Opinion: Burchall On “Zombie Economics”
[Opinion column written by Larry Burchall]
Several years ago, in Seattle, I attended a lecture on economics given by a Czech economist. He used the term “zombie economics”.
From all that I see and hear in my Bermuda, I reckon that we are almost practicing a form of “zombie economics”.
In horror movies, zombies are depicted as ugly big-eyed, grey-faced, stiff-armed ghouls staggering and stumbling their way towards some desolate desecrated destination.
We’re different. Everyone is well-dressed. Looks well-fed. Lively eyes in pretty and handsome faces. Beautiful people on a beautiful Island. Not grey-faced. Instead, beautiful skin-tones ranging from ebony through mahogany to pinky-white.
GDP per capita still over $80,000 [US] keeps us in the top fifteen in the world. Average annual incomes still over $50,000 [US] keeps us well above people struggling on incomes of $2 [US] a day – $730 [US] a year.
In 2013, Bob Richards borrowed $800 million. He stuffed that big fat $800m cushion under our national posteriors. In his February 2014 Budget Statement, Bob told us that he had a three year plan: “…the Ministry is setting an ambitious target of cost savings on current account expenditure of 15%, in real terms, to be achieved by the end of three years.”
On 26th January 2015, Bob told us that he would be going back to the foreign lenders before March 2016. A whole year earlier than projected!
He indicated that unexpected expenditures combining with revenue shortfalls had deflated his $800m cushion. He acknowledged a 12% increase in the deficit for 2014/15 which rose from $267.3m to $299.9m. He increased the projected deficits for 2015/16, 2016/17, and 2017/18.
In February 2015, Bob projected that over the next three years, he would spend a whopping $403 million [$125m + $151m + $127m] to cover those three more consecutive deficits. This $403m would be borrowed.
And this is where the ‘zombies’ emerge.
If Bob borrows before March 2016, he puts all 50,000 of us beautiful Bermudians on the same path, doing the same thing. We’ll all be zombie walking towards an inevitable and unpleasant end.
The end will unfold like this.
Act One. When we go back for “more”, the Rating Agencies will commence downgrading us. There are five financial years and five more credit ratings between now and 20th July 2020.
That sets up Act Two where interest rates demanded from us by lenders will rise.
Which leads to Act Three, wherein Nanci rises and rises, continually eroding the amount of Government Revenue that is left over for Personnel, Operations, and Capital.
On to Act Four where all Government employees are forced to accept major pay cuts or major layoffs and all Government services get major cut backs.
Act Five opens with an Island, once beautiful, starting to suffer, and suffer visibly, from infrastructure deterioration.
The play closes in Act Six, when 20th July 2020 arrives. On that day, Bermuda begins facing a bundle of bonds that aggregate to $1.915 billion but which will have been increased by the $403m borrowed between 2016 and March 2018; and by another $500m or so borrowed between April 2018 and March 2020, to payoff $180m due in 2019 as well as cover three more deficits in 2018/19, 2019/20, and 2020/21.
Simply, Bermuda will start Act Six owing about $2.8 billion [or more] with Nanci likely to be around or over $250 million a year – and heading higher as we re-finance the $500m, $140m, $475m, and $750m bond bundles that become due for repayment between 20th July 2020 and December 2023.
All 50,000 of us Bermudians – probably less, because many will have emigrated – will have been zombie-walked into Act Six. We’ll be shuffling and stumbling in a graveyard Bermuda where Government Revenue has stagnated around $1,000 million – if we’re lucky. But Nanci will still be gobbling up $250 million of that – and Nanci will still be growing.
Minister Bob, do not borrow before March 2016.
Find or get – if necessary, from a forty of Black Seal – the courage to make and implement the right decisions. Go to a six-month Budget. Talk and explain to the beautiful people of this Island – or step aside and let someone else talk and explain.
Do not become the Chief Zombie, zombie-walking us all into a desolate place.
Do not borrow. Do not borrow. Face your problem. Get Nanci under control.
- Larry Burchall
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Well said Larry. The other issue here is that while all this is happening there is also the issue of IB consolidation likely leading to a fall in payroll tax revenue and then there is the looming health care crisis with the BHB having to find savings of some $40m.
We still have a declining population so we are unlikely to see economic growth any time soon and it is unlikely that any tourism resurgence can come quickly enough to help balance things up.
