Setting up a cash budget is a no-brainer for most people because it only has three components, and one rule. Cash in minus cash spent equals a decision tree about what to do with what is left. The rule is even simpler: if you don't have the cash in hand, you can't spend it.

A cash budget has none of those accruals for expenses or estimated revenue projections for the next fiscal year, deferred principal or interest payments on loans and so on. Accounting for accrual budgets may be considered a science, but is not easily understood and can be subject to change.

Construction friends hated accrual accounting, derisively referring to it as "smoke and mirrors" full of opportunities to position the results to impress the public (and bankers) of the day. Nevertheless, with the background of the US Congress and Senate this week battling out a stimulus package to benefit the budgets of the everyday American family along with excoriating the investment bankers and other highly compensated types for getting the US economy in this mess, we here in Bermuda, are all awaiting the latest budget figures after what has been a globally horrendous economic year: in the markets, in countries, in businesses, and in households. We are hoping to see fiscally conservative, palatable financial planning from government that is going to carry us through the next year.

Will the beef and the gravy train continue? Much was made of the larger than expected revenue receipts in the last budget year, but even those increased numbers did not bring the budget into balance.

The public debt grew by more than 40 percent to cover the shortfall of revenue ($985 million) less expenditures ($1.1 billion). Hard cash flows into our country in a number of ways. We don't need to belabour the often-quoted statement about the two pillars of our economic society revenue generators, international business and tourism. It is said that there are really three pillars, but the third has to be left underground for now.

The fact is that outside businesses doing business here generate revenue while expending for goods, personnel and services; tourists coming here leave cash and hopefully, goodwill behind. In a round robin (or in business vernacular multiplier effect) that cash circulates again and again from /to local landlords, landscapers, car dealers, construction projects, furniture sellers, grocers, retailers of all sorts, and so on.

Government raises revenue in the form of taxes and fees as a by-product of these business activities. Corporate /company fees, payroll taxes, customs duties and immigration fees, passenger fee, conveyancing fees, foreign exchange and stamps taxes, luxury item levies enhance the public coffers to the tune of an estimated $985 million last year.

This revenue has been so consistent for the last few years that it may have been thought of as a pipeline that instead of gushing oil down a funnel, it gushes dollars. With economic pressures and company red ink on the rise and reported declines in payrolls and company filings this year, two of the largest cash cow revenue generators in our economy may not hold up their end of the feeding line.

Then you have to envision the tap being turned partially off and the flow goes down, what happens to the multiplier effect then? And what will be the revenue shortfall?

Last year's budget (2007-08) for government expenditures was in excess of $1.1 billion, including capital projects of $155 million. Will that number hold for this year's expenditures or will it top out above it? This will place additional stress on the estimated revenue budget that will have to be compensated for expeditiously.

The reality is this year is not like last year. This year is far, far different; we are still in uncertain economic territory. With 650,000 jobs lost in the United States in January 2009 alone, and similar reports from major OECD countries, precious little cash will be flowing overseas in the form of restorative vacations and new business ventures.

This year is the year of survival of the fittest. It boils down to three questions, only three questions to answer for forward planning (for any household, company or government) in a recessionary environment.

Do we have enough cash to weather the downturn? How are we going to raise cash? Who is going to pay? Cash cushion: How much cash do we have? In economic contractions, businesses (and personal households) hoard free cash, running recovery models to calculate how long it will last — until a return to profitability.

How much does Bermuda have in her purse in real hard cash (no Monopoly money as our friends often call it), unencumbered and available? We, the public, need to know because every change in taxation from government affects our own household budget.

How are we going to raise cash? Cutting expenses does not raise additional cash, but it sure makes what is left in the contingency bucket last longer. Government has indicated a mandatory expense cutting measure of 10.5 percent of present expenditures, but households and businesses are sacrificing more than that. One only has to read any global and local newspaper to learn that states, cities, businesses are trimming wholesale across the board.

Governor Pataki of New York ordered the sale of hundreds of state-owned vehicles, Mayor Bloomberg is laying off thousands of city workers. The state of California has issued mandatory unpaid vacations for state employees. Businesses are redistributing salary efficiencies (pay cuts) in order to keep everyone employed and heavily marketing reductions in retail/wholesale merchandise to recoup precious cash. Households are trying to adapt to as much as a 50 percent to 100 percent drops in income due to redundancies.

There are a number of ways to raise revenue by increasing taxes on the general population, some of which are already in place, none of which will win a popularity contest:

• Foreign currency stamp duty — if a 25 basis point increase last year can generate an additional $15 million, the temptation will be to make that another fourfold or more.

• Consumption tax — another increase here will curb some shopping, but not all — we are after all a consumer-driven society

• Luxury tax increases — whatever the high limit base can tolerate.

• Payroll tax and company fees — doubtful that any business will be willing to absorb further increases here.

• Interest and dividends tax — it can't have escaped attention the attention of the budget planners when the number of shareholders in Bank of Bermuda stock was published, way back in 2003. All those dividends! Why not take a piece of those? Assuming that company boards of directors continue to vote dividends in poor economic times.

Many companies have slashed dividends completely. The State of New Hampshire, the boaster of the only state with no income tax, has more darn taxes than almost any other, all nickel and dime add-ups. They've run an interest and dividend tax successfully for many years. This initiative won't be well received, from a taxation and privacy perspective. Imagine 20 percent of us monitoring the remaining 80 percent in an income tax administrative environment.

• Rental income tax — A long look at the most recent 2009 Revaluation of the Land Valuation & Tax Act 1967 acts some very, very pertinent revelatory questions about rental units, income production, tenants, landlords, beneficiaries, and trustees. And it is required by law. The form states that the information is confidential and will only be used for purposes of revaluation.

• Increase our debt ceiling. What are the terms of our debt? Who have we borrowed from? When was the last principal payment made? What will be the forward projections that show the eventual retirement of this debt? Can we afford it? Can we afford not to? Who is going to pay?

No matter what the results, we will all pay, one way or another. The key is to assure that everyone pays his or her fair share. Guess the big question to be asked on Valentine's Day, are any of us going "to feel the love" after the entire budget plans are released next week?

The time is now to take the extraordinary step to personally lobby our leaders to pull together and create a realistic contingency equipped financial plan that will take us through the next couple of years. We've believed for a long time that "Bermuda is a vibrant economy that is strong and successful". We have to continue together to make it so.