It’ll hurt, but we must cut deeper

Quiet contemplation can let in ghastly ghosts. 

That happened after I read that fascinating treatise, the ‘Consumer Price Index’ for July 2013. Ghosts started appearing when I read: “This means that the basket of goods and services that cost $100 in April 2006 now cost $122”.

In 2006/07, Government’s audited revenue was $883.7m. About three weeks ago, the Ministry of Finance reported that revenue for 2012/13 was likely to be recorded as $877m; which makes it lower than in 2006/07.  For 2013/14, the Minister for Finance projects revenue of $871.2m. Again, $12m lower than seven years ago, and $5m lower than last year.

Like Ebenezer Scrooge’s triad of spirits, that formed my first ghost. This ghost said that six and seven years on from 2006, Government’s overall revenues are LESS than they were six and seven years before. My heart went thumpety-thump and my palms got sweaty as I realized that in 2013, Government is trying to run 2013 Bermuda, at 2013 costs and prices, while having less revenue than it had seven years ago in 2006/07.

The Department of Statistics reports that in 2006/07, a “22oz sandwich loaf white local” cost $4.40. In 2013, the similar loaf of bread is on supermarket shelves price-tagged between $5.95 and $6.25. Everything else has gone up as well. Insurances, Belco, clothes, food…

In 2006/07 Government siphoned off a paltry $18.3m to service Government’s teeny net National Debt of $196.7m (after subtracting guarantees). So in 2006/07, with $883.7m in audited revenue, and after siphoning off $18.3m for Debt Service, Government still had $865.4m left to spend on all of us lot who were being promised all sorts of ‘free’ stuff.

Then the second ghost. I realized that, six years later, in 2012/13, out of the smaller $877m revenue, Government was now forced to siphon off a much larger $81.5m in cash in order to service Debt. [The Debt Service expense for 2012/13 was actually $50m higher at $131.5m; but that’s another story.]

That meant that, six years later, with costs and prices six years higher, Government actually only had [$877m - $81.5m] $795.5m left over to spend on all of us lot. So in 2012/13, Government had about $70m LESS to spend on us lot even though costs and prices had gone up! Oooohhhh!

The third ghost! In 2013/14, the Finance Minister hopes that Government will take in $871.2m. Fortunately, with July’s $750m borrow and his Sinking Fund decision, Minister Bob has stabilized and lowered Debt Service expenses for 2013/14. This will now come in around $119m.

Siphoned off to pay debt

This means that in 2013/14, Government hopes to take in $871.2m. However, Government is forced to siphon off $119m to service its twelve times larger Debt. That means that only [$871.2m-$119m] $752.2m will be left for spending on us lot. That is $113.2m LESS than in 2006/07.

To be clear, that’s $113.2m LESS than what Government actually had left over for spending seven years ago in 2006/07.

At this point I dived under my bed, clapped my hands over my eyes, and intoned the mantra: “There are no ghosts… There are no ghosts… There are no ghosts…”

But numbers are not ghosts. Numbers are just numbers. And numbers are rigidly absolute.

In 2013/14, Government has $113m LESS spending money than it had seven years ago in 2006/07. Seven years later, this lesser amount of spending money is supposed to pay for a Government workforce that is 20 percent bigger than it was in 2006/07; whose basic rate of pay is 10 percent higher than in 2006/07; and, as the Consumer Price Index reminds us, costs and prices are now seven years higher – “…the basket of goods and services that cost $100.00 in April 2006 now cost $122.00”.

In 2006, Government had $865.4m to buy the 2006 “basket”. In 2013, Government would need $1,055.8m to buy an equivalent 2013 “basket”. However, in 2013, Government only has $752.2m. With this $752.2m, Government is actually trying to pay for a “basket” that is bigger than in 2006. That’s the same as you – or me - offering only $752.20 to pay a bill that is $1,055.80 – and expecting extras as well!

Plainly, simply, accurately, and honestly, I’ve described Bermuda’s national financial problem. You can see that Government is trying to achieve something that is mathematically impossible.

Without consistent massive and rapid increases in overall tax revenue from an upward surging GDP, Bermuda’s nasty national money mess will require far more cutbacks than the piddling 4.6% and $30m maximum so far offered. Even if SAGE makes recommendations that might save an additional $75m-$90m, that will still not be enough. Therefore, more and deeper cuts are inevitable.

In aggregate, about $300m in spending cuts are required. Without rapid GDP and consequential Government revenue growth, these spending cuts must soon and ultimately be made. When will the Finance Minister finally begin making real cuts?

The numbers are not changing and time is running out.