Economic and fiscal data
Living beyond our means
Martha Myron, Moneywise
Now that all the pomp and circumstance, experienced pundit reviews, and scrutiny by the public (in the papers, of course) is long gone, it is now the turn of a lowly Bermudian financial planner — who writes for the people — to opine on the Government’s Budget for fiscal year 2018-2019.
A budget is a mathematical exercise that includes a set of correlated projections and estimates to define the amount of money that one will receive and what one wants to spend in a year.
At the end of the year whether calendar or fiscal year (for the Bermuda Government of April 1 to March 31) the actual income received and expenses incurred are compared to the estimated budget numbers.
It is always hoped that actual income is higher while actual monies spent are cumulatively less than the budgeted amount. The most desired outcome is that budget and actual are balanced, that is evenly matched, or heavens, if we are blessed, there is a financial surplus.
Individuals and their families who decide to manage their finances within a budget have a significant incentive to vigilantly track the results. Why? Because, there is little to no recourse if they overspend. They may not be able to borrow a penny to cover a shortfall, or in other troubling situations, may take to running up completely devastating credit card debt. Under the Rule of 72 — with credit card repayment interest rates as high as 20 per cent or more, original charges of $3,000 (with only minimum monthly payments) can ballon to more than $6,000 in only four years!
Business for profit entities run even more rigorous budget controls. Revenue down, operating costs up, numbers are slashed across the board to achieve efficiencies with redundancies, capital investment pullbacks, tighter purchase controls, employee buyouts and CEOs leaving with the proverbial excuse “to spend more time with family”. This is commerce at its lowest, or at its finest, depending where you are in the economic industrial cycle.
But readers, you know all this stuff.
That is how budgets are supposed to work. While it is not unusual for us ordinary folk to fall off the budget slope, we fully expect our government, an entity that is loaded with finance people, actuarial people, project managers and the like, to present a defined budget and stick to it. They have the means and the authority to actualise this mandate.
However, governments, across the globe it seems, including our own very tiny government, although ridiculously huge per capita of the Bermuda population, cannot seem to stick to a budget. Not only is the budget not a balanced budget where revenues match expenses, but more often the original budget estimates do not coincide with the actual financial results.
What do governments due to make up the shortfall?
Why, they issue more debt!
Readers, I like facts, real (not fake, the new buzz word) number facts that are truthful, verifiable, and supported by third-party authentication. Fact verification is also a demanding process undertaken by Bermuda’s Auditor-General, Heather Thomas, CPA, CGMA, every year. Her finance mission provides credibility (or not) to the entity that is the Bermuda Government.
Illumination and education
The Government of Bermuda issued a 2018/2019 Pre-budget Report prior to the actual budget speech. Page 28, the Historical Economic and Fiscal Information, is the most illuminating snapshot of our Government’s fiscal condition for the ten years prior to fiscal year 2017/2018 — that is not included within this report (see this page attached to this webpage under the heading, Related Media).
The ten years, 2007 to 2017. Let’s take a look, shall we, at just a few very key numbers, otherwise you will be bored to tears. Many numbers on a page have a habit of doing that to people, particularly those that are math intolerant.
1. Population: dropped by 2,500 residents from 2007/08 to 61,695 in 2016/2017. According to media, it continues to decline. Less people requiring services should ideally mean less government expense.
2. Unemployment: rose rapidly from 3 per cent in 2007/08 to topping out at 9 per cent then remaining at a 6 per cent rate.
3. Revenues and expenditures: revenues started at $928 million at the start of the period, dropping to high $860-880 million then rising again above $950-980 million. Revenues never topped $1 billion until fiscal year 2017/2018 (America’s Cup?).
Expenditures went well over $1 billion every single year in the chart.
4. Deficits: thus, every single year resulted in a funding deficit. Research of budgeted versus actual results further back to fiscal year 2003/2004 was the inception of a very small funding deficit ($9,967). All in all, our government has run a negative balance for more than 16 years. Some deficits came in under budget, others ran way over — but, make no mistake, they were all deficits in the millions. Just an endless litany of overspending.
5. Interest expense from borrowings: of course, these escalated along with the deficits as more and more foreign funding was sought.
6. Total debt: increased from $345 million in 2007/2008 to the elephant in the room today of more than $2.6 billion.
7. Guarantees: the total debt number does not count guarantees of $1.2 million increasing to $500 million. Guarantees of what, I need to research, but one assumes quangos and other related indirect government-backed debt. Someone kindly enlighten me, if my assumption is incorrect.
8. Capital expenditures: decreased in volume and dollars from $155 million to $43 million in fiscal year 2015/2016 as government’s austerity programme continued. A small ray of sunshine saw some capital project upswing in fiscal year 2016/2017. Our infrastructure is acutely diminished.
9. Net percentage of debt (not including guarantees and unfunded pension liabilities) to nominal gross domestic product: increased from 4.5 per cent to a staggering 39.1 per cent in ten years. Need I say more. The reigning party in Bermuda has a huge challenge ahead.
Hope is not a realistic, or mathematical fact. However, we hope that the most recent Budget, for fiscal year 2018/2019, while still projecting a deficit of $90 million and planned new borrowing of $135 million, will continue to eventually return the Bermuda Government Budget to a fiscally, strong, conservative surplus territory.
Bermuda Government Budget Books (estimates of revenue and expenditures) all the way back to 1992.
PricewaterhouseCoopers Bermuda budget reports
Deloitte Bermuda budget reports
Bermuda.io at the website, www.bermuda.io
• Martha Harris Myron CPA, JSM: Masters of Law — International Tax and Financial Services, Pondstraddler Life™ Financial Perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Contact: firstname.lastname@example.org