Burt focuses on stimulus rather than austerity
The Bermuda Government will borrow an extra $90 million in 2018-19 and put back the date to balance the budget by another year.
David Burt's maiden Budget yesterday focused on economic stimulation at the expense of austerity.
One of the results is that the deficit will not be eliminated in 2019-20, as had been projected by the previous One Bermuda Alliance administration.
The Progressive Labour Party had promised in its 2017 election platform to “balance Bermuda's budget by 2019”.
The Government will require extra borrowing of $89.7 million next year and $30.6 million the year after, before posting a budget surplus of $31 million in 2020-21.
Mr Burt, the Premier and Minister of Finance, emphasised that the net debt would stop increasing by 2019-20, because some of the borrowed funds in that year will be paid into the Sinking Fund — which contains money set aside to pay down debt in future years.
Mr Burt yesterday claimed the previous OBA government had “tried to cut its way out of a recession without investing for the future”.
Mr Burt said: “It is clear that our economy is stagnant and therefore unable to provide for those in our country, and so we must ask the question: how are we going to fix the problem?
“Finance ministers around the world have been faced with the same question: ‘do we cut spending, or do we invest to grow the economy?'”
He said voters in last year's General Election had “voted for an end to austerity”.
Fiscal performance for the year ending March 31 is better than the projections made by Bob Richards, Mr Burt's predecessor, in last year's Budget.
According to the revised estimates for 2017-18, expenditure is $2 million less than projected at $921.5 million, while capital expenditure will be $7 million less than planned at $60.4 million.
Meanwhile better-than-expected income from customs duty, payroll tax and stamp duties helped revenue to track about $2 million ahead of budget at $1,044.3 million. Meanwhile interest payments on debt were $4.5 million less than projected at $119.5 million.
So the 2017-18 deficit will be about $119.2 million — significantly better than the $134.7 million deficit that was expected — and 35 per cent down from the deficit in 2016-17.
As a result, the net debt at March 31, 2018 will be $50 million less than was projected, at $2.42 billion.
“As this is the last year in which we are expecting our net debt to increase, the Government will not be raising the country's debt ceiling,” Mr Burt said.
“Our debt ceiling is currently set at $2.5 billion and the Ministry of Finance will exercise prudent management of funds in this year, our final year of net borrowing, to ensure that we remain below the debt ceiling.”
During the coming year, Mr Burt has budgeted for a 0.2 per cent increase in public spending and a 4.6 per cent rise in revenues.
The biggest single boost to revenue will be the $15 million increase to land taxes from a temporary tax increase on commercial properties, which will swell total land tax revenues by 24 per cent to $78.3 million.
Another $10 million boost is seen coming from the payroll tax reform on notional salaries, which will require “deemed employees” who earn much of their income through share of profits rather than salaries, now having to declare all their employment-related income.
Debt servicing costs will grow in the coming year to $188.2 million, comprising $124 million in interest payments and a $64.2 million to the Sinking Fund — meaning it will consume about 17 cents of every dollar of revenue coming in. Mr Burt said the Government's aim was to bring this figure down to ten cents.
However debt servicing will no longer cost more than the largest ministry, as it did in 2017-18. The Ministry of Health, whose budget gets a 16 per cent boost for next year after the restoration of the $25 million subsidy for hospital care of indigents and seniors, is now the most endowed ministry with a $190.6 million budget.
Mr Burt said: “It is expected that this will be the last year in which our debt service costs will increase; debt servicing is predicted to drop to $181 million in fiscal year 2019-20 and to reduce further to $169 million in the following fiscal year.”
The Government's debt has risen more than eightfold over the last decade on its way from $277 million in 2008 to $2.42 billion by March 31 this year.
Net debt is expected to peak at $2.44 billion in a year, before dropping to $2.34 billion in 2021.
Bermuda has no debt repayments scheduled for the next fiscal year. However, $215 million of seniors notes fall due in 2019-20 and a further $100 million in 2020-21.