Opinion Column: Paycuts are Coming

December 14, 2010

[Written by Larry Burchall] If, as promised, the Minister for Finance cuts $150,000,000 from next year’s Budget, the Minister will be slashing some Government services and operations, as well as cutting Civil Service and BIU employee pay. Or the Minister may try an accounting sleight-of-hand and say that only ‘capital spending’ will be cut.

Out of a total 2010/11 spending Budget of $1,202,000,000, about $497,000,000 is earmarked as pay for non-Quango Government workers. That leaves about $705,000,000 for Government operations and services and capital spending. Cutting $150,000,000 from $705,000,000 means cutting 21 percent – or 21c out of every $1.

A 21 percent slash in funding can hit every service and operation. But with guns going off, services like Police and Prisons won’t get slashed 21 percent. With the need to revive Tourism, spending on Tourism might even go up. So cutting 21 percent off services and operations will be selective. But if the cut is confined to just services and operations, what will newly under-employed Civil Servants and BIU employees do?

The Minister must, in fact, cut Civil Service salaries and BIU employees pay as well as cut services and operations.

For 2011/12, the Minister will not cut employees. Just for this first round, no person employed as a Civil Servant or BIU worker is likely to lose their ‘government job’. But their agreed hours of work will be cut.

Civil Servants will likely have their 35 hour workweek cut to a 30 hour workweek – equivalent to a 14 percent pay cut. BIU workers will get the same 14 percent cut and drop to a 32 hour workweek from their current 37.5 hour workweek. Existing overtime bans will continue and will have to be rigorously enforced.

Cuts like this will result in an overall 15 percent saving in Government’s pay budget. That works out to an annual saving of about $75,000,000 in one year.

With a 15 percent pay cut saving $75,000,000 a year, services and operations need only be cut by $75,000,000 a year – that’s about an 11 percent cut. Combined, the two cuts save $150,000,000 a year – which is the target figure that the Minister has announced.

Pay cuts rather than letting people go will be preferred. That way Government people stay employed. Keeping Government people employed will be preferable to kicking out some 800 – 900 Government employees and shoving them into Bermuda’s still shrinking private sector job market. Besides, all 800 – 900 can vote.

So next year, in the 2011/12 Budget, the Minister will begin acknowledging and paying for past Ministerial mistakes. The Minister will announce at least $150,000,000 cuts in Civil Service and BIU pay and in Government services and operations.

However, there is something else. That $150,000,000 in Budget cuts is not enough to create the financial conditions that will allow Debt Service costs to stop increasing and thereby eroding the spending power of every Government dollar. That is why a mere cut in ‘capital spending’ will not and cannot work.

For real results, the Minister must cut much more than $150,000,000. The biggest mistake of the past was rapidly and successively spending far more than came in as revenue. That rapid accumulation of past mistakes has to be corrected and cannot be put right with just the one $150 million cut currently planned. Nor with just one budget cut in just one year.

Government revenue will be down at least nine percent in 2010. It is on target to be around $90 – $100 million short. This means that there should have been big spending cutbacks in 2010. This is not happening. So even bigger cuts – much, much, bigger than $150,000,000 – will have to be made in 2011 and beyond; or, the Minister must go borrowing and thus push annual Debt Service costs well over the $100 million a year mark.

Race and personal politics has nothing to do with any of this. This is all about the arithmetic of Income, Spending, Debt, and the continually rising cost of servicing Debt.

Pay cuts are coming. Service reductions are coming. That proposed $150,000,000 will not be enough. The consequences of seven years of overspending will prove costly to correct. Bermuda’s rough ride is only just beginning.

Primary resolution lies in getting International Business’s Bermuda footprint to stop shrinking and start re-expanding.

Secondary answer? Get Tourism AIR ARRIVALS back up above the 350,000 level and national TOURIST INCOME back above $500,000,000 a year.

However, neither of these two basic solutions is completely within the control of Government.

What is completely within the control of Government is Government spending. Government must drive its own spending DOWN until Government spending matches Government revenue and Debt Service costs stop rising. This must happen even while Government re-invests in re-growing Tourism and investing in re-expanding International Business’s footprint in Bermuda. There are no other practical real-life answers.

