Budget may contain clues to Curtis Dickinson’s departure
Typically, opinions about the upcoming Budget given in the days and hours before it is delivered are exercises in futility.
The Budget is usually already written and should be coming back from the printers by the time most of these viewpoints are delivered.
This year is probably no different, although it will be jarring to see the Budget Statement delivered today by a minister who wrote little of it, while the MP who did write most of it sits on the back benches.
The drama of Curtis Dickinson resigning as finance minister and David Burt adding the portfolio to his already busy role as Premier and tourism minister is now in its second week, and Bermuda is no closer to officially knowing why Mr Dickinson quit, although that has not reduced the speculation.
Some clues may lie in the Budget Statement, particularly with regard to any guarantees that may have been made to Gencom, the owner of the shuttered Fairmont Southampton resort, for the property’s redevelopment.
This has been reported to be the cause of Mr Dickinson’s resignation. So if the Budget does contain a guarantee, or a suggestion of one, then this will help to explain why Mr Dickinson, who was reportedly opposed to a guarantee, quit so abruptly.
If a guarantee is announced in the Budget or later, Mr Burt will have quite a task to explain why it is different from the Morgan’s Point guarantee he vociferously and rightly proposed, or why a company that failed to pay legally required redundancy payments to its staff should now be trusted.
It is also reasonable to assume that the guarantee row, if true, was not the sole cause of Mr Dickinson’s resignation.
It may suggest a wider divergence on overall government economic policy, and to the extent to which a Budget can be revised and rewritten in the 12 days before it is due to be delivered, there may be clues to this as well.
As a banker and as a member of the more centrist wing of the Progressive Labour Party, Mr Dickinson may well have been more concerned about the growing government debt than some of his colleagues. In this, he may have been hung by his own petard, since it was his own negotiations that have enabled debt service costs to remain relatively stable even as the debt itself ballooned.
This may have given some the false hope that Bermuda could pursue a more expansionary economic policy than the debt would otherwise have allowed.
There is a genuine dilemma here for policymakers. There is a sound economic argument to be made that Bermuda will only work its way out of the present nightmare of recession and economic stagnation, and record-setting Budget deficits through economic growth.
That growth can be spurred by government policy if taxes are kept down and money is spent on capital projects and infrastructure. But doing so, at least in the short term, means that government debt will continue to increase beyond its already eye-watering levels.
For now, while global interest rates are low, that might be manageable. It is almost certainly unsustainable in the long term because one day interest rates, and therefore debt service costs, will start rising again. That day may not be far off, with war in Ukraine now adding to already strong inflationary pressures. The main tool for controlling inflation is an increase in interest rates.
Mr Dickinson will have been all too aware of this and of the possibility that as $500 million in debt comes due over the next two years, it could be much harder to pull off his interest rate reduction magic than it was in 2020.
So it is possible that Mr Dickinson was much more hawkish than Mr Burt on the need to narrow deficits. Certainly, while Mr Burt was finance minister he tended to be on the pro-growth side of the economics debate while offering some overly optimistic deficit-reduction projections.
The pandemic put paid to most conventional approaches to economics, but if the world is now emerging from the pandemic, then finance ministers will have to come back to earth, too. That will mean that in time, deficits will have to be reduced in Bermuda because the existing level of debt is unsustainable.
So this is a dilemma. With no good or easy options, the Government should focus on economic growth. That does not mean the Government should be picking winners and losers, but creating the conditions in which the private sector can grow and create jobs.
Many eyes will also be on Jason Hayward, the labour minister, as he has been now handed much of the economic development portfolio, which used to reside in the Cabinet Office.
In theory this could lead to better co-ordination between the Department of Immigration and the economic sectors that generate foreign exchange and employment. If Mr Hayward now pays closer attention to international business and tourism leaders, this could lead to investment and jobs for the economy.
But if, and it is a big if, he tends to look at these sectors purely from the perspective of the need to get Bermudians of any skill level back to work, this could backfire badly and damage Bermuda’s already limited growth prospects. Mr Dickinson’s well-known views on the need to keep international business flourishing may be sorely missed at the Cabinet table now.
The Bermuda economy needs two things to happen if it is to recover from its lost decade. The first is foreign direct investment, whether in service businesses such as reinsurance or in capital investment like new hotels.
This in turn will generate foreign exchange which percolates through the rest of the economy and creates new jobs.
Those new jobs add to the population, which is the second necessity for recovery. Bermuda needs more people to both earn and consume. Declining and ageing populations do not naturally generate economic growth or increased tax revenues.
If these things happen, then the Budget deficits that are of such concern will narrow because a growing economy leads to increased tax revenues and reduces the pressure on the Government to provide welfare to the unemployed and needy.
Today will determine whether Mr Burt and his government can deliver this.