Expert believes Budget could bring $100m in cuts
More than $100 million could be slashed from Government expenditure in Friday’s Budget, an economics expert said yesterday.
Consultant Peter Everson predicts that Finance Minister Bob Richards will aim for larger cuts than those proposed by the SAGE Commission, which was set up to look at cutting Government expenditure.
Government borrowed $330 million last year to cover Budget shortfalls — and Mr Everson said the country would have to dig itself out of debt as fast as possible.
“Bob Richards gave a strong indication in his speech to the Chamber of Commerce on the SAGE Commission — he said he would be more aggressive than SAGE, which called for a cut of $65 million in the first year.
“My guess would be $100 million or $110 million because that’s a third of $330 million,” said Mr Everson, who sat on the SAGE Commission.
“The SAGE Commission was very clear that the bulk of Government spending goes on people. So people costs have to be right at the centre of it,”
He added that the previous Government had cut back on services in its Budget of two years ago.
Mr Everson said: “There is nothing much left to cut, so we are looking at people. That would be the Civil Service and also the quangos because they are funded by grants to the tune of $200 million.”
And he said that 500 jobs cuts in the Civil Service could be achieved by abolishing vacant posts — which run at about 500 every month — and by offering early retirement, which would also help deal with the pensions funding time bomb.
“The average remaining working life of for a Civil Servant is 12 years — that’s a lot of people who will be retiring in the next few years.”
Mr Everson pointed to the Bank of Butterfield, which offered employees aged 55 or more an early retirement package.
“That made an enormous difference to their costs, which have come down enormously due to that,” he said.
Both Mr Everson and Bermuda College economics lecturer Craig Simmons backed longer-term economic plans over an annual budget.
Mr Simmons also called for no across-the-board tax increases — which might help balance the books, but push the country back into recession. But he predicted a hike in taxes on technology.
Mr Simmons said: “We need a plan and I don’t think an annual Budget is really a plan, especially for those people who loaned us several million dollars in the Government senior notes issue back in June.
“We were promised a plan then and it’s only right we have that from an economic perspective — tax payers are owed a medium term framework on how Government is going to reduce its spending. I am expecting the first multiyear Budget on Friday.”
He added: “That’s what is needed and its arguably the most needed part of the Budget. I would expect tax increases on telecommunications — specifically cellphones and internet usage.
“These are two of the few growth areas in the economy and tend to be insensitive to price.”
And Mr Simmons backed an extension to tax breaks for struggling sectors like retail and restaurants — although they should have strict time limits.
“The Social Assistance budget will have to go up. The Government has to be sensitive to the needs of those at the bottom of the socio-economic ladder and also sensitive about layoffs in the public sector.”
But he added: “There is no doubt that the Civil Service will need to be trimmed from where it is now, from 5.500 jobs or so to 5000.”
And he suggested that cuts could be made gradually from five days a week to four or three “as a way of gradually easing people out the door.”
“We are in a delicate stage of recovery — serious cuts in spending could have a deleterious effect,” said Mr Simmons.
“I would argue that the cuts should be minimal and that, as recovery takes hold, that’s when you begin the bigger cuts because people will have somewhere to go because there will be more opportunities in the private sector.”
Mr Simmons — who sat on the privatisation and outsourcing committee of the SAGE Commission — added that privatisation of public services could be used to cut costs.
But he said: “Even that has to be done with care — there are what some would call unanticipated consequences of privatisation if it’s not done carefully and in a transparent way.”
Veteran reinsurance chief Brian Duperreault, who chaired the SAGE Commission, said its recommendations needed to be implemented as a package — not on a piecemeal basis.
Mr Duperreault explained: “The SAGE Commission made recommendations to the Finance Minister in three main categories: reducing the deficit, addressing the pension underfunding and changing how the Civil Service is governed.
“I would like to see progress in all three categories, not just one.”
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