Vexed Bermoothes

Now that the Minister of Finance has broached the inevitability that Bermuda’s Gross Domestic Product (GDP) will need to be lowered again for 2008 and 2009, the corresponding point is that Government must rein in its spending immediately.   Yes, it will be difficult.

It also raises questions about the wisdom of Government’s move to increase Bermuda’s net debt by 42 percent (nearly $200 million) this financial year, according to this year’s Budget Statement.  And over the next year it is projected to rise by another 37 percent, reaching $387.3 million by next spring.

At the time, Minister Cox said that, when measured as a percentage of GDP, the new borrowings were not excessive and were an example of good fiscal management yadda yadda.  It’s time to take another look at that.

The truth is that Government expenditures have ballooned under the PLP – by a half billion dollars a year – and I am not sure the Bermudian population will agree they have gotten value for money when faced with the cold facts.

Chart: Bermuda Government annual expenditures, 1999-2008.

In part, Government has been able to get away with it because of the island’s booming economy, which has lead to substantial unexpected revenue for the Government. Indeed, the media reports that Government underestimated its revenue by a combined $240 million or so over the past six years (the UBP says that number is actually closer to $320 million).  The “free money” was quickly spent on running costs (such as salaries … not on capital costs like the new promised stadium, hospital and medical clinics, causeway, schools etc.)  Given the storm clouds facing our international business customers, that padding is unlikely to reappear.

In short, Government has interpreted our short-term boom as a lasting economic state.  If there is a  contraction, who will pay for our public bloat and how?

Every business and most households in Bermuda are taking a look at their expenditures.  It’s time for Government to do the same.