‘We’ve only just begun’
By E.T. (Bob) Richards, Minister of Finance, April 5, 2013
When I became Finance Minister I knew the job ahead was going to be very challenging.
Our goal as a new Government was to get the economy working again for the benefit of Bermudians – creating jobs and career opportunities; and enabling government to build toward a society that delivers social and economic equity for all.
That is no small task.
The economy had been shrinking for four straight years – easily the worst performance amongst all our trading partners, from the United States to our many neighbours to the south. We had thousands out of work, businesses shutting down, a daunting rise in government debt and a crisis of confidence in the Island as a place to do business.
Our aim coming into office was to follow a two-track strategy to get the Island moving forward again – implementing measures to grow the economy (and the jobs that come with it) while imposing discipline on the management of the public purse.
I am pleased to report that we are holding to that plan.
First let’s talk about the need to impose discipline and control on government finances.
I thought it very important in my first weeks in office to look “under the hood” to get a precise fix on government finances and determine what we could and could not do going forward. For whatever reason, the previous government had not released final figures for the 2011/12 fiscal year nor had it lived up to its promise to provide Bermuda with a mid-term report on 2012/13.
In my follow-up report to Bermuda, I said the state of government finances was “every bit as bad as we had feared...” This was no exaggeration: In 2011/12, government debt grew a whopping 23% and its operating deficit was $169.9 million, making it the fourth straight year the government spent more – much more – than it took in. Runaway spending continued through 2012/13, the fiscal year just ended, with the operating deficit now estimated to climb to $218 million.
Having looked at the numbers, it was clear the previous government had lost control of the budget. There was no accountability for overspends by ministries. There was no serious debt management plan. The $1.45 billion debt ceiling was going to be blown through in a matter of weeks. And the size of government itself had become more expensive than the economy could support.
The path we were on was not sustainable. We were like a bus heading toward a cliff. If we did not move decisively to change the trajectory of deficits and debts, the very solvency of Bermuda was at stake. This was a matter I reluctantly addressed in my February 22nd Budget Statement to underline the seriousness of our situation and the need for change.
In short, it was essential to get the government’s financial house in order.
New rules were issued to hold spending to budget allocations, with ministries required to file monthly reports to stop any slippage. New rules were issued to manage the debt. We set responsible targets for our debt-to-revenue ratio – how much we can borrow in relation to what the government takes in –and the cost of the debt to revenue. Neither of these important debt benchmarks was being used by the former government. We also raised the debt ceiling to set a new responsible borrowing limit but also to avoid failing to meet a cascade of new dollar charges incurred under the previous government.
In addition, I appointed the SAGE Commission to review government operations and recommend changes to eliminate wasteful spending and improve efficiencies.
I can’t over-emphasize the importance of bringing a greater sense of discipline, accountability and realism to the management of Bermuda’s public purse. How important is it? Consider the fact that it has taken just seven years to upend our financial well-being and to hang the albatross of debt over future generations. Seven years!
Our first actions as government have been like trying to lasso a horse that has run out of the gate at full gallop. We can pull it back in, but it will take time, discipline and tough decisions to break the momentum and rein in the situation.
To underscore the seriousness of what we are facing, the government’s overall deficit this coming year is expected to continue galloping on – to an estimated $331 million! This is a shocking figure. There is no time to waste.
The second track of our strategy can ease these deficit pressures by implementing measures to grow the economy.
We’ve lost thousands of jobs in recent years, across all sectors of the economy – international business, hotels, retail, restaurants, you name it. We have to get those jobs back, and then some.
To make it happen, we need to improve the conditions for job creation, understanding that only an employer can create a job. And that means creating an environment that encourages investors and employers to start investing and hiring.
Private sector business big and small – not government – is where the jobs will come from, and so it stands to reason that we should help the private sector get back on its feet fulfilling its natural job-creating role.
Since the December election, we have moved with urgency to create conditions to help employers create more jobs. We passed a payroll tax break for the hiring of Bermudians to newly-created jobs. We ended term limits which hampered international business’s ability to attract and keep employees. We formed the Cabinet-level Economic Development Committee to facilitate development projects. We are forming the Bermuda Business Development Corporation to aggressively promote Bermuda as a business destination of choice. We have opened lines of communication with stakeholders to identify further steps to improve job-creating conditions. And, finally, we have tried to inject a dose of realism into our situation by talking frankly to you – the Bermudian people – so that you know what’s up.
One of our objectives is to attract foreign dollars to our shores – what economists call ‘direct inward investment’. This is something Bermuda has relied on throughout its history to create the growth that made us a First World economy. Think of the jobs and opportunities that flowed across the community from the development of the British and American military bases, major hotel developments, the building of international businesses such as Ace and XL. They all stand as testament to the fact that foreign dollars built Bermuda.
By the time we got into office the flow of foreign dollars into the economy had not just stopped, it was leaking back overseas through corporate decisions to reduce their involvement on the Island. The previous government must shoulder a lot of responsibility for this turn of events – for, in effect, turning off Bermuda to the people responsible for a sector of our economy that generates more than 70% of all business and trade conducted on the Island. PLP Government policies and attitudes made the Island less attractive to them – and Bermudians, from landlords to construction workers, paid the price. Incredible! We have to turn this around.
As long as Bermuda is involved international business we have to make it work for us, and that means making it work for the businesses that employ so many Bermudians either directly or indirectly through the many services they need, from rentals to groceries, from taxis to lawyers, from office cleaning to furniture purchases.
The Opposition has attacked our approach saying we favour business over Bermudians and, more viscerally, foreigners over Bermudians. This is nothing more than the crass politics of manipulation, cynically playing to keep people apart.
From my vantage point as Finance Minister, I would remind the PLP of what I’ve seen and what they must surely know: You messed up Big Time. You put politics before country; you failed to care for the economic engine that supports jobs, opportunity and family life, and you took the Island to the brink of financial disaster that will take years to recover from.
Now we’ve been elected to fix things and that’s what we’re going to do. The PLP can continue with its divisive us-versus-them politics, but we’re going in the other direction, building toward a unity based on the view that there is only ‘us’ – one Bermuda.
Yes, we favour business, because they are the job creators who can hire Bermudians and facilitate the economic security, confidence and optimism all of us want.
It will take time to right the Good Ship Bermuda – years in fact, but I am already encouraged by the mood of the country. People are shaking off the pessimism of recent years for an optimism based on expectations of a better future together.
Sure there is skepticism out there, but that’s okay. We need to question what we’re doing, so we can find the truest line for the recovery of this remarkable place we call home.
My colleagues in the new government are trying to set the stage for a renaissance. We’ve only just begun, and the work is challenging, but we are confident in our direction and in the people of this great Island, pulling together for themselves and each other, as one Bermuda.