Minister Richards gave some preliminary numbers, and said “the state of Government finances is every bit as bad as we had feared it might be when we were on the outside.”
The total revenue raised by the consolidated fund for fiscal 2011/12 was approximately $914.2 million, while current expenses were $1.246 billion.
The all-inclusive results from government operations [both current and capital] for the year ending 2011/12, was a deficit of $343.2 million.
Minister Richards said there will be some changes going forward, saying “more discipline must be enforced” and that “going forward, budget allocations to ministries and departments will be ironclad.”
“Ministries will be required to enhance their monthly reports of their expenditure versus budget allocations so that slippage can be arrested before they become problematic,” said the Minister.
He said while keeping the OBA’s election promise not to lay off civil servants, Government will be commencing discussions with the relevant unions to identify strategies to reduce personnel costs throughout government.
“46.8% of government expenses are related to employee compensation and benefits,” said Mr Richards.
When asked whether pay cuts, salary reductions, and freezes are being considered, Minister Richards said it “is on the table.” When asked whether reduced work weeks are on the table, he said yes.
[Update] 25-minute video of the press conference:
Minister Richards said under the circumstances more borrowing will be required, and noted the debt ceiling will have to be raised.
“This government is committed to changing the trajectory of deficits and debt going forward by implementing the measures just mentioned and others, however, in the meantime we have to keep the government running,” explained Minister Richards.
“We have to pay salaries. We have to provide services. We have to pay bills. The deficit and debt momentum has been building for years without check, and reducing them will take time, much as it takes time to stop a cruising supertanker.”
“I regret to report that under these circumstances further borrowing will be required. Therefore, the legally binding debt ceiling will have to be raised during the upcoming budget session,” he said.
When asked for details on the borrowing, the new Finance Minister said the number has not yet been set – but will be revealed on budget day. When asked, he would not comment on any possible tax increases.
Minister Richards took over the Finance portfolio last month following the One Bermuda Alliance’s victory at the polls.
Minister Richards’ full statement follows below:
Good afternoon everyone,
Thank you for coming.
The OBA Government’s approach to public finance is rooted in traditional values that a person should not live beyond his or her means. We believe our collective and individual success depends on our economic strength and financial independence, and that all decisions should be anchored to these fundamental goals.
We want to ensure the people’s money is managed in ways that deliver important public services while building a secure, sustainable future for all our citizens.
My job as Finance Minister is to help this process, to build and maintain a strong economy that grows opportunities that can help Bermudians pursue their dreams and provide for their families.
This work must proceed in a transparent manner. We cannot succeed without the Bermudian people having the clearest understanding of the challenges we face and the goals we are working to achieve.
To this end, I said late last year that I would report on the true state of government finances if I became Finance Minister – to report, in effect, what we found “under the hood” once we got into office.
We are now nearly a month since the December 17th election and so today I would like to fulfill that pledge by providing a briefing on what we found, “under the hood” and on some of the implications that flow from those findings.
Before doing so, I should point out that the previous government never released the audited financial statements for the year ending March 31, 2012, nor did it release a September 30th mid-year report on government finances. So we have some catching up to do.
To avoid confusing or diminished meanings that sometimes happens when reporting numbers and data, I will limit myself to headline numbers and then focus on some of the initiatives this government will take to manage the situation. More detailed information will be provided to you in a handout at the end of this conference.
The Fiscal Year Ending March 31, 2012
The total revenue raised by the Consolidated Fund for fiscal 2011/12 was approximately $914.2 million, down $82.5 million (8.3%) from the previous year. Revenues were below the original budget estimates by approximately $25.9 million (2.7%) The weakening economy and the rollback of payroll tax rates were the principal reasons for the reduction.
Current expenses for fiscal 2011/12 were $1.246 billion, down 2% on the previous year, a far smaller decrease than the decrease in revenues.
The all-inclusive results from government operations (both current and capital) for the year ending 2011/12, was a deficit of $343.2 million. There are many non – cash expenses included in this figure. If we strip those away, the cash Current Account deficit (on the same basis that is shown in the Budget Book) was $169.9 million.
