Richards: Finances ‘as bad as OBA had feared’

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  • Finance Minister Bob Richards. (Photo by Glenn Tucker)

    Finance Minister Bob Richards. (Photo by Glenn Tucker)

Finance Minister Bob Richards said yesterday that “shared sacrifice” was necessary to tackle Bermuda’s escalating debt but that the new One Bermuda Alliance Government would honour its pre-election pledge to not lay off any civil servants.

However, he added that Government would seek negotiations with public-sector unions with pay cuts and shorter working weeks among the options on the table.

Mr Richards told a press conference on the state of Government finances that “46.8 percent of Government expenses are related to employee compensation and benefits”.

“While keeping our promise not to lay off any civil servants, the situation calls for shared sacrifice. Cabinet has led by example by taking a pay cut and we will be commencing discussions with the relevant unions to identify strategies to reduce personnel costs throughout government, including quangos.”

He also revealed that the Government’s net debt had risen by $154.3 million in the first six months of the fiscal year, as of September 30 last year, to stand at $1.39 billion.

He added that it would be necessary to raise the statutory borrowing limit, which currently stands at $1.45 billion.

“I regret to report that under these circumstances further borrowing will be required,” Mr Richards said. “Therefore, the legally binding debt ceiling will have to be raised during the upcoming budget session.

“A number has not yet been set, but it will be accompanied by new rules and plans to make it a meaningful ceiling, rather than a meaningless one that is ratcheted up every year.”

He added: “Having looked under the hood it is clear that state of Government finances is every bit as bad as we had feared it might be when we on the outside.

“The trajectories of deficits and debt we found are simply not sustainable. We cannot continue with debt rising at a rate of 23 percent a year.”

He warned that reversing the negative fiscal trend would not be quick or painless, and that Government saw economic growth and job creation as the keys to achieving it.

“The inescapable reality is that Bermuda’s present economy cannot carry the Government as it is presently structured and sized without implementing crippling tax increases. Your Government does not want to go this route.”

Asked whether tax increases were on the table for next month’s Budget, Mr Richards replied: “No comment.”

He said major changes were needed in the management of public finances and highlighted moves being made.

From now on, budget allocations to ministries and departments would be “ironclad”, he said.

Ministries would be required to enhance their monthly reports of their expenditure versus budget allocations so that slippage could be arrested before it became problematic.

He added that planning for the establishment of the Spending And Government Efficiency (SAGE) Commission was well under way and that its members would be announced shortly.

A Budget Implementation Group (BIG) will be established at the civil service level, headed up by the Financial Secretary, “to ensure that members of the civil service are motivated to deliver on the mandates of the budget and the recommendations of the SAGE Commission”.

Mr Richards added that Government would establish a new set of rules, limits and targets to govern Government debt and expenditure.

While Government was committed to tackling the debt problem, Mr Richards recognised: “We have to keep the Government running. We have to pay salaries.

“We have to provide services. We have to pay bills. The deficit and debt momentum has been building for years without check, and reducing them will take time, much as it takes time to stop a cruising supertanker.”

Mr Richards also gave a summary of the fiscal situation at the end of the fiscal year ended March 31, 2012. Revenue of $914.2 million fell $82.5 million, or 8.3 percent from the previous year.

The trend of declining revenue continued through the first six months of the current fiscal year, with $412 million collected through the end of September. This was $9 million lower than mid — 2011.

“Revenues are tracking approximately four percent below budget estimates,” Mr Richards said. “The reason for this slippage relates to weakness in the collection of Customs duty.”

Customs duty of $87 million for the first six months was down by nearly $10 million from a year earlier, while payroll tax was down more than $16 million.

Current expenses for fiscal 2011/12 were $1.246 billion, down two percent on the previous year, while current expenses for the first six months of 2012/13 were $477 million, down $3 million from the same period a year earlier, but 1.7 percent higher than planned in the last Budget.

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Published Jan 17, 2013 at 8:00 am (Updated Jan 17, 2013 at 8:25 am)

Richards: Finances ‘as bad as OBA had feared’

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