“ZOMBIES Spinning OBA DENIAL SYDROME”
I think it might already be a little too late Burchall. I secretly hope not, for the good of Bermuda and her people. Mr. RICHARDS is already the Chief Zombie due to his stubborn attitude and refusal to exam alternative approaches to address our financial situation. OBA DENIAL SYDROME is something I frequently highlight to the outright rejection by many.
The OBA seem to lack a clear “PLAN” that I been shouting for since the OBA gained power, we seem to be spinning our wheels only. Whenever, I asked to see the OBA’S “Economic Recovery Plan”……there has been NO solid reply….we just drift on …and on…. Zombies spinning. ..
The AC is not the answer according to Sir John Swan. It will not be enough, yet the government continuing their eggs all in one basket…. Zombie spinning
Tourism has failed to show us any success thus far….yet unnecessary monies spent on wages there…Zombie spinning
This outright refusal by OBA to work in joint Collaboration with the Opposition and Others to address this problem. …..puts us in further Zombie land……Zombies spinning
The Opposition put forward ideas that at least should be considered, perhaps with the formulation of a “Joint Select Committee” to exam our “Economic Recovery” in detail….this must be done……Looks like Mr.Richards is not the brilliant Guru that many made him out be after all. He surely does not have all the answers; No one man does.. ..Zombies spinning
This is a serious matter….I believe if the OBA remains in a “Zombie state of mind”…..everyone will fall…..
I hope the best for Bermuda. We must come together as one and push to turn the Zombies from falling on their swords…..
Burchall “Cuts” is not the only solution. …it often does not work…..there has to be alternative ways to grow our economy. Huge unemployment leads to bigger Social unrest in a country. …and yes the Zombies will Revolt…..rightly so….when a man can not feed his family. …
Those who know it….feel it…
Much love
Forget Zombies Mr. Burchall – how about Depression. Falling home prices, 13% delinquency rate on debt and job losses. Deal with that. We were lucky for years; getting bailed out of buying real estate at unsustainable prices i.e. 10X annual earnings. Luck has run out and skill is required. Austerity is not the solution.
Quo Fata Ferunt
I am curious to find out what bearing the near $1 billion dollars of inward investment will have on what Larry is saying above. There seems to be no mention of that. Surely that will have an effect on GDP over the next 5 years, for the better? I suppose even the best laid plans don’t always go exactly as you would want them to go, but what is the alternative?? What would Larry actually do differently? What would Larry cut and how would he go about doing it in a way that doesn’t cause massive unrest on the island? Who do you suggest has the guts to implement what you say needs to be done, Larry? Having said that, in many ways I agree with what you say and I imagine Bob does too, but he has to balance his decisions too. We have seen how he has backed off in a few instances, as the temperature has risen. Observe how unpopular he has become in some sectors, without having yet made those big, bold, tough decisions that you say are needed. It is a balancing act indeed. Easy to say, but nearly impossible to do. Larry?
Yes indeed, Mr. Larry Burchall has brought forth relevant points. These few paragraphs offers much to be considered Minister Bob Richard:
“Minister Bob, do not borrow before March 2016. Find or get – if necessary, from a forty of Black Seal – the courage to make and implement the right decisions. Go to a six-month Budget. Talk and explain to the beautiful people of this Island – or step aside and let someone else talk and explain.
Do not become the Chief Zombie, zombie-walking us all into a desolate place.
Do not borrow. Do not borrow. Face your problem. Get Nanci under control.”
What was the unexpected expenses, the Oba speaks of., furlough days wasn’t expected or a gty. That was unexpected revenue, or saving one might say. What was the unexpected spending.
Two hurricanes in a week, initial outlay for America’s Cup and additional spending on Financial Assistance. Only Financial Assistance cold have been anticipated.
Also, decreasing payroll taxes thanks to Rhonda and her buddies chasing away so many expats and the jobs and spending that went along with them.
A couple of solutions come to mind.
First, however, the oft touted $930m inward investment is unlikely without substantial concessions. Therefore the impact will not be as positive as many think. We are already seeein gthe reduction in expected activity with at least one team withdrawing from the America’s Cup.
Second – goverment must make significant changes to the annual payments required for pensions. The only alternative is a substantially reduced work week or layoffs.
