Column: Listen, Look, Calculate, 2015 Budget

[Opinion column written by Larry Burchall]

When the Finance Minister delivers the 2015/16 Budget Statement, there are really just three key things to listen and look for.

Where has he put the KEMH payments? Does he acknowledge Nanci as a major problem? What is his assessment of GDP in 2014 and his GDP projection for 2015 and beyond?

Everything else will be political piffle and waffle.

KEMH payments

For the new wing at KEMH, on December 1st, 2010, the previous administration signed an agreement that bound Government to make “…annual service payments … for a period of thirty years, consisting of principal, interest, construction, lifecycle and hard facilities maintenance.”[Fin Stmnts of the Consolidated Fund for YE 31 Mar 2011, p.23] This agreement included provisions for the indexing of payments to allow for cost of living and other adjustments. In short, the provision allowed for some future increases in those payments.

This annual payment becomes a Non Negotiable Cost [NNC] because once the first payment details have been hammered out, the 28 or 29 annual payments remaining will be NNC payments.

In November 2012, then Minister for Health Zane DeSilva suggested that the ongoing cost would be about $27m annually. In late 2014, Minister for W&E Patricia Gordon-Pamplin suggested $30m a year.

Strictly and correctly, this new cost does not become part of the ‘National Debt’ that is secured by the Notes and Bonds held by foreign lenders. Correctly, Minister Richards does not have to include this new annual payment as part of the ‘national debt package’.

However, this KEMH annual payment is an annual fixed payment, therefore an NNC. It therefore joins and expands the Nanci obligations and payment schedule. This new NNC takes Nanci from 2015/16’s anticipated $166 million to $196 million.

Expect Bob to actually tuck this KEMH NNC somewhere inside some Hospital ‘vote’ inside the Health Ministry funding.

Wherever he tucks it, Nanci will now become: Interest on Debt + Sinking Fund Contributions + KEMH payments. This new Nanci triad now consists of:

Interest on Debt – This is set by the terms included in the detail of the bonds and notes issued to foreign lenders. It is Non Negotiable thereafter.

Sinking Fund Contribution – Set in 1978 by the Bermuda legislature at 2.5% and intended to fund a payment system that would pay off Debt in 20 years. [The 2.5% is now far too low to do that. Given the $2.2bn Debt currently outstanding, the 2.5% should now be around 4.5%.] Too low or not, it is a Non Negotiable.

KEMH PPP Payments – Annual payments made according to the contract drawn up in December 2010 and which is binding for the 30 year life of the contract. These are Non Negotiable.

In the best public interest, all these costs should be highlighted in the overall Budget Statement. Not concealed, secreted, or tucked away inside pages and pages of political piffle and woolly waffle.

So look and listen for how the Minister handles these three items: Interest on Debt + Sinking Fund Contribution + KEMH annual payments = NANCI. Look. Listen.

Expect Nanci to be something between $194m and $199m [$112m on Debt + $55m on SF + $30m on KEMH]

Nanci Payments

Nanci’s size must always be related to Government Revenue. That is the key comparison.

If Nanci rolls in at $195m with $930m projected revenue for 2015/16, then Nanci will be about 21% of Revenue. If so, that is higher than in 2014/15. That is not good. But it is what it is.

Look for Nanci and projected Revenue.

Nanci Question:- Does the Minister acknowledge that Nanci is a massive problem, or does he sneak around it?

GDP

Given that Government spending has been in ‘austerity’ mode since 2009, and given that this ‘austerity’ spending has acted and is still acting as a drag on growth in GDP; what kind of GDP did the Minister see in 2014 and what GDP growth is he hoping for in 2015?

Is the Minister being realistic about GDP growth? Or is he floating on a flying carpet of deliriously splendiferous assumptions?

We’ll probably have to listen through hours of political piffle and woolly waffle to get all three key answers. But they’ll be in there. Just have to dig them out.

So look for these three things:

• Size of KEMH Payments.
• Nanci’s overall size [but you will have to calculate its relationship to Revenue].
• GDP now and projected.

Listen, look, calculate.

By the way, this will be yet another – the thirteenth – consecutive deficit Budget. That is, Government will, for the thirteenth year in a row tell us that Government intends to spend more than it collects in Revenue.

Last Budget, Government projected a 2015/16 deficit around $180 million. What size deficit is Government projecting now? Up or down?

- Larry Burchall

-

#LarryBurchallColumns #OpinionColumns

Category: All, Business