‘Borrowing Is Short-Term Stop-Gap’

February 25, 2012

Former Premier and businessman Sir John Swan and political commentator Larry Burchall released a reply to the 2012/13 Budget released yesterday [Feb.24] by Premier and Finance Minister Paula Cox.

“Government is planning to spend $1,081,700,000 while projecting revenue of $909,634,000. That leaves a shortfall of $172,100,000,” said the statement.

“Borrowing of this kind is a short-term stop-gap. Bermuda’s economy is in substantial contraction. It cannot be sustained. Raising money to service debt is possible but it will have to be repaid at some stage in the future,” said Sir John and Mr Burchall, who also said “Government must bite the bullet and cuts its costs.”

“The only real increases in revenue will come from local pockets via the changed land tax rules and the TCD licencing rules which together make for an extra $6,100,000 from Bermuda’s Seniors,” said the statement.

Sir John said on “a personal note,” he was “glad to see its implementation by Government and will be happy to write my cheque in both instances and make my contribution to the economy.”

Their full statement follows below:

Government is planning to spend $1,081,700,000 while projecting revenue of $909,634,000. That leaves a shortfall of $172,100,000.

The Minister plans to make up the shortfall in 2012/13 and the carried over $60,000,000 shortfall
from 2011/12 by:

  • - Raising money via a local bond issue
  • - Not pay $31,000,000 into the Superannuation Fund
  • - Withdrawing $50,000,000 from the Sinking Fund

The combination of these actions will provide the funds needed to fund the big gap.

The 2012/13 Budget shows that fee income from International Companies is expected to be down again this year. The International Companies fee income acts as a barometer of Bermuda’s economy. In 2010/11 $61,456,000 was earned and $57,731,000 is expected in 2012/13. Since these companies underpin 90% of all economic activity in Bermuda and are the primary generators of jobs and taxes, the decline indicates that Bermuda’s economy is still shrinking. This agrees with the Finance Minister’s projection.

The Budget shows that Payroll Tax and Customs receipts are also not expected to grow. Payroll tax in 2011/12 was $315,000,000 and only $312,000,000 expected in 2012/13. Shipping figures show that cargo volumes into Bermuda in 2011 had declined to the level last seen in 1998, after five consecutive years of decline. With this in mind, Customs Duty receipts in 2012/13 are likely to be below the $200,000,000 projected in this Budget.

The only real increases in revenue will come from local pockets via the changed land tax rules and the TCD licencing rules which together make for an extra $6,100,000 from Bermuda’s Seniors.

Hidden in this Budget Statement is that Debt Service expense in 2012/13 will actually rise to $115,000,000. A portion of the Interest Cost will be paid out of the funds set aside in the Sinking Fund. This means that at the end of 2012/13 the Sinking Fund will have been reduced from $125,000,000 to $95,000,000. We must also take into account that in 2014 $120,000,000 will be due for payment.

Borrowing of this kind is a short-term stop-gap. Bermuda’s economy is in substantial contraction. It cannot be sustained. Raising money to service debt is possible but it will have to be repaid at some stage in the future. Therefore, going forward the options available to Government are:

  • a) Reduce costs
  • b) Raising taxes – This has very clear limitations
  • c) Growing the economy – This appears to be the most viable option

The private sector has already been undergoing income reductions. Government employees must still anticipate a pay cut. Something in the region of a 20% pay cut is still on the cards. Even with all of these changes the budget will still not be balanced and debt will continue to grow.

The mid-term and long-term answer is to grow the economy. The little steps taken now, work permit easing, red/green lines at Customs at L.F. Wade International and ID cards for International Business people, are limited steps in the right direction.

We believe that Government must push energetically to grow the economy by removing historical barriers that do not work. This must be given priority. We also believe that Government must bite the bullet and cuts its costs. The kind of accounting legerdemain currently employed (Sinking Fund withdrawal and Superannuation skip) are not solutions.

On a personal note, as I recommended that Seniors pay land tax and vehicle registration above a particular ARV and class, I am glad to see its implementation by Government and will be happy to write my cheque in both instances and make my contribution to the economy. – Sir John Swan

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Comments (42)

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  1. Maddog says:

    Who are these jokers?

