A tale of cash-sucking Vampires …

This is not the first time in modern history that Bermuda has been in a serious recession. But this time, it’s different. According to the 1994 “Commission on Competiveness”, the previous recession began in 1989/90 with GDP at $520.6 million. This recession bottomed out in 1992/93 when GDP hit its low of $485.5 million. A clear decline of 6.7% in three years. [In 1994, the Report writers took GDP as:  “In constant dollars after adjustments for inflation”.]

In 1993/94, economy activity revived. GDP rocketed up to $511.5m. This one year 5% bounce-back almost wiped out the three year loss. From 1993/94, Bermuda’s GDP continued rising.  

GDP hit $6.11bn in 2008. In 2009, GDP fell. In 2013/14, the Minister for Finance, Civil Service mandarins, and private sector gurus, expect GDP to settle around $5.4bn. That makes an 11.6% decline since 2008. It also means a decline that has now lasted for five years.

So this time is different. Almost twice as long. Heading for twice as deep. But something else is different too.

In 1992/93 Bermuda had an economy that was as smooth as a baby’s bottom. In 2013/14, Bermuda has an economy like a stubbly unshaven chin. The sidebar (*) lays out the stark differences between the Bermuda Government’s impact on Bermuda’s economy.

From 1993/94 to 2003/04, the record of sustained growth shows that Government’s impact on Bermuda’s national economy was continuously positive, progressive, and benign.

But this time it’s different. This time, in 2013/14 and particularly since 2007/08, Government’s impact on Bermuda’s economy has been continuously negative, regressive, and malignant.

In 2004/05, there was a subtle change in Government’s management of Bermuda’s financial affairs. In 2007/08, a congruence of three things showed that – as Warren Buffet puts it – the Bermuda Government had been swimming naked. Not only that, Government had been swimming naked for at least three years. Since 2004.

The three things that converged were: (1) the beginning of a loss of residential population [ResPop]. (2) The great global credit crisis precipitated by the US Subprime fiasco. (3) The Bermuda Government increasingly unbalancing Bermuda’s national finances and the national economy by siphoning off a steadily growing proportion of its tax dollars to service high and growing Public Debt. 

Of these three things, only one has ‘corrected’. Powered by a variety of factors, most of the other 199 countries on the globe are pulling themselves out of the ‘great global’ recession. But Bermuda is still losing ResPop, and Bermuda’s Debt Service costs are set to rise even higher.

The sidebar shows that in 1992/93, at the bottom of that recession, Bermuda had Public Debt at 16% of Revenue. Then, $99.52 of every dollar of Government’s tax revenue was re-spent in Bermuda on Personnel Costs and Operations and Services.

Now, in 2013/14, Public Debt stands at 272% of Revenue. Out of every $100 of tax revenue, the first thing that Government does – and that Government is forced to do – is to send $13.92 out of Bermuda as an Interest payment on its $2,374,000,000 Public Debt. Government then spends the remaining $86.08 in Bermuda on Personnel Costs and Operations and Services. Today’s Government dollar is a devalued dollar.

In this second recession [2009 – 2013], Government’s style of financial management is helping to prolong the recession.

Government is behaving like a horde of blood-sucking vampire that has dug its vampire fangs into the sweet posteriors – gluteus maximii - of all of us lot. This horde of Government vampires is sucking madly. This vampire horde is sucking out real hard cash that must first be earned by the private sector. Government is sucking this cash out of the economy at the rate of $14 out of every $100 dollars taken in tax revenue. Government is then bundling it and shoveling that cash overseas at the rate of $332,000 every 24 hours.

It is this cash-sucking vampire action that makes this recession different. It is this cash-sucking action that means that unusual steps will have to be taken to bring Bermuda out of its now five year long recession [2009 – 2013].

Having heard an unexpectedly short House of Assembly debate on SAGE with only eight MPs speaking to SAGE’s facts and reality; knowing that the Financial Secretary, the Head of the Department of Statistics, and the Registrar General are all officially providing useless data about ResPop; and knowing that key Government Ministers and an Independent MP (**) believe that they are being given bad data; the only conclusion that I can draw, is that from Cabinet through top Civil Service to grassroots, within the OBA, the PLP, and the top of the Civil Service, there is a deep well of ignorance.

This civilian ignorance was exposed in the SAGE non-debate. It is confirmed by PLP MP Walton Brown’s blindly dogged insistence that, since 2008, Bermuda has NOT suffered a ResPop loss. And it is ultra-confirmed by the BTUC public stance that SAGE is all about ‘union-busting’.

It’s as if nobody sees the vampire. Yet everybody – no one excepted - agrees that they feel the bite and the suck.

It’s as if we’re all characters in an Edgar Allan Poe story – isn’t it?      

 

(*)

 

THE STRATEGIC DIFFERENCES IN NATIONAL FINANCIAL MANAGEMENT - 1992/93 AND 2013/14
Year 1992/93 2013/14
Revenue as reported by Ministry of Finance  $350,832,000  $871,200,000
Gross Public Dept as reported by the Ministry of Finance [Guarantees excluded]  $57,000,000  $2,374,000,000
Total Debt Service Cost [Interest only] (Note:- No SF payments in 1992/93 or in 2013/14)  $1,700,000  $121,311,400
Of every $100 of Revenue, this has to be used - as first priority - to cover Debt Service  $0.48  $13.92
Of every $100 of Revenue, this is what was left for spending in Bermuda on Bermudians  $99.52  $86.08

(**) OBA - Minister for Finance Bob Richards; Minister for Economic Development Dr Grant Richards; Premier Craig Cannonier. Independent - MP Terry Lister. Could add the Governor when he made the Throne Speech; but he was only regurgitating what was written for him by top Civil Servants.