However, for those who – childlike – still believe in magic, a private sector or government entrepreneurial magician can magically appear, magically create a big new foreign exchange earning business that employs people, operates out of Bermuda, and will magically generate at least $500 million a year in new foreign exchange earnings! And all this will happen tomorrow!

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Comments (18)

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  1. Yng Black Mind says:

    It must be Christmas – - – I am actually agreeing with Mr. Burchall for once – - I believe his article makes a valid point about the country’s financial situation – - those cuts, as well as cutting spending is the only way to deal with the debt of Bermuda – - wow.

  2. 2011 says:

    Will the bank cut my interest rate and mortgage payment when I tell them that my hours have been cut and I can’t make the payment sum?

    • The truth shall set you free says:

      Nope. Remember to thank the party that overspent our money and created this wonderful mess when the next election rolls around.

      • Peace and Love says:

        @ 2011 unfortunately the answer to your question is ‘No’ The bank is still going to want their money!!!! Even if you have to sell your “a–” to get it!!

        At one point if you were going to be late or couldn’t make your payment you were allowed ‘the one months grace’ this service is no longer available as the Bank says “people were taking advantage” of it! So I can only imagine what it is like now..

  3. Bottom Line says:

    Very good article. The Premier however will call an election before embarking on these cost saving measures.

  4. 32n64w says:

    This is the same Premier who, while Minister of Finance, touted “zero based budgeting” and across the board reductions of 10% …. neither of which happened under her tenure. In fact, expenditures so outpaced income that we are now inxs of $1 billion in the hole (and that doesn’t even begin to take into consideration the pension funding shortfalls and other statutory obligations which more than double our indebtedness).

    Dr. Brown inherited a strong balance sheet (which in turn was built on a solid economic foundation 35 years in the making) only to destroy it for future generations through vainglorious flights of personal fancy and folly. How many new hotels opened during his tenure and how many beds were lost in the last 12 years. On a net net basis tourism has imploded thanks to the PLP and their inability to properly manage the public purse. How very sad.

  5. The truth shall set you free says:

    If civil service paycuts are coming, does this mean the MP’s will get into the trenches with the common man and cut their own salaries? Which is something politicians in the Cayman islands voted to do to alleviate the taxpayer.

    Not on your life.

  6. Ahead of his time... says:

    Nearly 30 years ago , Sir Jack Sharpe said ‘Bermuda can’t afford a PLP government’

    Looks like he was right .

  7. Sara says:

    We ain’t seen nothing yet, people still in the clouds. The recession will not be over for a least two to three years. If ANYONE tells you different, they are straight up lying. Run just run.

  8. Truth is killin' me says:

    Either tell em’ to cut their spending or you’ll see jobless and homeless people in the streets shouting “OFF WITH THEIR HEADS!” even if it is a PLP Government. You can bullsh$t people some of the time etc…but when people lose their jobs and houses and have nothing left to live for…it don’t matter what color you are!!!

    • UncleElvis says:

      Sadly, I don’t believe this is true.

      Ramp up the racial rhetoric and “They’re all a bunch of slave owners” and “OFF WITH THEIR HEADS!” becomes “PLP ALL THE WAY, ALL THE WAY PLP”…

      Happens every time.

  9. itwasn't me says:

    anybody want 2 by a condo?

    • Sara says:

      No, but LETS BUILD MORE ANYWAY!!!!

      • itwasn't me says:

        yep, that’s what killing me. I can’t sell mine cuz the market is being sucked up by my competitor….GOVERNMENT AND LOPES

        • Sara says:

          You got it, knowing is half the battle. And here the other day, the guy said the prices of houses and condos have gone up this year? How is that possible?

  10. Dragging A Lure says:

    Why don’t you guys hurry up and become a senior.

    • Sara says:

      You are like the other on here that speaks in riddles and doesn’t make sense most of the time.

      • Dragging A Lure says:

        Sara,
        Pensioners will receive increases in their checks. That not a riddle.You still sleep.