  2. Maddog says:

    The Association of Bermuda International Companies [ABIC] said on Friday [Feb.24] its members SUPPORT GOVERNMENT BUDGET commitment to targeting a reduction in deficit and debt levels over the medium to long term.
    ABIC said it is pleased to see that payroll taxes and their corresponding thresholds will be maintained at last year’s levels with modest fee increases on other items limited to three per cent.
    Acknowledging the difficulties in framing a budget in the current economic climate, George Hutchings, ABIC chairman, did however caution that meaningful deficit and debt reductions could only be achieved with tangible improvements in new revenue sources as well as providing increased certainty to our existing business partners.
    “Given Bermuda’s unique business model and highly mobile customer base, the cost of doing business plays an important role in the ability to generate additional revenue streams and to maintain existing revenue sources from the International Business sector,” he said.
    “ABIC recognises that in the current depressed economy there is a short-term need for a prudent level of stimulus.
    “In addition, we commend the Government on the formation of the Business Development unit of the Ministry of Development and Tourism, with the objective of retaining existing business, and attracting new business to the island.
    “We believe there is an urgent need to formulate and execute substantive strategies which maintain and grow international business, tourism and additional revenue sources.”
    Mr Hutchings concluded: “ABIC is committed to a transparent dialogue with the Government to consult on key international business policies as well as sharing information and data that will help to further develop Bermuda as the welcoming domicile of choice for those companies that are here and those that may be created here in the future.” JOHN SWAN I THOUGHT THEY WANTED TO LEVE BERMUDA, STOP MISLEADING BERMUDIANS .

    • The 411 says:

      Maddog – call yourself MadOstrich – take your head out of the sand. They are leaving Bermuda. Look at the numbers. Read. George Hutchings doth not the industry make.

  3. LaVerne Furbert says:

    Somebody please explain to me this partnership between the “Former Premier and businessman Sir John Swan and political commentator Larry Burchall”. It just doesn’t make sense to me.

    • GMS says:

      It seems to be a pairing of two individuals who care a great deal about Bermuda and are very concerned about its current trajectory, and who are doing their best to illustrate their concerns.

      What more needs to be explained, LaVerne?

    • Please says:

      Please explain the incestuous relationship between the BIU and the Bermuda Government? That doesn’t make sense to me.

    • Fully Qualified says:

      My three cents…

      The key is to get money moving again. Money must move to fund a recovery. With the government unable to spend, you must look to and depend on the private sector. The private sector is owing $5B you say? True, but the key is – the institutions (that hold the private debt) that can turn things around for you in an INSTANT – are the banks. As it is credit and poorly structured instruments that got us all into this mess, it is only the financial system that can get you out of it. The Bermuda banks cannot continue to charge 4-5 points above the 30 year US mortgage rate which is 3.75%. Their spreads have not been touched in all this. HSBC is recording record profits at your expense. While they lay of 8-10 Bermudians every month. They have gotten rid of more than 400 jobs since the somewhat naive PLP government allowed them in. Simple Economics 101. Why is it that a mortgage in the states cost 3.75% and in Bermuda it is north of 7%. Capital is mobile and has no cost of rent, overhead associated with it. More than ever the banks are using USD to fund BMD mortgages. See BMA report. So they are charging you twice what they are paying for it. And you complain about the retailers? You should be directing your complaints at the banks. Remember their interest is NOT Bermuda and the local economy. Their responsibility is to their shareholders so a shrinking Bermuda economy means they can now start to formulate their exit strategy. They can afford to write off a relatively small “loan book” that they have made millions off for years. They have done so in other jurisdictions. HSBC is foreign owned and Butterfield Bank is Canadian and Capital G considers each loan a selection for the family portfolio so won’t / can’t support the local market to any large degree. They are already the single largest property owner in Bermuda? So their prudence re: no 100% mortgages was family risk aversion rather than bank portfolio prudency.

      When the cost of capital comes down, you will have developers / investors interested once again in this market. The risk tied to the cost of development is way too high right now so you won’t have any developers. If you lend money at say 5%, yes you are making less on the loan – but you are helping to re-invigorate the local economy. That has to be the objective over the next 2 years. Invigorate the economy and the ONLY way to do that sustainably is to reduce the cost thus increasing the velocity of money. This is the strategy undertaken by Obama. He called it a bail out. But with government money, debt issuance, the banks were able to write off some loans, re-price existing loans and put the US economy on the recovery track that it is clearly on.

