We’ve wandered into Wonderland

Something strange is happening. Thousands of people involved in it too. And almost all – certainly the overwhelming majority — are Bermudians.

Here are the bones. The Government-of-the-day and the Bermuda Trade Union Congress have an agreement.  According to the ten minute long video press conference given by BIU President and BTUC Vice-President Chris Furbert, the BTUC have an Memorandum Of Understanding (MOU) with the Government-of-the-day and its thousands of members.

According to what was said in that press conference, the MOU has an agreement for:

• ONE — a 4.5 per cent across-the-board pay reduction joined up with

• TWO —  a promise of a pay freeze for the next two years, and 

• THREE — and a promise that there will be no redundancies or lay-offs. 

I’ve no disagreement with ONE and THREE. But TWO causes me discomfort. I reckon that the promise made in TWO cannot be kept, and should not have been made — or even accepted.

The facts that support my perspective are that GDP is likely to sit at the $5.4bn level at least out to January 2015. With luck and hard work by “Grey Man Grant”, GDP might and could creep up 3 per cent – 4 per cent to $5.6bn by January 2016.

That means that Government’s total maximum revenue is stuck at something between 2013/14’s hoped-for $871.2m and a possible $950m by the end of 2016 — if GDP hits that 4 per cent increase.

As a consequence, between now and the end of 2016, revenue will likely be stuck at something between $870m and $950m. Personnel Costs that settle at $550m overall will be too high a percentage of that revenue.  On top of that, that level of revenue is also impacted by the over-riding priority payment of Interest on Debt. 

In 2014, 2015, 2016, with Minister Bob taking up the final $50m in the form of local Bonds, Government will have to make annual Interest payments on its total $2,374m [$2.374bn] Debt. These annual interest payments will be about $124m a year. 

Add in the quasi-debt of $27m a year for the KEMH/PPP; that takes the full debt plus quasi debt service cost up to $151m a year. These two priority payments will leave only [$871m — $151m] $720m or [$950m — $151m] $799m for spending on everything else.

From that $720m to $799m, some $550m must, under the MOU, be committed to personnel costs. 

That means only [$720m — $550m] $170m to [$799m — $550m] $249m to pay for all other operations and services. This low amount is less than HALF of what is required.  If this level of spending on ops/service is maintained, Bermuda’s infrastructure would soon decay and collapse. Government is borrowing now to pay for infrastructure maintenance.

Government cannot possibly continue spending $550m a year on total personnel costs. Those personnel costs must eventually come down to the point where personnel costs are equivalent to about half [50 per cent] of the amount of revenue that is available for spending.  The other half [50 per cent] must go to infrastructure.

Staying with the real figures that I’m using: Full revenue of $950m… but $151m goes to the priority payment of debt and quasi-debt… that leaves $799m for all personnel costs + ops/services. 

Of that $799m, about half [50 per cent] or $400m should go to personnel costs and the remainder [$399m] should go to infrastructure. Given the dollar facts, that is the reality.

If, between 2014 and 2016, Government’s revenue goes no higher than $950m; then, given what I’ve just pointed out, personnel costs must soon — with 24 months — come down to something near the $400m level — or lower.

That is numerically, arithmetically, mathematically, inevitable. The alternative is to continue massive borrowing in order to maintain current spending levels on either ops/services or personnel costs.

If, by 2016, it is clear and inevitable that personnel costs must come down and down and down; why, why, why, has anyone promised a ‘pay freeze’ for two years? Why have people not been open and honest?  Why has no one said that further personnel cost CUTS are inevitable?

Why is it that people seem to be trying to conceal an arithmetic inevitability?

Or is the situation so desperate that both the BTUC and the Government-of-the-day are only too happy to clutch at a straw and publicly treat that flimsy straw as if it was a 30 foot lifeboat?

It seems to me that we’re drifting into some kind of Wonderland. The video of that press conference made me think that we’re already in Wonderland.