As the leader of a dodgy coalition, and playing to the hounds of the UK House of Commons, the UK press, and various aggressive NGO’s; David Cameron cast Insurance centre Bermuda to the sharks by stigmatizing Bermuda as a ‘tax haven’. 

The strategic consequence will be to slow and impede the efforts that Minister Grant Gibbons is making to attract more and new foreign investment here. 

That’s unfortunate. It means that some chances for near-term growth in GDP will have been reduced. But this has happened and we must work through this problem. 

While working through that, we need to consider whether or not we stick so closely to the other BDOT’s. Perhaps we should stop snuggling up to them and start separating and looking to our own best national interests. 

So again, we either work together and together climb out of the Debt Trap and Tax Haven Morass or we suffocate.