Budget 2016: a work of short-term brilliance
In some ways, the Budget is a marvel of concise brilliance. In other ways, it sidesteps the most pressing structural issues of our time.
To the first point: the finance minister did what he had to do. He has taken decisive steps to reduce the deficit, notwithstanding the real possibility of the debt rising above $3 billion by year’s end. The point is that the finance minister has a credible plan for debt reduction largely because last year’s targets were met.
For that reason, the minister’s Budget is a marvel. I’m sure the Government’s creditors are happy. The electorate, however, needs more convincing that last year’s Budget averted a debt crisis. More specifically, the people need convincing that debt-service costs, or Nanci — kudos to Larry Burchall for bringing this to the public’s attention — were spiralling out of control. That’s a hard sell when unemployment is likely higher than during the “Great Depression” — several thousands have either emigrated or stopped looking for work.
It’s not just the recession, stupid: the economy has been haemorrhaging Bermudian jobs for the past 16 years. We’ve lost hundreds of young, qualified Bermudians to emigration, according to a Department of Statistics report — Emigration: Bermuda’s Qualified Human Capital Departs. To add insult to injury, the Government’s economic strategy is focused on trying to attract young, qualified non-Bermudians to the island. Unsurprisingly, this facet of the Government’s strategy is not going well.
Further, the Government’s economic strategy remains overly reliant on foreign investment and labour, and international business. Local business, as a job creator, is simply not on the Government’s radar; neither is a strategy for bringing back young, qualified Bermudians. Nonetheless, Budget 2016-17 is just what was ordered by the “doctor” — Fiscal Responsibility Panel, an independent group hired by the Government to assess its budgets. Spending is finally under control and tax revenues are rising.
There is, however, a risk that higher payroll taxes and customs duties will stymie job creation and spending. We have to hope that there is enough economic momentum to overcome this new headwind.
To the second point that the Budget sidesteps, the most pressing structural issues of our time: there has been a lot of talk about restructuring the Civil Service, but the Sage Commission’s recommendations have largely fallen by the wayside.
The telecommunications sector is badly in need of restructuring. Outrageously high internet prices, for example, are holding back economic growth. High prices are supposed to be a signal that either demand is racing ahead of supply or that there is a shortage of supply. The truth is that we have an abundance of supply, which begs the question: why are prices so high? I can’t but wonder if the regulator — the Regulatory Authority of Bermuda — has been captured by the oligopolists, the few firms in the sector exercising undue influence, that it was tasked with regulating.
While I’m on the subject of structural change, the financial services sector is also in need of an overhaul. It, too, is holding back growth with its all-or-nothing approach to lending.
In the past, it may have made sense to give banks oligopolistic or, more accurately, duopolistic control over financial services, but today, it is harder to make that case.
Last year’s Budget statement took the view that “our problem [with growth] is local and structural”. I couldn’t agree more, so why has progress on this front been set aside? It is because big business has subverted the political process to its ends — the end is the extraction of value from consumers to big business.
Market economies work best when institutional arrangements are inclusive. Inclusive institutions encourage participation of the majority in economic activities so that they can make the best use of their talents and skills. When businesses, unions or any group is able to bully its way, broad-based growth is compromised.
To a limited extent, Budget 2016-17 is indeed a marvel of brilliance. The finance minister has adverted a debt crisis. But he has failed to lay the foundation for sustained growth and, more importantly, growth that benefits the majority and not just the few.
• Craig Simmons, an economics expert, is a senior lecturer at the Bermuda College