      Be reminded too that as the non performing loans increase at the banks, their credit ratings deteriorate. When that happens, Bermuda’s credit rating deteriorates. And then what happens? The banks pull out. The IB companies pull out (they can’t operate in subpar jurisdictions) and the cost of debt goes through the roof. And overnight, yes overnight, Bermuda turns third world.

      So again – focus on the financial system. Interest rates must come down. The government can’t legislate it but certainly collective pressure must be directed to make the rates come down. This will be a lot more difficult for still inflated Butterfield but this is key. A reduction by 2 points for the household holding a $1M mortgage translates to a reduction in monthly payment by $1400. She in turn can spend that money at the restaurants, retailers….She can reduce the rent on her 1 bedroom apartment….She can get her hair done at the beauty shop…buy a new airconditioning system….She can update her vacation home or guest house…The multiplier effect on a population of this size would be significant and immediate.

      I welcome your comments at praxislimited@live.com.

    • Common Sense says:


      Happy to oblige. Sir John Swan is without doubt the most experienced politician/businessman alive in our country and he knows of what he speaks. Larry Burchall has been a member of the Progressive Labour Party so one might argue that he has nothing in common with Sir John Swan – but he does. They are both highly intelligent people who have joined forces out of love for their country and they are trying to inject some common sense into the economic mess we find ourselves in.

      To be honest, I think most of the rest of us would be greatly relieved if our Government would seek out the advice and counsel of the best minds on the Island, including Sir John and Larry Burchall, and seek some kind of collaborative approach to solving our dire economic problems.

      Sadly, we all know that that ain’t going to happen. Our Government will continue to dig a deeper and deeper hole, and then blame the Bob Richards of this world for being unpatriotic! The people might even turf out the Government and elect the OBA at the next General Election, but then the OBA will be blamed for the economic chaos, just as President Obama is being blamed for America’s economic morass – a problem he inherited from George W. Bush, with spades!

      • LaVerne Furbert says:

        Larry Burchall has never been a member of the Progressive Labour Party.

        I still don’t understand why they have to write as a couple. As I said, it makes no sense to me.

        While I applaud Sir John’s business acumen, and I have done so publicly on more than one occasion, I still don’t understand why he can’t speak for himself.

        • Please says:

          Larry offered himself as a candidate in the 1997 election. FACT. But he was not selected by the candidates committee for whatever reason. He did not have to be a member of the PLP to offer himself as a candidate as you would be well aware Laverne. But he at one time was PLP leaning. FACT. He will readily admit it himself.

        • sandgrownan says:

          Shut. Up.

          Jesus christ woman, what is YOUR solution for PLP failure? How would YOU reverse the disaster?

    • Noel Ashford says:

      Someone needs to explain a lot more than just that to you. You have no clue on the state of affairs of Bermuda. You and your party mucked it up – badly as you likely already know but arent honest enough to admit to. Why dont you tackle Sir John on the facts if you are apt enough to do so…. stop wasting everyones time. I think you should post under the name “8 votes”, sort of like 8 mile… can show your long journey to get that many versus wayne furbert. LOL… How many family and friends did you have to call on to get that many? I would love to see that at the BIFF this year… “8 Votes” The story of a confused politician….


    • sandgrownan says:

      Nothing makes senses to you, you halfwit.

  4. Slick says:

    This is financial smoke and mirrors we have to borrow to expand because we are debt based and under the control of the central bank system, if you really want financial freedom then take control of the Bermuda Monetary Authority, which is not owned by Bermuda at all…

    • Truth (Original) says:

      What are you talking about? Who exactly should be taking control of the BMA?

    • star man says:

      “… not owned by Bermuda at all …” Really? I always thought it was a Government Regulatory Agency “owned” by the Bda Gov’t. But what do I know…?

    • Please says:

      BMA is not a central bank either. Not even close…We need a central bank to regulate rates, money supply etc. Badly.

      • navin johnson says:

        and run by Paula Cox brother…..keep it in the family

      • Shaking the Head says:

        I wonder if there are any more in the Cox family to head the Central Bank? After all people seem to forget that Bermuda has a brother, Jeremy Cox head of the BMA, and sister, Paula Cox, Premier and Minister of Finance, as heads of Government. I’d like to say in control, but clearly Paula is not in control.

