Sigh of relief, but what about the long term?
Let’s be honest: few of us would have wanted Curtis Dickinson’s responsibility yesterday. To present your maiden national Budget in these uncertain times, knowing that decisions you make could cause a fragile economy to take a damaging turn for the worse. At the same time, you have to gently squeeze a little more out of that economy to keep your government on track to steer clear of fiscal calamity.
A tall order, indeed. If nothing else, the man who took the Ministry of Finance hot seat less than four months ago can claim not to have made things worse. That may sound like faint praise, but in present circumstances, it’s an achievement.
Anxiety had been building in the run-up to the Budget, with concern that some of a slew of new taxes suggested by the Tax Reform Commission would be imposed on an economy in too delicate a condition to withstand them.
Those fears were allayed, allowing many to breathe a sigh of relief, particularly small-business owners, some of whom might have had some tough decisions to take on Monday morning had the tax news been worse.
Fiscal hawks will be less impressed, and we can be sure that the Fiscal Responsibility Panel, the Government’s financial conscience, will express its disappointment in its year-end report at another year of “slippage” from the plan to more aggressively chip away at the debt mountain.
His decision to suspend payments into the sinking fund — the place where governments set aside money to pay down long-term debt — made the difference between being able to project a narrow surplus and a deficit of more than $50 million.
He made a good dollars-and-cents argument that the cost of borrowing money to contribute to the sinking fund was more than what could be earned on the invested funds. However, the great value of the sinking fund is that the mandatory contribution forces politicians to be responsible about dealing with debt. This year is a great example. Through the contributions made through previous budgets in equally testing times, Bermuda will have the available funds to pay down $180 million in maturing debt, thereby lopping $12.1 million off its annual interest payments.
While failing to meet the FRP’s debt-to-revenue ratio targets may seem esoteric to the average Bermudian, who is far more concerned about the impact of new taxes on their finances today, the reality is that Bermuda is in a race against time to get the debt under control.
Demographic trends mean the pressures on government finances will inevitably grow as our population rapidly ages. As a glut of baby-boomers leave the workforce over the next decade, fewer people will be paying into the pot and more drawing out of it. In just seven years, one in four of us will be a senior.
Which leads us into one of the disappointing things about Mr Dickinson’s speech: that it acknowledged several elephants in the room, but did not go on to propose new ideas to seriously deal with them.
For example, he described the ageing population as “perhaps the single most serious long-term issue Bermuda faces” and states that “it will not be possible for the Government to meet its obligations to our retirees and pensioners without significant structural reforms to our economy”.
He mentioned guaranteed increases in pension benefits for seniors in line with inflation. But he did not hint at how the useful life of the Contributory Pension Fund, which will run out of money by 2049, according to the latest actuarial report, can be extended.
The first mention of amendments to the 60:40 rule in some time, even if it was fleeting, was welcome. Since David Burt floated an idea that probably would not go down well with many grassroots members of the ruling Progressive Labour Party, we have heard little of it. If it encourages permanent resident’s certificate holders to invest in local businesses, it will help to keep more money in Bermuda that would otherwise go elsewhere.
He touched on immigration reform, dismissing as “simplistic” the argument championed by many local business people that a population boost is needed to rescue the economy. He preferred to focus on how economic reforms aimed at making the island more competitive could attract more investors and lure Bermudians home to fill new jobs.
Surely, the first issue is to keep the valuable population that we already have. When children who were born here, have known no other place as home and live here for 18 years still lack basic rights, then naturally they will leave to a more welcoming place and their families may very well go with them. Bermuda’s failure to address this basic immigration reform issue is costing the island badly needed young people.
Mr Dickinson rightly said that the ageing of Bermuda’s population is “a certainty, not a risk”. The FRP points out that this trend will lead to “a downward spiral of demographic and economic decline”.
A precondition for faster growth is to increase the island’s workforce, the panel adds. “It is the only realistic counter to the island’s demographic challenge from a rapidly shrinking and ageing population. Immigrants and returning Bermudians with the right skills will help to create jobs, not displace them.”
We cannot say we have not been warned.
To be fair to Mr Dickinson, his job was to present a Budget, not to solve all the politically thorny problems of Bermuda’s fragile economy.
Indeed, it is encouraging that he recognised the heavyweight long-term issues that will make future budgets even more difficult than the one he has just put forward. In doing so, he may have set the scene for a serious, honest and necessary conversation involving the whole island on how we can improve our economic future. Let us hope so.
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