2011 Consolidated Fund Accounts
Government borrowing increases
BY THE NUMBERS
Highlights of the Consolidated Fund financial statements:
• The total revenue raised by the Consolidated Fund for fiscal 2010/11 was approximately $996.7 million, representing an increase of $78.7 million (8.6 percent) from fiscal 2009/10 for which balances have been restated.
• The most significant generators of revenues for fiscal 2010/11 were payroll taxes accounting for $423.0 million or 42.4 percent (2010 $349.0 million or 38.1 percent) and Customs duty accounting for $195.8 million or 18.5 percent (2010 $219.0 million or 19.6 percent).
• Revenues were below budget in 2010/11 mainly due to shortfalls in Customs duty ($36.7 million below), stamp duty ($10.0 million below), Immigration receipts ($6.7 million below), international companies fees ($6.4 million below) and payroll tax and foreign currency purchase tax (both $4 million below).
• Current expenses for fiscal 2010/11 were $1.273 billion (2009 $1.177 billion). The three largest components of current expenses were employee costs, grants and contributions and professional services.
• Total current expenditure on a modified cash basis was $1.124 billion, which was $65.8 million (6.2 percent) higher than original budget estimates of $1.058 million.
• The figures showed expenditures were above budget in 2010/11 primarily due to the following items: Above budget expenditure on substitute and paraprofessional's salaries ($5 million); increased expenditure on Government's health subsidy programme for the youth, aged and indigent ($35 million); interest on long-term debt ($18 million); increased expenditure for financial assistance and child day care allowance ($9 million); additional expenditure on the war veterans' programme ($5 million).
• Net public debt, which excludes guarantees and is net of the Sinking Fund, increased by $243.0 million (2010 $276.8 million) during fiscal 2010/11 standing at $1 billion at the end of the year.
Government drew down all $200 million of a term loan it got from Butterfield Bank last May, financial statements issued by Auditor General Heather Jacobs Matthews and tabled in Parliament yesterday revealed.
In addition, Government upped its borrowing at the end of last year, extending and increasing overdraft facilities with both Butterfield and HSBC Bermuda, totalling some $80 million.
Under “subsequent events” to the fiscal year ending March 31, 2011, it is disclosed that the Butterfield loan had been “fully utilised” with successive drawdowns of $70 million, $50 million, $50 million, and $30 million, taking place in May, June, August and September of last year.
In addition, the Consolidated Fund statements showed on November 16 the Government signed a $50 million overdraft facility with Butterfield Bank that expires at the end of next month, with a daily charge of 1.2 percent above the bank's base rate of about 3.75 percent.
And just over a month later, on December 29, Government increased its overdraft facility with HSBC from $20 million to $50 million, to also expire on March 31 and with daily charges on overdrawn balances of one percent above HSBC's base rate.
Government disclosed last June it had negotiated a $200 million three-year loan facility with Butterfield Bank. Premier and Finance Minister Paula Cox said at the time the cash was to cover expected new borrowing and refinancing of outstanding short-term debt. However, she said the “funds will only be drawn when absolutely necessary”.
The Consolidated Fund statements - released a week from budget day - showed broad increases in Government spending overall, and some significant over-expenditures.
They showed Government spent nearly $276 million more than it raised in revenues in the fiscal year ending March 31, 2011.
Current account expenses, which include non-cash items, were $1.27 billion. Current expenditure was $1.12 billion, about $60 million more than Government had budgeted.
Revenue totalled $996.7 million, some $60 million short of what Government had projected. This represented an increase of $78.7 million (8.6 percent) from fiscal 2009/10 for which balances were restated due to changes in accounting methods used.
Total borrowing was $944.5 million at the end of fiscal 2011.
The accumulated deficit, which includes pensions and other employee future benefits, stood at $1.29 billion by the end of March.
So-called net debt (which includes pensions and other employee future benefits) was $2.1 billion.
For the fourth successive year, Ms Jacobs Matthews issued a qualified opinion on the audited accounts for the Consolidated Fund, based on her opinion that there were serious deficiencies in internal controls in the management of certain capital development projects. Her report has not yet been tabled.
“The Government recognises that the Auditor General's recommendations provide the opportunity to refine and enhance government processes,” Ms Cox said in a statement.
“The Government will work with the Auditor General and take the required steps to ensure that this qualification is removed in the future, in the same manner we did when actions were taken on qualified accounts in 2000 and on other previous occasions.”
The accounts revealed that total employee costs were $599.7 million, or 47.1 percent of total expenses, compared to $577.4 million in the previous year. Included in this amount is $151.6 million of “non-cash retirement benefit expenses”.
Grants and contributions expenses were $277.1 million, while professional services were $119.1 million.
Interest payments on Government's long-term debt were $58.7 million, compared to $35.1 million a year earlier.
“There is no doubt that the global recession is having a negative impact on government finances worldwide and Bermuda is not unique in facing the economic challenges that are being faced globally,” Ms Cox said.
“I wish to assure the public that the Government is sensitive to the challenges which may arise when deficits reach short-term peaks, however the Government is moving ahead with a credible plan for medium-term fiscal consolidation in order to reduce public debt and to keep the Country on a sustainable fiscal path.”
Ms Cox added: “It is important to note that when the 2010/11 Budget estimates were made in February 2010, it was against the background of an array of very challenging economic and financial circumstances. Following the financial crisis that swept the world beginning in 2008, the broad consensus of economists and policymakers was that the global economy was again expanding. However at this juncture, the national economy of Bermuda was still struggling to overcome the adverse effects of the recession.
“In 2010, the Bermuda economy contracted by 0.7 percent measured in current market prices. When adjusted for inflation, the level of economic activity or real GDP decreased by 1.9 percent. Employment fell by 3.6 percent and the official unemployment rate was 6.0 percent in accordance with the 2010 Census. Total employment continued to shrink at a decelerating pace in 2011. Several of the major economic indicators such as air visitor arrivals, construction activity and retail sales declined in 2010.
“In the Government's view, with the fundamentally weak fiscal position, it was important to support public sector spending in support of the long-term health of the economy and in order to pay for the increased public services desired by the public; accordingly the Government strengthened its tax base by increasing various taxes.”
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