Exclusive: We could go bust in 2016

Bermuda could run out of cash in three years unless Government makes “drastic” changes to its budgeting.

We might have little choice but to cut civil service salaries still further and reduce public services, argues former Accountant General Anthony Richardson.

Today he adds his voice to a growing list of economists issuing dire warnings about our national finances.

The good news is that “we can fix the problem together”, Mr Richardson says, but we must act now to slash spending and increase revenue.

Mr Richardson, who has 20 years’ experience in accounting, has crunched the numbers and spelled out the magnitude of the problem in a guest column in our paper today. “This is not a partisan political problem,” he writes. “It is a Bermuda problem.”

Regular Sun columnist Larry Burchall has for years spearheaded efforts to raise awareness about our spiralling debt — and the crippling costs of servicing it.

Mr Richardson says if Bermuda is forced to borrow more money in 2016, “interest costs will be higher than the current debt and our ability to repay it will become more difficult since debt would be approximate 50 per cent of GDP”.

He says an arbitrary target of 15 per cent reduction in public sector spending is reasonable but it must come from either government salaries, government services or equipment purchases, “since debt payments are fixed and cannot be eliminated”.

Mr Richardson said with 50 per cent of government expenditure going on salaries, a further reduction is needed “over and above the recently negotiated agreement”.

His call to arms comes after Economic Analysis Committee chair Nathan Kowalski, at Monday’s SAGE meeting, said Bermuda is on the “road to bankruptcy” if it doesn’t get the spiralling budget deficits under control. He was quoted in The Royal Gazette. 

Eight US Cities have declared bankruptcy since 2010, with Detroit being the largest with debts of more than $18.5 billion. In some financially strapped cities, like Stockton, California, civil servants are facing losing most of their retirement funds.

Bermuda Sun columnist Bob Stewart last month said Bermuda is in a “debt hell-hole” which is putting government workers’ pensions at risk, and said it was not unthinkable that Bermuda could go bust, just like Detroit.

Further afield, loose parallels can be drawn even with countries like Greece, which is drowning in debt despite two major bailouts. A major problem there is that 40% of the labour force works for the state and public sector firings are unheard of. Here, Government is Bermuda’s biggest employer, providing jobs for 14% of the workforce.

At the KPMG Budget Breakfast in February, Bermuda College economics lecturer Craig Simmons said if Bermuda was forced to raise debt its debt ceiling above $2.5 billion “we will be exposing this economy to some catastrophic risk so for that reason we need to proceed extremely carefully”.

Peter Everson, chair of the Chamber of Commerce’s Economic Division, told the Bermuda Sun yesterday that the difference between Government’s revenue and expenses is 30 per cent: “We have to cut $300 million in expenses or increase revenues by $300 million or do a combination of the two.”

He does not believe Bermuda is teetering on a fiscal cliff but “the current generation is borrowing from the children. It’s a question of consuming today and expecting people to pay back in the future”.

Cordell Riley, a former Government statistician who now runs Profiles in Bermuda, has previously called on for Bermuda to have a balanced budget by 2015.

He told us yesterday: “If we don’t reach that we should at least be well on our way. The spending and borrowing differences in the short run are okay, but they are not sustainable. We have to have a plan to draw down Government expenditure. Revenues are going down so the only way is we have to cut Government expenditure and lower salaries.”

His proposal earlier in the year would have seen a reduction in Government salaries between $30 and $50 million, but Government and the unions settled on a $20 million cut. Mr Riley said: “That just gets us on the playing board because we’re still going to have deficits. We have to rein in spending. Programmes have to be looked at with a fine-tooth comb.”

He suggested that Bermuda might have to look at a different taxation model in order to raise revenue; a capital gains tax or an income tax, for example. 

“We have to have additional revenue coming in,” Mr Riley said, “and you can only get it from those who have it. That’s going to increase inflation, but we don’t have much of a choice.”