Capital Expenditures for the year on a cash basis were $51.0 million. Therefore the combined cash based all inclusive deficit for the year ending March 31, 2012 was $220.9 million.
Net Public Debt, which excludes guarantees and is net of the Sinking Fund, increased by $220.9 million to stand at $1.236 billion. This represents a 23.4% increase from fiscal 2010/11.
Whether on a cash basis or an accrual basis the level of deficits mentioned above are not only unsustainable but economically and fiscally imprudent.
2012/13 Mid-Year Review
In the 2012/13 National Budget the revenue target is $909.6 million; current expenditure target including debt service is $1 billion; capital expenditure is $76.1 million; with a borrowing requirement of $172.1 million (equal to the projected deficit).
Revenues for the six months ending September 2012 were $412 million. This is $9 million lower than mid – 2011. Revenues are tracking approximately 4% below budget estimates. The reason for this slippage relates to weakness in the collection of Customs Duty.
Considering the above, the Ministry of Finance estimates that revenue for the current fiscal year on a cash basis will be between $870 and $890 million.
Mid- year Current Expenditures, excluding debt service, are $477.0 million; this is $3 million lower than last fiscal mid-year, but 1.7% above budget.
Mid-year capital expenditures were $28 million, roughly the same as last fiscal mid-year. Total current and capital spending to date, excluding debt service, is $3 million lower than last year’s spend.
On September 30th, 2012, Government total net debt, excluding guarantees, increased by $154.3 million in the first six months of the fiscal year to stand at $1.39 billion.
Looking Forward to 2013/14.
So having “looked under the hood” it is clear that the state of government finances is every bit as bad as we had feared it might be when we were on the outside. The trajectories of deficits and debt we found are simply not sustainable. We cannot continue with debt rising at a rate of 23% per year. We can no longer tolerate the budget busting practices of the past. We cannot continue to use the global economy as an excuse for our own failures to properly manage the public purse.
Major changes have to be made in the way we approach the handling of public money.
- More discipline must be enforced within government insofar as budgets are concerned. Going forward, budget allocations to ministries and departments will be ironclad.
- Ministries will be required to enhance their monthly reports of their expenditure versus budget allocations so that slippage can be arrested before they become problematic.
- Planning for the establishment of the Spending And Government Efficiency (SAGE) Commission is well under way and the members will be announced shortly.
- A Budget Implementation Group (BIG) will be established at the civil service level, headed up by the Financial Secretary, to ensure that members of the civil service are motivated to deliver on the mandates of the budget and the recommendations of the SAGE Commission.
- 46.8% of government expenses are related to employee compensation and benefits. While keeping our promise not to lay off any civil servants, the situation calls for shared sacrifice. Cabinet has led by example by taking a pay cut and we will be commencing discussions with the relevant unions to identify strategies to reduce personnel costs throughout government, including Quangos.
- We will establish a new set of rules, limits and targets that will govern government debt and expenditure.
The inescapable reality is that Bermuda’s present economy cannot carry the government as it is presently structured and sized without implementing crippling tax increases. Your government does not want to go this route. Rather, we will focus our maximum efforts to streamline and deregulate the economy and implement the stimulus measures that we outlined in our Jobs & Economic Turnaround Plan. The immediate need is to grow the economy in ways that increase the amount of job-creating dollars in the economy and therefore revenues to government.
This government is committed to changing the trajectory of deficits and debt going forward by implementing the measures just mentioned and others, however, in the meantime we have to keep the government running. We have to pay salaries. We have to provide services. We have to pay bills. The deficit and debt momentum has been building for years without check, and reducing them will take time, much as it takes time to stop a cruising supertanker.
I regret to report that under these circumstances further borrowing will be required. Therefore, the legally binding debt ceiling will have to be raised during the upcoming budget session. A number has not yet been set, but it will be accompanied by new rules and plans to make it a meaningful ceiling, rather than a meaningless one that is ratcheted up every year.
This, in summary, is the hand we have been dealt and, frankly, I believe it is one of the reasons we were elected – to bring responsible management to the public purse; to get the economy growing again so Bermudians can get back to work, and to put the Island on a stronger financial footing so we can better shape our national destiny.
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