It seems of late that there is a profound misunderstanding of the role of Government, and Government finances in particular, in a market driven economy like Bermuda's. It's fair to assume the that the fundamental nature of our economy is that it is a market economy, i.e. the intrinsic nature of the economy rests upon the principles originally outlined by Adam Smith. The free enterprise system has many faults, but it is one that has proven itself over time to be the most flexible and efficient in the allocation of resources.

The most important component of the free market system is that free and fair competition is self-correcting and, in the long run, balances the interests of buyers and sellers, producers and consumers, and lenders and borrowers, while concurrently generating resources for future development. These resources are called profits.

While it is not the purpose of this paper to thoroughly examine the role of government in the free market system it would be useful to briefly mention a few functions of government.

Law and order ? free markets don't work without security, law and order.

To provide not only regulations which outline what is free and fair, but also act as a sort of referee to ensure those rules are followed.

In a modern economy, government is expected to provide the basic infrastructure which acts as a platform upon which free enterprise operates.

Some important services just cannot be operated at a profit or must be made available irrespective of whether the "customer" can pay: such as health care services, social services, education, public transport, public housing, garbage collection etc.

Some economies, like Bermuda's, are not big enough to support competition in certain industries, like electricity. Monopolies in these sectors need to be more closely regulated by Government because they lack the self-correcting aspects of competition.

Government finances must follow the philosophical foundation upon which the notion and role of Government is based. Although Government fulfils important roles in a society, its revenues can never be thought of as "sales". A "sale" comes from a mutual agreement between a buyer and a seller to consummate a transaction at a particular price. Government's revenues are from legislated taxes. There is no specific agreement between an individual and the government relative to the value of any Government service. The person pays it whether they agree or not because it's the law.

Moreover, there's no alternative to paying taxes: you can't say: "Well, I don't like this tax so I'm not going to pay it and instead I'm going to pay XYZ." You pay the tax or the same Government will prosecute you in court. Your only alternative is to move to another country and pay their taxes. The only remedy to what is considered an unfair tax is through some sort of political action. And this can only be achieved through some kind of mass movement: an individual has no power on his own to refuse to pay a properly legislated tax. So tax revenues are nothing like corporate revenues from "Sales". Profits are appropriate for the private sector because investors are rewarded for risking their capital.

Since Government can force individuals to pay taxes, even if they don't agree with the tax, Government has a moral obligation to limit its tax revenue to cover its costs, service its debt and provide for publicly articulated capital projects. They shouldn't be keeping extra money "for a rainy day" in slush funds. Money retained for publicly planned capital projects it acceptable, but money shouldn't be kept until a capital project can be concocted to spend the surplus.

There's nothing wrong with a Government incurring debt, so long as the debt is for capital projects. One shouldn't expect long term, fixed assets to be paid for out of current receipts; just like you shouldn't be expected to completely pay for your house out of your current account, without taking out a mortgage. Like most things, moderation is the key. Incurring too much debt exposes the Government to excessive risk and interest expense. Debt should never be incurred, except perhaps in the most dire circumstances, for current expenditures.

Government is an institution owned by it citizens and it exists only to serve its citizens, not to serve itself, its ministers, civil servants or its own bureaucracy. Therefore, the objective of Government finances ideally should be to have after it has met all its legitimate needs. Of course such precision is not usually possible.

If Government repeatedly has money left over after it has met its legitimate needs, it should give that money back to its owners, i.e. its citizens. The best way to achieve this is a tax cut.

What are Government's legitimate needs? Although some are outlined earlier in this paper, there's no singular answer to that question, as any government's legitimate needs may vary over time, depending on the state of the economy and the society. One thing is certain and that is, since Government can legally force individuals to pay taxes, it has a fiduciary relationship with it citizens; i.e. a relationship of trust. Therefore, Government has a moral obligation to be as prudent as possible with the hard earned money it has levied from its citizens.

That is why profligate spending by Government departments and ministers, is unacceptable and must be stopped, irrespective of whether the spending might be on boondoggle travel or scandalously wasteful construction projects. Now we hear that civil servants want a pay increase greater than the rate of inflation because there's a pot of surpluses sloshing around and they want their piece. Whatever happened to fiscal discipline? Bermudians citizens, it's our money and we want it back!

Now that we have cleared that up, it is patently obvious that claims by this Government that overtaxing the Bermudian public amounts to "prudent management", is unmitigated nonsense. The tax burden on Bermudians for the last three years has increased hugely, by some $211 million. This money has not improved the lives of average Bermudians, it is being wasted in feeding a burgeoning bureaucracy. (They haven't even been able to solve the housing crisis with all that money!)

Return this money from whence it came, to the Bermudian taxpayer.

Recently Government expressed disappointment with the latest GDP figures and cited increased costs as a root cause. Part of those increased costs can be laid at the feet of the Government itself in the form of excess taxation which elevates the cost of doing business in Bermuda. In the calculation of GDP, Government surpluses actually REDUCE the level of GDP. The Minister conveniently forgot to mention that in her explanation of why growth was lower than expected.