OBA: The PLP Government has become addicted to debt
But Government defends its policies, saying it has acted with ‘prudence and restraint’
By Ayo Johnson
Shadow Finance Minister Bob Richards poured scorn yesterday on Premier Paula Cox’s argument that the National Debt is affordable, saying she is using a standard inappropriate for Bermuda’s economy.
But the Premier responded quickly with a statement defending Government’s borrowing as infrastructural investments and provision of an “economic backstop” which saved thousands of jobs. Mr Richards also refuted the Government’s position that the global recession was the driver of Bermuda’s recession.
And Government had been overspending its approved budget since 2004/05 a point refuted with uncharacteristic alacrity by the Finance Ministry.
“The government is depending more and more on debt just to pay its day-to-day bills,” Mr Richards said in his Reply. “Debt is like a narcotic, the more you use it the more you need it. And like an addict, the Government no longer has the strength to change its ways.”
Using a graph which tracked actual spending against budgeted spending, he argued that Ms Cox’s appointment as Finance Minister coincided with the start of an era of overspending and that the Government had been living beyond its means “several years now”.
“This chart clearly shows that ministers Saul, Gibbons and Cox Sr actually spent close to or less than their budgets. However, all this restraint evaporated under Finance Minister Paula Cox, whose spending consistently far outstripped approved budgets,” Mr Richards said.
“Please note, Mr Speaker, that this lack of restraint predates the global recession by three years, conclusively proving that this is not the fault of the global recession, as the government would have Bermudians believe. The lack of restraint also predates the Premier Brown era and continued after his retirement and is for current spending nothing to do with building hard assets.
“The Government desperately wants us to believe this global recession story because, if we do, it gives them a free pass insofar as who is responsible for this, the greatest economic disaster in Bermuda’s history.”
Government was quick to react to Mr Richards’ allegations that Government was living beyond its means.
A press statement issued by the Ministry of Finance claimed the Opposition’s graph was misleading because it did not take into account two extraordinary write-offs.
Government, it said, had in fact acted with “prudence and restraint”.
It noted that Mr Richards’ graph comparing budgeted and actual spending in 2004/05 showed additional spending of just over $62 million, but that included a $52.2 million write-off that was owed to the Consolidated Fund by the Public Service Superannuation Fund, the civil servants’ pension fund.
“This balance due from the PSSF had accumulated over the few years before 2005 and was due to PSSF contributions being less that benefits paid from the fund,” the statement noted.
“This problem has been rectified when Government increased PSSF contributions commencing in 2006. This item was recorded as a special contribution to the PSSF and was a one-off accounting entry.”
And in 2006/07 Government wrote-off a loan repayment of $49.5 million that was due to it from the Bermuda Housing Corporation.
“If this one-off amount is removed, the $50 million additional spending reported would actually become a minor current account surplus,” according to the Finance Ministry.
“The Government made this decision to assist the Bermuda Housing Corporation with the carrying out of its mandate to assist with the development of affordable housing, by providing relief for amounts outstanding on loan to BHC. This action also reduced the debt on BHC’s balance sheet so that they could access capital markets without Government assistance.”
The statement said: “This write-off had to be accounted for as a grant to the BHC even though no cash was expended in this year.
“The most important thing to note is that these items above were affordable. In 2004-2005 the government took in $88.5 million dollars more than budgeted, and in 2006-2007 the government took in $48 million more than budgeted.”
Government offered no reaction to Mr Richards’ assertion that debt/GDP ratio was inappropriate as an indicator of Bermuda’s creditworthiness, as Ms Cox had indicated in her Budget Statement.
“The Ministry of Finance has tried hard to pacify Bermudians’ concerns about the current level of debt by saying that our Debt/GDP ratio is only about 24 percent, much lower than many other countries,” Mr Richards said in his Reply.
“Mr Speaker, if Debt/GDP is the deciding measure of a country’s debt risk then how is it that Japan has a Debt/GDP of 240 percent and is rated AA, while Greece’s ratio is only 177 percent and it’s bankrupt? Clearly Debt/GDP is not what decided a country’s credit worthiness.”
He argued that taxpayers paid back debt, not GDP, and while GDP was a “meaningful proxy” for taxpayers in larger countries with multiple taxes, that is not the case for Bermuda.
“We don’t tax corporate/business profits or investment returns or interest on savings or dividends.
“These are a large component of our economy. We tax labour (payroll taxes), consumption (duties) and real estate, but our tax base is much smaller than our private sector,” he noted.
“Because of this, Bermuda’s GDP is in no way representative of taxpayers. Debt/GDP is a debt indicator invented in major countries for major countries. To use it to compare Bermuda to G7 countries, or any country with income tax, is ridiculous. As the Government uses it, it is deliberately misleading, like comparing apples to oranges.”
Mr Richards also referred to Government’s pre-Budget report which states that Bermuda’s debt is affordable because it is less than the 60 percent debt/GDP ratio standard used by the European Union.
“In other words,” concluded Mr Richards, “we shouldn’t have to worry about the debt until it reaches $3.5 billion! That’s just unbelievable!”
He said: “The PLP government, in its wisdom, has chosen, as its standard, the debt criteria of the EU, the same EU that is today at risk of melting down, not from austerity programmes, but because of too much debt!
“In their desperate efforts to administer Prozac to Bermudians’ concerns, the Ministry of Finance has exposed its position as indefensible, and as we all know, it’s very difficult to defend the indefensible.
“Not only is the government’s debt position too large there is no plan to reduce it. If debt keeps increasing the sinking fund will never catch up.”
The Premier responded to Mr Richards’ general criticism about excessive debt, in a statement issued on her behalf which noted that Government’s “management of the public finances prior to (and during) the financial crisis is one of prudence and restraint, and has been endorsed by the major credit rating agencies”.
And the Premier accused the OBA of manipulating budget figures “to arrive at make believe estimates of their own to show exaggerated debt numbers”.
She said: “The debt that the OBA screeches about represents investment in Bermuda’s future. It is investment in economic and social infrastructure that will be of value for today’s needs and for the needs of the next generation or two.
“Part of the debt also represents an economic backstop that has preserved thousands of jobs for Bermudians during the most difficult recession we have faced in our lifetime.”
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