Counting the cost of promises
I got into politics in 2012, not because of some lifelong yearning to govern, but because I was profoundly concerned with the suffering already being caused by bad economic policy and poor management of public money. Right now, our debt payments exceed what we are able to spend on education, seniors and financial assistance. In fact, if our debt payments were considered a ministry, the “Ministry of Foreign Debt Payments” would be our largest.
The One Bermuda Alliance did a commendable job over the past 4½ years in tackling this culture of overspending and stimulating the shrinking economy we inherited. We were less successful in transmitting the “why” behind austerity strategies and stimulus packages.
Austerity measures will never be met with cheers from the crowd, so it was going to be an uphill battle for acceptance even with the best communication.
It is easy to be popular when you promise the world. However, Bermudians, especially those from younger generations that will foot the majority of the bill, cannot afford a government that is going to rely on more borrowing.
The sheer number of spend-heavy promises and the absence of any mention of a debt/deficit-reduction strategy in the Progressive Labour Party Throne Speech leads me to conclude that we are fast returning to the free-spending, debt-hungry ways of 2004 through 2012.
I do not wish to start off the legislative session as a member of the loyal Opposition by simply throwing mud for the sake of it; however, I have legitimate concerns based on last Friday’s speech. It opened by outlining the ability of this government to hammer through anything it chooses to, given its ample majority in the House. I hope that this sense of impunity does not lead to all checks and balances being removed or ignored.
As is to be expected in a transition year, there are many policies throughout the Throne Speech that were developed and planned for implementation by the OBA government. The speech also contained ideas that I am supportive of, such as financial assistance reform and augmenting financial service and debt collection sections of the Consumer Protection Act, among others. I am also supportive of living wage discussions in principle, so long as they are explored academically and not simply used as tools for political grandstanding forums.
In the following segments, I will take a deeper look at some of the hypocrisy:
• Attempting to malign the OBA with accusations of “trickle down” economics in the same breath as exalting upcoming increased concessions via the Tourism Investment Act
• The plans that look to require a sharp increase in staffing expenses — new directors, co-ordinators, foreign offices and a multitude of new committees
• The promotion of potentially problematic economic theory — price controls for foodstuffs
With all the spending initiatives and little mention of cost reductions anywhere, the money required to execute the promises in this Throne Speech is either coming from increased borrowing or heavy taxation, neither of which we can afford as our economy is just starting to show stable growth.
“Trickle-down economics” was coined originally by critics of the supply side of economic theory characterised by income and capital gains tax breaks to large businesses and investors. In the Bermuda political context, it has been used by the PLP to malign any kind of stimulus/concession to businesses.
It is ironic that the PLP criticises providing tax breaks to businesses when it was responsible for instituting payroll tax exemptions for the owners of businesses in the retail and hospitality industries in 2011.
It is also ironic that, two pages after being critical of this stimulus approach, a new Tourism Investment Act was promised to replace the existing Act. I am curious how the new Act will be better, other than by simply offering even more generous concessions to wealthy foreign developers and changing its name.
We have also been promised to transition to a new style of “ripple-effect economics” where everyone will prosper. Funnily enough, it was the OBA government that delivered on one of the best “ripple effects” — or multipliers — that Bermuda has ever seen by investing approximately $67 million in “a sailing race” to capture an estimated $250 million from overseas into our local economy.
The America’s Cup ripple was four times the size of the stone thrown. We need our economic policy to be driven by more than just buzzwords. For the record, the OBA removed employer-side deductions from payroll tax, increased the payroll tax percentage paid by the highest earners and simultaneously decreased the tax burden on the lowest earners. Quite the opposite of trickle-down economics.
I hope that all the promised new Civil Service positions can be sourced internally from the existing government employees, as we certainly cannot afford a sharp increase in staffing costs or a return to the politics of patronage positions — friends and family appointments.
The Throne Speech mentions the following new positions specifically:
• Increased staff at the Washington office
• Increased lobbyists in/or trips to Brussels
• Director of Co-operative Economics — the Bermuda Economic Development Corporation could handle internally
• A Police Authority
• A Gang Violence Reduction Co-ordinator — Mirrors already does this
The Throne Speech also names the following committees:
• Bermuda First think-tank
• A Tax Reform Commission
• An Economic Diversification Unit — the Bermuda Business Development Agency already does this
All these new committees would not be needed now had the PLP spent its time in Opposition developing and promoting solutions of its own.
Food price controls have been a popular PLP economic talking point since it established a Food Price Commission in 2011. The OBA recognises that the high cost of living in Bermuda is a significant pain point for many people. However, we are also aware that economists agree overwhelmingly that price controls do not accomplish what they are intended to and are generally to be avoided. For example, if a loaf of bread costs between $6 and $7 and the Government mandates that bread cannot be sold for more than $3, the two most common unintended consequences as options are:
1, That the supermarkets stop selling bread because it costs them more to buy than they can sell it for
2, Cheaper and lower-quality substitutes, if found, will replace the previously sold products
I do not want to go point by point on the many promises in this Throne Speech that involved increased spending. However, I must express my concern about the absence of any mention of a deficit-elimination and debt-reduction strategy. The PLP election platform boldly mirrored the OBA commitment to a balanced budget in 2018-19. I sincerely hope that this recent omission was an error, that the rest of the fiscal year will conclude on budget, even if spending allocations are shifted, and that sometime in the 2018-19 fiscal year we will finally close the overspending gap.
The previous lack of fiscal restraint with the people’s money, starting in 2003-04, drove unnecessary government borrowing during a time of growing income — post-9/11 insurance boom — and well before the banking crisis caused the debt problem that we are still grappling with today.
More than $180 million per year is being sent abroad at present to pay foreign lenders instead of being invested in our community owing to spendthrift governance of the past. I will support this government when it tables good policy, but it is my responsibility to sound the alarm if the Government looks to spend and borrow away the future of generations of young Bermudians.
• Senator Nick Kempe is the opposition spokesman in the Senate with responsibility for finance, economic development, tourism and public works
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