  5. LaVerne Furbert says:

    By the way, Sir John and Larry Burchall are not the only two people who care deeply about our country and neither are they the only “highly intelligent people” in Bermuda.

    • GMS says:

      Has anyone implied that they are, LaVerne?

    • jt says:

      I agree. We should elect a few of them.

      • I've got an idea! says:

        We should see if we can get a few appointed to Cabinet.

    • Please says:

      Unfortunately, the highly intelligent people refuse to put themselves forward in this rat race of political leadership. It is so offensive that people who don’t have a clue are relied on to lead Bermuda Inc. No education. No exposure. Just a few years of blind unadultered loyalty. These same intelligent people are now quietly selling real estate and other assets (eg. Aberfeldy, SAL, Hamilton buildings) and moving money overseas as we head downwards due to basic ignorance. Bermuda deserves so much more. Sir John has a greater understanding of Bermuda Inc than any sum of our Cabinetry.

  6. Just sayin says:

    Sir John, get rid of your sidekick Larry Burchall because he doesn’t have a clue. If I had to vote for LaVerne of Larry, LaVerne would get the vote.

    • The nitty gritty says:

      ..and you would in turn get another 12 years of billion dollar debt, financial mayhem and insecurity.Remember when the PLP said a vote for the UBP is a vote back to the plantation?
      Well guess what! We are all about to find ourselves there in one big cozy group. I’ve got some carrots, honey and a chicken to barter….

  7. Specialgirl4you says:

    I love Sir John, but I am wondering if he has a hidden agenda in this matter. I have this gut feeling that while he may be concerned about Bermuda in general, is this matter also about his own ability to ensure that his “finanical empire” continues to grow? Does he also care about the average Bermudian during this economic downturn? Now Larry, is a another matter altogether, I think he is politically motivated.

    • Please says:

      Speak intelligently Specialgirl. Sir John has the means but apparently not the desire to pull up roots and move to another jurisdiction any day of this week. He can protect his assets by selling them and moving cash overseas. He built his building just as the recession began but continued with it despite wise counsel to hold off. Sir John I truly believe that he wants what is best for Bermuda and is trying to offer his learned and well read counsel to us so that we don’t repeat the mistakes of other economies, about which our leaders don’t have a clue. If we would just listen to the message rather than kill the messengers. I do not agree with everything that Sir John says but I tell you this – I will listen to the likes of Sir John, Grant Gibbons, Brad Adderley, Michael Dunkley, Phil Butterfield, Gil Tucker, Anthony Joaquin, Allison Towlson, Peter Pearman, Shaun Morris, Dwayne Outerbridge, Ewart Brown even a lot quicker when it comes to economic and fiscal issues than I will to any of the present managers of our enterprise. We are a global player. Our economy is huge and its size is far far beyond what would be expected of a country of our physical size. We must turn to the people that know something about such matters….politics aside. We are so stupid that we as a people refuse to learn what these people know. They have built or manage huge financial empires for gods sake. By this refusal, we will forever remain poor as a people (Black Bermudians). The Indians take the lessons and advance. The Chinese and Japanese take the lessons and advance. The East Africans and Filipinos as well. Look at the wealth they have created in different pockets of the world. Such fools. Should the OBA win the next election, the PLP will not see power again in my lifetime!

      • Specialgirl4you says:

        @ Please……..If Sir John, were to attempt to move to another jurisdiction any day of this week, one should question as to Why and is it really possible/easy during this economic climate that most of the world is facing?….That is why one should question his motives? He Build his building, not knowing that a recession was coming, so this proves he does not know everything. The questions should be asked again, did get the quick returns on his investments (building) as he expected? Is this the reason behind his push to allow the door wide-open in immigration? If you carefully examine the international market, Persons are not willing to buy or invest as quickly during this economic downturn, so selling is not as easy as it may sound now-a- days. Overseas is facing the same effects of the recession. and investors are only buying if it means a quick return for them.

