Friday's revelations that Government revenues in the 2008-9 financial year were $32 million less than expected and that they are $14.9 million lower than expected in the first five months of the current financial year are deeply worrying.

In percentage terms in a near-billion dollar budget, the shortfalls are not enormous, but because last year's budget was in deficit anyway and this year's had a tiny projected surplus, it means that for the first time in living memory, Bermuda will run a current account budget deficit for two years in a row.

Historically, Bermuda has run its Government budgets much like a household budget should be run. While big capital expenditures like the family home or car will be borrowed for and paid back over a number of years, day to day expenses are paid from the family's income. If anything is left over, the prudent family will use it to pay off the debt, or it may be put away for a rainy day or a college fund.

There may be times when day to day expenses have to be paid out of an overdraft or a credit card, but these should be paid off quickly as income comes in.

The Bermuda Government worked in much the same way. Big capital projects like schools and hospitals are built and paid for using borrowed money, which would be paid back over time. Day to day expenses such as wages, salaries and services are paid for from current year revenues, with the balance being used to pay down debt.

In addition, in the early 1990s, then Finance Minister David Saul established a Sinking Fund, into which Government was required to deposit a fixed amount each year, which would eventually be used to pay off Government's debt. Last year, Bermuda failed to meet its day to day expenses and had to borrow money to do so. Last week's revelations show that Government had to borrow more than it expected to even back in February.

And the fact that Government is already almost $15 million behind in revenue in the current financial year makes it likely that the small $2.7 million budget surplus projected for this year will run into deficit as well. It's worth noting too that the only reason there is any surplus at all is because the Sinking Fund is being raided this year to pay interest on existing debt, and that no money is being put into the Fund. Were those two requirements being met, Bermuda would have been projecting a current account deficit of around $25 million.

It has been noted elsewhere that other countries have much heavier levels of debt relative to the size of their economies, than Bermuda, where debt of $637 million would have been 11 percent of gross domestic product, with the addition of the $200 million Butterfield Bank guarantee taking debt and other liabilities up to 14 percent of gross domestic product.

For example, the US has seen national debt soar to 60 percent of its GDP this year, while Japan's debt is 1.7 times bigger than its GDP. While that may be acceptable for large and multidimensional economies like the US and Japan – and there are many who say it is dangerous – Bermuda simply cannot afford that scale of debt.

What is most worrying is that the revenue shortfall is likely to get worse as the year goes on, not better, especially once the current construction cycle ends and jobs are shed from the various office developments around Hamilton.

So far, apart from the sterling work Finance Minister Paula Cox is doing on the international tax front, the only thing that Government has managed to propose to reverse the economic downturn is the introduction of gambling. Gambling, whether you agree with it or not, will not fill the gap in the economy that international business currently occupies. What Government should be doing is going to the international business sector to work out how jobs can be kept in Bermuda and how the Island can remain attractive to the international sector.

At the same time, Government needs to look again at how it can control its own costs. Last year's belt tightening exercise resulted in a $30 million increase in spending for the current year. It is being argued all over the world that deficit spending by Governments is needed to keep economies afloat until the private sector recovers.

But that concern has to be balanced, in countries large and small, against the need one day to pay the debt off. To that end, it is incumbent on Government as it works on its Budget for 2010, to cut down spending apart from that which is absolutely necessary.