It’s almost bullet time.
On Friday, Finance Minister Bob Richards will announce the
first real Budget that this still-new Government has produced.
Minister ‘Bob’ will use a couple of thousand words to tell
us that he will cut spending and Bob may introduce a “three-year Budget”.
Despite the Budget’s spin, noise, and twists, you really
only need four numbers. Once you’ve got those four, you can ignore the
political clap-trap and see fact and truth.
First number —
Revenue
This is an absolute number. No add-ons, takeaways, or
adjustments. It’s critically important that you get this number and compare it
to prior years. Here are the figures for
prior years:
• 2011/12 — Revenue forecast was $940m. Actual (real)
revenue was $914.2m.
• 2012/13 — Revenue forecast was $909.6m. Actual (real)
revenue said to be $877m (*).
• 2013/14 — Revenue forecast was $871.2m. Actual (real)
revenue said to be $???m.
• 2014/15 — Revenue forecast is $???m. Projected revenue
will likely be $???m.
Look at the Revenue trend. See the reality. Consider GDP and
the viability of Bob’s revenue projection for 2014/15.
Second number — Total
Planned Expenditure
Do NOT strangle yourself with the text book stuff about
Capital and Current.
For laymen, the ultimate difference is as important as
between manure and excrement. Get the two numbers. Add them together. You get
Total Planned Expenditure.
In 2014/15, there will be no payments to the Sinking
Fund. But Total Planned Expenditure
includes Total Debt Service Costs. For 2014/15, Total Debt Service Costs must
include:
• Interest on the $2,374 million [$2.374bn] Public Debt that
Government has in known Bank Overdrafts
and Senior Notes.
• [MUST also include] the annual carrying cost that, in
2010, was agreed to be paid when the KEMHPPP (public private partnership) was
handed over to Government. This should be around $27m. You must look for this
number. If the Budget is presented with the clarity and honesty that I hope it
is, this number should not be shrouded in gobbledegook.
Take Revenue and subtract Total Planned Expenditure. This
produces the third number.
Third number —
The Planned Overspend.
Government Accountants dislike the word Overspend. But that
is the most honest description of what actually happens.
The difference between Revenue and Total Planned Expenditure
is the Overspend — if the number is negative. (If positive it is an
Underspend!) Past Overspends look like this:
• 2011/12 — Revenue $914.2m – Expenditure $1,142.9m = actual
Overspend of -$228.7m.
• 2012/13(*) — Revenue $877m — Expenditure $1,119.0m = estimated Overspend of -$242m.
• 2013/14 — Revenue $871m (estimated) — (planned) Expenditure
$1,202m = Planned Overspend of -$331m.
• 2014/15 — Revenue $???m – Planned Expenditure $????m = Overspend of $???m.
Finally — the
“Bullet”
The “Bullet” is the difference between the NET Total Planned
Expenditure of 2013/14 (last year’s Budget) and the NET Total Planned
Expenditure of 2014/15 (this year’s Budget). This number tells you the real
truth about how much Bob is actually “cutting” spending on Personnel,
Operations, and Services.
2013/14’s Total Planned Expenditure was $1,202m. But about
$125m had to be used to feed the Elephant.
So only a part reached Bermudians. Roughly, this is what was
supposed to happen with that spending. The final audited accounts for 2013/14
will show us what actually happened:
• Total Planned Expenditure [Personnel/Operations/Services/Debt]
$1,202m.
• Less Total Debt Service Costs (Interest only) for 2013/14: $125m Government’s NET Spending in Bermuda
for all of 2013/14 $1,077m.
With a ten per cent spending cut, “Bob’s” numbers for
2014/15 might work out like this:
• Total Planned Expenditure
[Personnel/Operations/Services/Debt] (ten per cent cut?) $1,082m (?).
• Less Total Debt Service Costs (Interest only) for 2014/15:
$149m Government’s NET Spending in Bermuda for all of 2014/15 $933m
Once you’ve done those two subtractions, one more
calculation reveals the “Bullet” — the “Net Spending” on Personnel, Operations,
Services.
Comparing the two sets of number shows you how deep the cuts
really are. This will help you understand what can happen to you (and your
household and friends and business and job …) in the next year.
Here’s the calculation (you will need to insert the real
numbers for 2014/15):
• 2013/14 - Government’s NET Spending in Bermuda for all of
2013/14 $1,077m
• 2014/15 - Government’s NET Spending in Bermuda for all of
2014/15 $ 933m
Real cut in spending on Personnel/Operations/Services – The
“Bullet” $144m
[That Elephant is greedy. At a real 13.3 per cent, the NET
cut shown is much bigger than the ‘official’ 10 per cent cut. The full impact
of Bob’s ‘official’ cut will be larger than anticipated.]
This Middle School stuff cuts through the spin and excrement
that accompanies every annual Budget.
It shoots straight to the truth. If the Budget is a ‘three
year Budget’, you simply do the same Middle School arithmetic for each year.
If you have learned anything at all since April 2004, it
should be that you cannot and must not place implicit faith in all Government
numbers and statements. So sharpen your pencils, clear your ears, charge your
calculators. Ready or not, that “Bullet” is coming. n
[* Note: On February
10, 2014, the Financial Statements for the Consolidated Fund for YE March 31,
2013, had still not been ‘signed-off’. This is the latest ever ‘sign-off’. It
is four months after the September 30, 2013 audit completion deadline, and ten
months after year-end. Where I have not inserted numbers, it is because those
Budget numbers are not yet known.]