Island’s debt ceiling rises to $1.45b
Bermuda's lawmakers have raised the Island's debt ceiling from $1.25 billion to $1.45 billion, over the objections of Opposition MPs.
Premier Paula Cox had signalled her intention to raise the statutory debt limit in her Budget Statement.
She defended Government borrowing in her introduction to the Government Loans Amendment Act 2012, repeating her argument that it is affordable.
Ms Cox said her administration had invested in hard assets and provided an economic backstop through concessions and relief for businesses and people to assist them through the economic downturn.
“Since April 1999 to March 2011 this Government has invested over $1.2 billion in hard assets,” the Premier said.
“These assets include: modern and upgraded school facilities; modern public transportation, other social infrastructure such as public housing, senior care facilities and national sports facilities and economic infrastructure such as airport works, docks and bridges.
“Indeed part of the borrowing requirement in 2012/13 relates to further investment in economic infrastructure at the LF Wade International Airport, namely, building our capacity to take control of Bermuda's commercial airspace.”
Shadow Finance Minister Bob Richards led the criticism against Government's management of the purse strings, arguing it had put the entire community at risk.
“When a business fails a lot of people fail but the whole community doesn't fail,” he said.
“There are no shareholders in the Government, but everybody's a stakeholder.”
Mr Richards said that the debt would have to be paid off by younger Bermudians and not the current generation of decision-makers.
And he denounced the trend of rising debt.
“The escalation of debt has been caused by bad decisions,” he said.
“We have a Country of 62 or 63,000 people and the Government of the Country is planning to owe almost a billion-and-a-half dollars. That's a heck of a lot of money.”
He said: “What we have here is built on virtually nothing. And when you put almost a billion-and-a-half dollars of debt in that context, it's a scary thing. It's a very scary thing.”
He rejected the argument that much of the debt was spent on hard assets saying much of the overspending was on current accounts.
“All of this stuff about hard assets is a bit of a smokescreen.”
He said: “This debt is the result of cumulative deficits. It just didn't drop from the sky.”
The debt was too high and was on an upward trend and Government had not indicated how it would be reduced, Mr Richards argued.
Mr Richards said that his calculations showed that the debt per young person under 35 worked out to be about $53,000 and per worker it is $55,000 a near tenfold increase since the Progressive Labour Party came to power.
“We haven't seen ten times the amount of hard assets that the Government owns in 13 years.”
He added: “Government has the temerity to tell Bermudians that they shouldn't be worried about this.”
Bermuda has fought no wars, maintains no “huge employment insurance” system, does not provide huge amounts of aid to developing nations, “yet we have debt levels that are of the same order of magnitude of countries that have all these things”.
He compared Bermuda's deficit of $3,365 per person to California's debt of $233 per person, Hawaii's debt of $363 per person and Florida's debt of $105 per person.
Mr Richards also expressed doubts about Government plans to float a bond locally, saying that he did not believe that would work because “Bermuda dollars are US dollars in Bermuda shorts”.
He expected that Government would offer them to local pension funds, including the Government pension fund.
Mr Richards warned that interest rates would inevitably rise and the cost of servicing the debt could become astronomical.
Families Minister Glenn Blakeney said Government was managing finances responsibly.
“We've used the money for the people of this Country, especially the people of this Country who were having hard times.”
He noted that Government had given the $200 million guarantee to Butterfield Bank, which had saved jobs.
“That's what we're here to do to help our people and sometimes it takes a little more than you project because nothing is absolute in life. And credit and debt is what makes this world go around in the beginning,” he said.
Kim Swan of the United Bermuda Party said that Government had inherited a “clean set of books” in 1998.
He said young Bermudians would have to deal with the debt problem “without any particular indication by the Progressive Labour Party Government that they're going to wrap their minds around moving in the other direction”.
He said: “If for the last six years, your expenditure is more than your income, Mr Speaker, and you haven't made any particular effort to reverse that particular trend then the Country has to be concerned.”
Mr Swan said: “We've been in recessions before but the Country was in better financial shape to withstand it, to help its people.”
Premier Cox insisted that Government was doing its duty to protect people in tough times.
“When times are down, when people are struggling, when they are feeling the pinch in their pocket, they don't want the Government to kick them when they're down,” she said.
“They want the Government to provide a shield for them. They want the Government to insulate them and their businesses and give them some time to get out of their difficult position. The Government has to, as its job, has to create and use the fiscal space in order to help those who are hurting.”
She said: “Governments either must continue to borrow to bridge the financial gap or they have to cut spending to accommodate the actual revenues. If you do the latter, it will result in public sector downsizing and that will also lead to increased weaknesses in the private sector and in terms of having negative economic growth.”
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