Our Budget time bomb is ticking

This 2014/15 Budget Statement conceals a time bomb. Budget analysis uncovers the bomb. The Budget starts the bomb’s fuse. 

Begin with Finance Minister Bob Richards’ $800m borrow — we all know about that because he told us that he was going to borrow $800m, and he said it was to hold him for three years.

On page 26 of the 2014/15 Budget Statement, Bob tells us that in 2013/14 he will use $333 million of that $800 million.  On page 27 Bob tells us that the planned 2014/15 deficit will be $267 million. Recognize that both amounts must come out of that $800 million.

Add: $333m deficit for 2013/14 + $267 deficit for 2014/15 = $600 million. So by March 31, 2015, there should only be $200 million left out of that $800 million.

On page 24 of the 2014/15 Budget Statement, Bob tells us that by July 2014 he will repay a total of $120 million in Senior Notes. This, also, will come out of the $800 million. 

Add: $600m in deficits + $120m in paid off Notes = $720 million used up by 31st March 2015.

Now subtract: $800m borrowed - $720m paid out or used up = $80 million left over by March 31, 2015.

So on April 1, 2015, at the start of FY 2015/16, Bob will have only $80 million of borrowed funds left over to cover any deficit in FY 2015/16 and beyond.

Look at the chart. Know that all the figures for Revenue, Spending, and Deficit are from the 2014/15 Budget Statement. See the deficits for 2013/14 (actual), 2014/15 (planned), and 2015/16 (also planned).

This Budget Statement projects a 2015/16 deficit around $181 million. However, your arithmetic shows that there will only be $80 million left over to cover that deficit. So, in 2015/16, on the Revenue and Spending patterns that are projected, Bob will be short by at least $100 million. 

$100 million

Bob’s $1,110 million planned spending in 2015/16 is made up of $929 million Revenue + $181 million Borrowed = $1,110 million. But for 2015/16, Bob can only actually spend $1,010 million, because Bob will be short by at least $100 million. 

A rough picture of what happens is: From 1st April 2015 to late-February 2016, Bob will spend $1,010 million. This is $100 million less than his total planned spending. So between late-February 2016 and 31st March 2016, there will be no money left to spend. Zero!

Looked at another way, currently, Bob’s planned monthly spending looks like this: $929m Revenue + $181m borrowed = $92.5m available for spending each month. This is made up of $77.5m Revenue and $15m borrowed. Year total = $1,110m

But Bob will be at least $100m short on borrowed funds. So the monthly spending pattern has to change to this: $929m Revenue + $80m borrowed = $84.1m available for spending each month, made up of $77.5m Revenue and $6.6m borrowed. Year total = $1,009 million.

Can that late-February cash run-out be avoided? Can a further $100 million spending reduction be avoided? 

Yup! How?  By achieving at least a $100 million increase in actual Government revenue by and for FY 2015/16. 

Greece/Barbados

Don’t believe me? Look at the numbers again. Review the two additions and one subtraction again. See if the numbers change. If they do, then I am wrong. But if the numbers are unchanged?

Mid-afternoon on Friday, February 21, 2014, I wrote: … No matter who wins a next election, the universal arithmetic of debt forces the same quality and style of control of spending. The alternative is an economic implosion as in Barbados… Jamaica… Greece… etc…

What happened in Barbados? In 2013, shortly after borrowing a large tranche of money, Barbados went back to the money markets to borrow $500 million. But “there was a lack of interest on the part of investors”. Barbados withdrew its bond offering and instituted severe cutbacks. Barbados’ cutbacks began with the December 2013 pre-Christmas announcement of the terminating or laying-off of 3,000 Government of Barbados workers.

Politicians or senior civil servants cannot change the law of numbers. This is the last week in February 2014. February 2016 is just two years away. The Debt bomb’s fuse is ticking.

The Fix? Increase GDP by at least $600m by 2016. How? Increase ResPop. 

Or, between now and March 2016, Government must scrape every last penny out of the Sinking Fund, as well as privatize and sell-off to get a one-time cash injection of $100m — or more. Then what?

…tick…tick…tick…