In the December 12, 2011 Pre-Budget Report (PBR) and Ministerial Statement (MS), the Finance Minister acknowledged the depth of Bermuda’s economic situation. The Minister recognises that revenue is unlikely to improve substantially and that even after spending cuts, planned spending levels will still stay so high that debt and debt servicing costs will continue to increase.In the table at right are figures of revenue and expenditures that the Finance Minister presents in the PBR and MS. Figures for 2010/11 are actual and 2011/12 are projections.If we look carefully at the figures in the table, cuts occur in Government services which include Future Care, Government daycare, maintenance of public infrastructure, Financial Assistance, unscheduled police overtime etc. Debt Service cannot be cut as this is money that has been borrowed and is repayable to outside lenders who have agreed a specific financial arrangement. Paying these outside lenders is a priority. However, it is clear that the Minister intends to maintain high personnel costs.The figure of $352.7 million for All Other Government Costs (AOGC) is $224.7 million less than the previous year 2010/11. If we use actual historical costs from 2010/11as a comparative figure, the deficit for 2011/12 could be as high as $344 million. We must also realise that the projected figures do not include any provision for capital expenditures or any unforeseen events such as damage caused by a hurricane. Therefore, the Government will have only two options to manage its financial position:1) Borrow more money and suffer the immediate and future negative financial consequences2) Reduce all areas of Government personnel costsIn order to keep business viable and surviving in these economic times, the private sector cuts and eliminates costs in every area possible by closing businesses and making staff redundant. The private sector individual experiences job loss and reductions in income from rents, sales, interest and dividends.Government spends approximately 60% of its revenue to service its personnel costs. Therefore the only area where Government can cut spending with an immediate effect is personnel cost. The Government needs to cut their personnel cost by a minimum of 20 percent. This would equate to $119.46 million in savings which is the deficit projected for 2011/12 by the Minister. However, if the historical figure of $344 million were to be correct, then this cut would still leave $244.54 million in deficit. Therefore, a higher percentage cut should not be ruled out. Also, a freeze on any further employment in the Civil Service including the Quangos should be implemented immediately.If critical and essential Government services are to be maintained, personnel costs must be reduced now and into 2012/13. Going forward it is clear that Government’s costs must be kept down until Bermuda’s private sector economy, which is now 85 percent dependent on Financial Services, stops shrinking and begins to grow again which would provide a bigger tax base to generate more taxable economic activity.This continues to be a collective effort by all Bermudians and we need your continued support, comments and ideas. For further information or to express your comments e-mail us at economy[AT]challengerbanks.bm or visit us on Facebook: Regeneration of Bermuda’s Economy.