        Nevertheless, I respect all the persons you mention, as I know them personally, however, this does not mean I should take what they say without fully evaluating it for myself. It is always important to critically review anything someone presents, or says. I am sure you are aware that, even the most intelligent and experience persons are not always right on various issues. But, intelligent persons would examine, evaluate, review any theory, statement or proposal stated by any individual, regardless of what qualifications or experience they hold. One should not just automatically assume that just because “MR. Whiz Kid” said it, all is well. No we must learn to think more critically. Lastly, Just because “Mr. Swan” said it does not always make it right! Regardless, of his qualifications, experience or knowledge and, the fact that I love him. Come on a wise thinker knows better than this.

        • Bermyman says:

          ‘If you carefully examine the international market, Persons are not willing to buy or invest as quickly during this economic downturn, so selling is not as easy as it may sound now-a- days. Overseas is facing the same effects of the recession. and investors are only buying if it means a quick return for them.’

          You sound like a really clued up analyst, the statement above contains such a well qualified and professional insight. I am so amazed. Maybe you should read it again and admire your own work. You obviously know a lot more about economics than the likes of John Swan, it really shows in your writing.

    • Hmmmm says:

      You are paid by the PLP, so is LF And Betty Trump

  8. vibe says:

    If we can afford interests costs of 100 mill + a year….Geeze…..why are we borrowing…..
    10 yrs of that is our debt.

    and do we really need a Billion $ hospital?

    oh and mark my words, Government projections are wrong….just saying.

    • Please says:

      Read. Read. Please read before shooting off your mouth. The hospital will cost $300M, not $1B as you postulate.

      • The nitty gritty says:

        Fortunately the hospital is a public/private project so the Government won’t be able to run it over budget by 30million unlike every other major Government construction project since..hmm 1998?

        • Please says:

          You know what that means don’t you. That Paget Health Services will be financially liable for any overrun as it is a contracted price. So of course, they will not allow it to go over $300M. Each cent of overrun bites into their profits. Each Bermudian that doesn’t show up when he is supposed to costing productivity losses eats into their profits….keep that in mind and ask why there are no Bermudians on site. labour and training can have as many job fairs as it likes..

  9. navin johnson says:

    consistently overestimating revenue and underestimating expense and to forecast growth in 2013 shows that this entire budget is a guess at best….and at some point the hospital has to be paid for…..downgrade will increase the cost of borrowing and money continues to flow out….just to try to get reelected…..crazy….

  10. Roger says:

    Roger says:
    February 25, 2012 at 7:46 am
    Has anybody added up the continued loss to the public purse from international business leaders leaving?

    Taking one well paid executive (many have left in the last year or so and many continue to leave)

    $750,000 @ 14% = $105k per year lost. Add in the duty paid by that individual, payroll tax for their nanny etc. and you could easily say $150k leaving the public purse per year PER INDIVIDUAL.

    That $150k per year is a MASSIVE loss in the scheme of things. It would be great to see a detailed analysis of the loss to the economy from these continued departures.

    • navin johnson says:

      dont forget their rent of $85k a year paid to Bermudians…a closer figure for a senior person would be aprox $300k per year leaving….one of the biggest drivers was the ill advised payroll tax increase…from 14% to 16% and the cap from $250k to $750k which sent them packing……

      • Roger says:

        Actually, the senior guys generally spend upwards of $15k per month on rent so an additional $200k there, not to mention groceries / Belco / music lessons for children / pool cleaner / gym memberships etc. etc.

        I was focussing on the public purse, Bermudians get double stiffed!

  11. Verbal Kint says:

    LaNerve appears to have a hard time with the concept of two people of disparate political backgrounds working toward a common goal. Larry’s blogspot says he was a PLP supporter.

    • wiaruz says:

      Everybody knows he was a PLP supporter. Laverne just likes to be pedantic as he probably wasn’t an actual paid up, card carrying member.

  12. Pastor Syl says:

    @ LaVerne: Just because you don’t respect Larry Burchall’s financial opinion doesn’t mean that other’s agree with you. Clearly, Sir John doesn’t. For that matter, neither do I.
    It would appear that the thought of two people of disparate political ideologies could collaborate is really foreign to you. Well, that is no surprise, since your party operates the same way – denigrate any opinion which doesn’t fit the party line, even if it makes sense. Better still call them unpatriotic. Maybe you or your premier would like to throw that balloon up about these two gentlemen.

    So sad for Bermuda