Third – Bermuda needs to have a joint working group of OBA and PLP. Be so bold as to have Min. Richards as Chair and MP Burt as Deputy. The full Committee may have an OBA balance bias but should include reconginsed Bermuda businessmen that have a vested interest in Bermuda.
These are difficult but necessary steps.
The value of a joint committee is that local, international and prospective businessmen must have confidence that any change in policies will survive the inevitable change in government in the next 5 to 10 years.
Dire consequences require bold decisions.
So how much do you think in number terms do you think the $930 million dollars will have on our economy? $50m, $100m, 200m, $300m, $400m, $500m, $600m, $700m, $800m? Whichever way, it will have an impact on our relatively small economy. Probably more than you would like it to…don’t worry though, even more inward investment is being lined up as we speak, to make up any shortfall you might envisage.
How about doing away with 14 weeks sick leave, carry forward what you don’t use, plus 6 weeks vacation?
Oh no. We don’t want that “shared sacrifce”. The poor public employees get more colds and bad backs than the rest of us.
Creamy, what are you talking about? 6 weeks vacation? Where they do that at, 19 days is the starting point for bpsu govt workers, and you only are allowed 4 (I believe ) uncertified sick days a year. Get your facts straight before you tell you falsehoods
Unfortunately Bermuda is playing a very dangerous game of kick the can. ALL of what Mr Burchall says is TRUE but there seems to be deep denial amongst the politicians and the populace about this pressing issue. The time to take decisive action is NOW. Bermuda has limited time to re-structure its financial house before those decisions will be made for her. The level of unrest will be magnitudes larger when the rating agencies downgrade Bermuda; when Bermuda is forced to lay off scores and can no longer borrow in the debt market. Latin America in the early 80s and present day Greece are examples of what could lay ahead for Bermuda.
Bermuda needs a multi-pronged plan to:
1. Obtain a massive infusion of new cash ( a one time corporate tax to raise $1bn to pay down the debt so that debt service will not continue to choke the life out of Bermuda) Concessions will have to be made but we do not have much choice.
2. Bermuda also needs to re-invent itself again, by bringing in new industries and encouraging companies to invest here. Bermuda’s economic development team should be out beating the bushes to encourage as many developing and growing industries to partner with Bermuda.
3. Government, Political Parties and the Unions need to put aside the rhetoric and petty politics and recognize that the country needs a coherent financial plan based on efficient operation. They all need to work together working towards a common goal – fiscal health. The days of random union strikes for menial reasons should be over. Bermuda can no longer afford such
If Bermuda takes this kind of approach, maybe it might just have a chance.
I like your idea of a one time corporate tax, HOWEVER, how can the Govt. renege on a law that has assured business that there will not be any tax on them for the next decade? To force them to do otherwise, could lead to serious consequences. It would take some high level negotiations to pull it off. I have heard others say, that those same companies would be highly opposed to being taxed, just for us to continue overspending in the same fashion we have been doing, with our deficit covering a civil service the Country can simply not afford.
Lois,
Which companies would you tax?
If you don’t tax all companies you will be strengthening the opinion that we are a tax haven.
If we tax all companies, even at 1% that would be a massive wundfall! Over $1,000,000,000
Zaitech, you’re forgetting the exempt companies act that guarantees that exempt companies will not pay any profit taxes until (at least) 2035. That means that any corporate tax has to be levied strictly on local companies.
Having sat on many restructuring committees, I can assure you that the time to act is before the blank hits the fan. As Mr Burchall has so eloquently stated, it is a problem of arithmetics. Bermuda owes X dollars of debt which requires Y dollars of annual debt service, which Bermuda is growing unable to afford. The solution is straightforward. Bermuda needs to reduce its debt, grow its economy and learn to spend more efficiently.
As previously stated a one time tax would necessitate concessions from those taxed. Those corporations have benefited from Bermuda and should recognize it is their best interest to support Bermuda in a time of need. In order for this to happen, we would have to partner with them to achieve this. That said, nothing for nothing. There will be a price that Bermuda will have to pay. Unfortunately, we have gotten ourselves into this mess and need to accept that it will cost us to get out of it. But recognize that the cost is easier to swallow and much less painful now than when a crisis is upon us.
ZAITECH YOUR IDEAS SOUND VERY SIMILAR TO WHAT THE BRILLIANT DAVID BURT HAS PUT FORWARD. .BUT OBA REFUSES TO EXAM ANY ALTERNATIVE OR CREATIVE IDEAS……GUESS RICHARDS WILL CONTINUE TO BE THE BIGGEST ZAMBIA AFTER ALL…..
