A bill increasing Government's borrowing limit to $1 billion was approved by the House of Assembly last night.

Finance Minister Paula Cox told MPs the Government Loans Amendment Bill — which nearly doubles the public debt ceiling from $550 million — would "shield people from hardship in these extraordinary times".

Shadow Finance Minister Bob Richards argued putting the limit so high would leave little "wriggle room" if the economic crisis continues beyond the next financial year.

A number of United Bermuda Party MPs complained Government had left itself in a difficult position through overspending in recent years.

The move, first announced by Ms Cox in the Budget last month, creates a financial cushion of $250 million which can only be used only in the case of "systemic threat or risk issues to the economy".

It also covers Government's estimated borrowing requirements of $147 million to help pay for the planned capital expenditure programme, and prepares for the financing of the new hospital.

Politicians debated the bill hours after Ms Cox announced Government had struck an historic deal with Butterfield Bank to bolster the bank's capital base by $200 million.

As well as raising the borrowing limit, the bill also allows for interest on public debt to be paid out of cash in the Sinking Fund, a fund set up in 1993 to set aside money for the purposes of paying debt.

Further, it allows the Minister to suspend the payment of the annual Sinking Fund contribution by a year. Ms Cox had already announced Government would not pay its normal Sinking Fund contribution in the next fiscal year, although it intends to resume paying it in 2010/11.

Before giving the bill its second reading, Ms Cox told the House: "As announced in the 2009/10 National Budget, Government proposes to set the statutory ceiling for long-term debt at $1 billion. This represents about 17 percent of GDP which is still considered a moderate level of indebtness.

"This amendment only provides for the authority of the Government to borrow up to the newly established limit and it is important to note that incurrence of debt or long-term borrowing will only be incurred when absolutely necessary, and is only used for the purpose of providing financing for capital projects as outlined in the Capital Section of the Annual Budget.

"The current economic conditions are causing Governments around the world to aggressively implement monetary and fiscal policies aimed at preventing a free fall in the economy.

"The Government of Bermuda is no different and we are using the fiscal tools at our disposal to shield the people of Bermuda from hardship in these extraordinary economic times."

Referring to the Sinking Fund proposal, Ms Cox said: "Some say that the piggy bank is being raided. Others might say that it is wise that rainy day funds have been set aside for use on rainy days, and probably would agree that we are facing some rainy days ahead. Government concurs with the latter view."

Mr. Richards told the House he supported the Butterfield Bank move 100 percent, but to jeers from the Progressive Labour Party announced he would put back on his "normal hat" to criticise the Government Loans Amendment Bill.

He said the $1 billion limit meant every man, woman and child on the Island had the capacity to owe more than $15,000 without doing anything.

"A billion dollars for 65,000 people is a lot of money," said Mr. Richards.

"We are putting this thing up to $1 billion but it's almost all used up already. There's not a lot of wriggle room. Let's face it, 2009 is going to be a bad year.

"We have to face the possibility that next year this Government might be coming to ask to put it up even higher than $1 billion. I'm not predicting that; I'm raising the possibility of that."

He said Ms Cox was wrong to suggest the Sinking Fund was a rainy-day fund, adding: "The Sinking Fund is a fund to pay off debt. We do not have a rainy-day fund on this Island."

Mr. Richards continued: "The spending of this country is out of control ... it's ending up in that pool, and that pool is called public debt.

"It's very disturbing when you see a policy put in place in 1993 that was adhered to by a former series of administrations, that prudent set of rules, thrown out of the window.

"We need to be in this country much more sober in the way we go about doing business and the way this Government goes about spending money."

Former Finance Minister Dr. Grant Gibbons of the United Bermuda Party said Government should have heeded warnings about the financial crisis a year ago.

"Had there been more effective cost-cutting by Government in the year we are still in, then we wouldn't have to be raiding the Sinking Fund," said Dr. Gibbons.

He warned we could only be in year one of a crisis that goes on for many years.

Government backbencher Zane DeSilva asked why Mr. Richards could support the Butterfield Bank move but not the Government Loans Amendment Bill.

Minister of Energy Terry Lister said: "None of us thought we would be standing here tonight having heard that the Bank of Butterfield has had some difficulties. We always regarded Bank of Butterfield as 'the rock'."

However, he said in light of the situation, Government has a responsibility to do the right thing.

"So we have to stand up to protect. That's our responsibility as a caring Government, as a Labour Government, and if we didn't do this tonight we would not deserve to be the Government."

John Barritt of the UBP said it is right to expect Government to step in to assist one of Bermuda's three banks.

"It's a bank that's important not just to its employees but to its customers as well and even to those who don't bank at Bank of Butterfield (to) the confidence of the country has."

However, he condemned Government for the Sinking Fund plan, saying that when there was money in excess of forecasts in previous years, they should have been "saving for a rainy day".

Mr. Barritt said the Sinking Fund was an important issue when it comes to a Government being seen as fiscally prudent and that there should have been further cuts in this year's budget instead of resorting to the Sinking Fund.

His party colleague and former Shadow Finance Minister Patricia Gordon-Pamplin joined in the criticism.

She said raising taxes in such hard times was not an option, but Government should have taken the excess cash in previous years and "accelerated the pay down of its debts" instead of using it for capital spending.

In her reply to the points raised, Ms Cox said while the Opposition might disagree with budget spending in the past: "It's important to debunk the myth that Government has frittered the money away."

She said it had been spent on projects and assets that were valuable to the people of Bermuda.