It’s steady as she goes. Government’s fiscal policy stance for the foreseeable future is one of debt reduction: expect decreases in spending as the primary weapon and increases in taxes in a supporting role.

The original plan called for successive annual spending cuts of 7 per cent, 5 per cent and 3 per cent. A survey, by Harvard economist Alberto Alesina, of countries emerging from recession suggests that this is the correct approach.

Budget 2015, however, waivers in that milder cuts — 3.5 per cent instead of 5 per cent — will be combined with tax increases. These will invariably add to the headwinds buffeting our struggling economy.

We are about to take the first of three steps towards debt reduction, which, technically speaking, is unlikely to begin before 2020.

The first step should be completed by this time next year. The goal is to achieve a primary budget balance. In English, this means raising enough tax revenue ($930 million) to cover current spending. Current spending is mostly made up of salaries, grants and contributions to NGOs and charities, repairs and maintenance, and electricity.

The second step could be completed by 2018. Government will have to collect more tax revenue and reduce spending to the point where there is enough left over to cover the interest (debt service costs) on the debt.

Of all the spending categories, debt service ($170?million) is the second largest; it has moved ahead of education and is closing in on health for the top spot. The third step will require Government to collect even more taxes and reduce spending even further. The leftovers (or surplus) will have to cover both debt service costs and capital spending, which for the moment is $68?million.

Within the next three years, tax revenue and spending will have to cross the $1?billion Rubicon — heading, of course, in opposite directions. It is difficult to see how this is possible without broadening the tax base.

The Finance Minister repeatedly acknowledged the narrowness of our tax base. Perhaps this was his way of preparing us for a goods and services or value-added tax (VAT).

This makes perfect sense, since, according to the 2013 Household Expenditure Survey, the majority of personal spending is on, for the most part, untaxed services.

VAT could overtake payroll tax as the dominant source of Government revenue. Besides, consumption taxes are less distorting to employee and employer decision-making than payroll and other income-based taxes.

As a former SAGE Commission member, I am not surprised that privatisation, outsourcing and streamlining of the structure of the civil service were sidelined.

The gulf between the unions and Government is wide. They have widely different “skin in the game” of debt reduction and there is the illusion of communication between the two. Without qualification, the biggest problem facing the Island lies in the ability of banks, Government, corporations and unions to hide risk.

We know that banks have the ability to both invigorate and incapacitate themselves, and the economy at large, with leverage — the ability to use a meagre down payment to purchase a relatively large asset.

Government and unions have similarly invigorated a gerontocracy (those 50 years and older) with jobs and benefits as well as pensions.

If I weren’t so busy gorging myself at the Government spending trough, I would probably view mounting on and off-balance sheet debts as an abrogation of the social contract between the old and young.

Government’s medium-term expenditure framework is sound. Debt reduction is unavoidable. The devil, however, is in the details.

• Craig Simmons is a Bermuda College lecturer on economics