The elephant in the Bermuda Triangle

In this fourth part, it becomes clear that Bermuda has a simple but massive Bermuda Triangle problem. Here is the problem and the fix.

Triangle base —ResPop

The base problem? Bermuda’s Resident Population (ResPop) has fallen. Because ResPop has fallen, consumer demand has fallen. Because consumer demand has fallen, the economy has declined. 

Because the economy has shrunk, fewer jobs need to be filled. With fewer jobs filled, there is greater unemployment. With greater unemployment there is less money about. With less money about there is less demand from all consumers… and the downward spiral continues.

These nine facts verify and confirm that between 2008 and 2012, ResPop has declined. Each fact shows rises in consumer demand up to 2008 followed by falls in consumer demand that commenced in 2009:

• GDP peaked at $6.1bn in 2008.  Been falling ever since. GDP is now at $5.4bn, back to where it was seven years ago in 2006.

• Total tonnage imported in containers rose then fell. Now back to levels last seen in 2001.

• Belco power sales rose then fell. Now back down to levels below that of 2005.

• HM Customs reports that the value of goods imported rose then fell. Now lower than in 2005.

• Number of jobs filled rose to 40,213 in 2008. Fell by 4,770 to 35,443 in 2012. Expected to be lower in 2013 and about the same as filled jobs in 1998.  [Figures are from the annual and consistent Employment Briefs 1980 – 2012.]

• The number of cars registered to households rose then fell below the level last seen in 2005.

• The number of motorcycles registered at TCD rose then fell.

• Total retail sales rose then fell.

• Demand for residential housing rose then fell. There are 77 units for sale at Grand Atlantic in Warwick.

Triangle left side — Tax extraction

Since the 1960’s, Government’s tax extraction has ranged between 15 per cent to 17 per cent of GDP. Taxing significantly higher than 17 per cent will result in economic growth slowing because of over-taxing. This actually happened in 2010/11 when Government sought to suddenly jump from taking 15.8 per cent of GDP and tried extracting 18.4 per cent of GDP in taxes. That huge [10 per cent] one-time spike in attempted tax extraction had the predicted and expected negative impact on Bermuda’s economy. The economy tanked.

In this still falling 2014 economy, Government is sensibly limited to extracting not more than 17 per cent in taxes. In fact, conventional wisdom holds that in a declining economy, Government should decrease the percentage of taxes extracted. But with the pressing priority need to first feed the cash-eating Elephant, this Government cannot possibly lower its rate of tax extraction.

This basic numeric fact means that as long as GDP stays under $6,000,000,000 [$6.0bn], Government tax extraction will stay under $1,000,000,000 [$1.0bn]. In 2013, GDP was at $5.4bn. In 2014, GDP is unlikely to grow more than two per cent and exceed $5.5bn.

With GDP stuck between $5.4bn to $5.5bn, for all practical purposes, Government Revenue is stuck around $900m.

Triangle right side – The Elephant.

That takes us to the Triangle’s third and final side. With Government revenue stuck around $900m, Government’s spending pattern still soars well over $1,000m. 

It looks like this:  $149m priority feeding for the Elephant + $550m for total personnel costs + $500m for total operations. That’s $1,199m. This is $300m more than the $900m in taxes that Government can expect or hope to extract.

Of the three components, only personnel and operations can be cut. The Elephant must always get its $149m — and get it before anybody else.

Government can only ever extract $1.2bn in taxes if GDP rises to $7.2bn — OR — if this Government behaves really stupidly and tries to extract 21 per cent to 22 per cent in taxes from GDP that is hovering between $5.4bn - $5.5bn. 

Doing that would mean creating an even more disastrous result that the same incredibly stupid Government tax increase action created in 2010/11.

So GDP must grow. While GDP is growing, Government must keep its total expenses below the level where Government is forced to borrow and thus make the Elephant grow bigger.

So the third side of the Triangle is that Government’s costs are too high relative to Government’s ability to extract taxes.

The Solution?

Grow ResPop by increasing the number of Business Residents; thus increasing consumer demand; thus increasing GDP; thus increasing Government’s ability to extract at least $1.2bn in taxes.

For now, inside our 13,000 acre Bermuda triangle, Bermuda’s economy and social infrastructure is being trampled on and mashed up by the Elephant that is the illegitimate offspring of the previous administration.

For Bermuda, growing ResPop is the only viable solution. There is no other.