MATE ….YOU MIGHT NEED TO BE APART OF THAT JOINT COMMITTEE YOU HAVE SOME KEY POINTS….
Any corporate tax will be necessarily passed along to customers, further increasing and already high cost of living. This impacts those at the bottom of the economic ladder far more than it does the wealthy.
It may for some reason be anathema to Bermuda/Bermudians, but the most equitable and sustainable method for taxation that can be managed to share the burden most fairly is a progressive income tax to replace the current tax structure. It won’t ever happen, but it should, and I’d have thought that the plp would have at least started the discussion, if they were sincere in their interest in the well beinf of the less-well-heeled.
Dreamers…… We have nothing special to offer that others don’t already have.
Borrow till your credit limit runs out, then welcome to the third world.
Cut the civil service in half and stop paying double overtime!
There is no account taken of outside influences on our economy due to our tax haven model being eroded.
Well, Lar, I suppose the argument that the fiat debt based financial system is bankrupt is a moot point, mostly going over the heads of most. The comment about the skin tones from ebony..to pinky white is erroneous as there aren’t any white skin tones. Pink or reddish due to low melanin cauaing the red blood to show through somewhat translucent cells, I’ll give you but white..that’s a status just as black is. And a topic for another day.
So, I still don’t think we all quite get it. I’ll take a run at what I *think* will happen in the worst case scenario, but I’d appreciate if others could add to the picture, since articles like this are just so dry.
If Bermuda goes bankrupt, this is what I think may happen:
1. The sun will still shine, the beaches will still be as beautiful as ever, the waters will still be as blue.
2. Government services will vanish. No trash pickup, no ferry service, no bus service, no mail service, no healthcare.
3. There will be no money to pay Government employees so they will (finally) be shown the door.
3. Government obligations, like paying pensions to retired government employees, will be broken. Without pension or healthcare, retired people who rely upon them will have to turn to private charity, move in with their adult children, emigrate or live on the street.
4. Crime will rise, from anger and need. Those who don’t understand why they’ve just been laid off will be angry and susceptible to riot, those who need food, may resort to crime.
5. The number of privately funded soup kitchens will increase.
6. As jobs dry up mortgages will go unpaid and houses will be repossessed. House prices will fall.
7. The rich amongst us (those whose money is liquid and not tied up in houses, boats, cars and so on), will need more security, so will hire it. (Security guards, gated communities and so on.)
8. Private services will take off. (Private trash collection, courier services, mini buses instead of pink buses, private ferries, private healthcare, privatised retirement funds – what Americans call 401k plans).
9. People will be desperate to sell their houses before they’re foreclosed on. Two things will happen – house prices will fall and the desire to sell to anyone who can pay will increase. (Remember, Bermuda will still be as beautiful as ever and there will still be people who want to buy Bermuda. Just right now they’re not allowed to.) A majority of Bermudians may vote in a Government that will eventually remove the barriers to foreign ownership. House prices will then rise again.
I’m painting a picture here where the gulf between the rich and the poor, already quite large, will widen to the point where we have gated communities everywhere (think pillboxes and gates barring entry to Kilderry & Melville Estates, for instance). The rest of us will live with bars on the windows of our rented apartments.
Have I got this wrong? Or perhaps I haven’t painted this in stark enough terms?
I think it will be a dark day when Bermuda follows the barbaydian way of getting out of debt and lets go of 3,000 + civil servants ON ONE DAY.
These civil servats will then wish they had accepted 10% paycuts and furlough days when they had the chance.
Anyone with any money and sense will take their British passport and head to the airport for a new adventure.
Pensions will be suddenly gone, leaving the elderly to desperatly try to sell their homes. property prices will drop to well below actual worth. charitable funds, education funds will dry up, as the every day man on the street will become the charity.
the hospital will lie empty because the cost of healthcare will no longer be subsidised. Buses, ferries and services will be suspended until privatisation happens, this relies on someone willing to take a cahnce with their own capital.
PRCs, homosexuals and anybody else who feels unwelcome will simply leave.
bermuda will be back the way a certain sector of older, uneducated, xenophobic, racist Bermudians want it to be.
The rest of us will watch from afar. Good luck with that.