Opinion: Bermuda & ‘Austerity Spending Mode’

November 28, 2014

[Opinion column written by Larry Burchall] For some, Austerity spending is an economic profanity. People who oppose the idea of cutbacks in Government spending say that Austerity spending should never happen.

They say that in an economic downturn, Governments should always increase spending. Set out in thousands of textbooks, classic economic theory suggests that this is correct.

For absolute clarity, I’ll state that I agree that the best answer to an economic downturn, and the one that is supported by thousands of economists and their textbooks, is that in a recession, a Government should increase its spending.

Now let’s leave the academic ivory tower and step into our Bermuda reality. Let’s meet Nanci. [Nanci = NNC = Non Negotiable Costs = Debt Service Costs = Interest on Debt + Sinking Fund contributions.]

From 1968 up to 2009, Bermuda’s Debt Service Costs were entirely and easily manageable.

In 2004, Nanci was $11m and 1.5% of Revenue. In 2009, Nanci was $40m and 4% of Revenue. In 2010 Nanci doubled to $84m and jumped to 8% of Revenue and Nanci became un-manageable.

In 2014, Nanci doubled again. It hit the $161m quoted by Minister of Finance Bob Richard’s at that 8th October “Town Hall”. Nanci is now 18% of Revenue. Nanci is not expected to go lower than 18% and could easily reach 21% by 2017.

Nanci’s growth creates the fact of the Bermuda Government’s pattern of Austerity spending which has been Government’s spending mode since FY 2009/10.

Here are the audited figures for the period 2008/09 to 2012/13, the officially estimated figure for 2013/14, and the officially projected figures for 2014/15 out to 2016/17.

Financial Year > Total spend – LESS Nanci = Spending on Personnel + Ops/Svces/Capital

PLP Budgets

  • 2008/09 > $1,194.3m – $27.6m = $1,166.7m – The peak spending year.
  • 2009/10 > $1,126.4m – $40.2m = $1,086.2m – LESS than the year before – Austerity
  • 2010/11[*] > $1,245.2m – $84.6m = $1,160.6m – Up from 09/10, but down from 08/09
  • 2011/12 > $1,143.0m – $95.3m = $1,047.7m – Spending was down – Austerity
  • 2012/13 > $1,092.5m – $61.2m[*] = $1.031.3m – Spending was down – Austerity

OBA Budgets commence

  • 2013/14 > $1,225.6m – $147.0m = $1,078.6m – Marginally up from 2012/13.
  • 2014/15 > $1,169.0m – $161.2m = $1,007.8m – Spending is down – Austerity
  • 2015/16 > $1,110.5m – $166.9m = $916.6m – Spending will be down – Austerity
  • 2016/17 > $1,077.2m – $173.2m = $877.0m – Spending will be down – Austerity

Those numbers tell the whole true story. Bermuda has been in Austerity spending mode since April 2009. That’s five years. Bermuda will stay in Austerity spending mode out to 2017, and likely beyond.

Universally, all economists agree that when there is ‘Austerity’ spending in an economic decline or recession, this ‘Austerity’ spending will maintain the decline and prolong the recession.

Why did the PLP Government commence, and why has the OBA maintained, this pattern of ‘Austerity’ spending?

The truth is that these are not spending decisions. Instead, these are arithmetic consequences. The PLP’s five year pattern of ‘Austerity’ spending was forced on the PLP by the PLP’s growing need to feed an out-of-control and rapidly growing Nanci.

On December 18th 2012, the OBA started out in the bad Nanci-feeding situation that they inherited from the PLP on December 17th 2012.

With Austerity spending beginning to stifle growth in GDP, a new fact arrived. This was the trend, between 2009 and 2013, of declining ResPop. This declining ResPop fact joined with Austerity spending. The combination created a double whammy that generated a serious decline in GDP.

Today, the Government is like a very short man standing on a beach at low water mark – with both feet encased in hardened concrete. In that situation, without some serious problem solving, drowning is likely. Unless, of course, the short man can hold his breath for the hours that it will take for the tide to change.

The people who say that ‘Austerity’ spending is not the way out are absolutely correct. However, the alternative of ‘Stimulus’ spending is impossible because a voracious Nanci is now gobbling up far too many foreign dollars, far too fast.

The real and only solution?

Grow the economy! How? Grow R–P-p!

What about that Great Global Recession? Indeed, it is out there. Somewhere past North Rock. However, Nanci is both on-Island and inside Government’s pocket. It is Nanci who is gobbling up those hard-earned foreign dollars and therefore helping to sustain this well-defined pattern of Austerity spending, which, in turn, helps sustain Bermuda’s six year long recession.

- Larry Burchall

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Comments (9)

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  1. Vested says:

    I have only one question when I read you harping on about growing our population –

    There are NO jobs for a migrant population to come into. End of story.

    GDP growth = new company formation = increases in payroll taxes = expansion within IB does not equal new jobs in Bermuda. Thus growth of res pop is not going to happen to the degree necessary any time soon.

    • Trulytruly says:

      Does this mean we should stop trying?

    • Justin says:

      Errrrr, I didn’t know ghosts or robots paid payroll taxes so your equation is flawed… Increased payroll taxes must mean there is an increase in total payroll in Bermuda which probably means there are more jobs.

    • Mr.Ed says:

      In the 1970s, 80′s, 90′s several people including Govt.MP’s on both sides of the political fence predicted that
      Bermuda would reach its peak in Ecconomic prosperity and Spending in the early part of the 21st century
      and a unsettling Kaos and Political unrest will follow after that, if it is not controlled properly – a blind eye was tuned on by many in power right up to the year 2006.
      Well what do we have today! – from here on growth will come slow and painful. – regardless who or what political Party runs
      Bermuda.– The PLP just enhanced what was about to come and the OBA can’t seem to shake it — but there trying – and a good try
      is better then nothing at all.– they have to were all in this together!
      Remember we still have to pay of the huge 2 Billion Dollar Debt we have – I do wonder just how much we have paid on it
      and what is the balance.
      NOTICE: From 1998 to 2010 only a few were concerned about spending – but now’ even if the Premier Flys out to do Bermuda’s Business and stays in a Motel Six for $25 a night noise is going to be made — thats how uptight we have become.

  2. Justin says:

    Yes, and due to complaints from I’m guessing the PLP faithful, the new work permit policy has been put on hold. What effect do you think this will have on resident population?

  3. swing voter says:

    I don’t care who is running the current government, outsourcing, 30yr contracts, privatization, etc….just bring us back to prosperity and save the middle class that drive the economy. No middle class, no economic recovery

    • BermyL says:

      I don’t follow what you’re saying. Are you saying that they should or should not do the airport deal? or that the airport deal will or will not help the middle class.

      Please explain.

      • swing voter says:

        Build the damn airport….but ensure that the working middle class benefit i.e. construction and support jobs, airport operations, etc…..I don’t mind the 30yr lease as long as it doesn’t include imported labor while we are on the side-lines. that agreement has to protect the local work force.

        • Raymond Ray says:

          That has been already mentioned by the Minister: “all labour will be done by locals” The backing of the project will come from C.C.C. and we will pay them back,(plus a profit of course) over a period of 30 years! What is wrong with that “ulot” around there at Alaska Hall? This is win-win opportunity for everyone on this Island…Even Lance Hayward could have seen it :-(