We’ve recently heard a lot of noise from the Government about their new Economic Development Strategy, the Workforce Survey, and the Premier’s update on Government financial performance. To help translate that Government PR to what it all means for us in Bermuda, here are three questions you might consider.
First, if the economy is so great, why doesn’t it feel like it? Second, is the Government’s financial performance actually any good? Last, is Government’s “new” Economic Development Strategy any good?
Q. If the economy is so great, why doesn’t it feel like it?
A. Government is focusing on numbers in one sector that don’t connect to what affects people on the ground.
The Government has been boasting about the economy and the GDP (Gross Domestic Product or GDP, yet most Bermudians feel worse off today than they were five years ago.
Between 2017-2021, international business (IB) and real estate have boosted Bermuda’s GDP while local business has stagnated over that period. IB is doing relatively well, due to global economic factors and capital constraints created by the Ukraine war and inflation. House price inflation especially at the high end is driving real estate economic activity. So those things together make the total GDP growth look okay, even when local businesses like retail and entrepreneurs are suffering.
Meanwhile, job numbers, another indicator of economic health, have fallen by -1% from 2019-2022, with 310 fewer jobs, and fewer people looking for jobs. This is the sign of a shrinking economy, not a growing economy.
Standard statistics like GDP that might be useful in a large and diversified economy to describe how people are doing, don’t make sense in Bermuda. That’s because Bermuda is a small country with a tiny population, and a lopsided economy. Sure, we’d prefer GDP to be up rather than down, but we also want to see local businesses thriving, not just surviving. And, we’d like to see tourism booming, with new hotels opening, and a full complement of air links.
Q. Is the Government’s financial performance any good?
A. No, not really, it’s just not as bad as was originally planned, and mostly due to reasons outside Government’s control.
Last week the Premier patted himself on the back as Finance Minister, with a statement that for the 2022-23 year, revenues were better than budgeted, expenses only slightly more than budgeted, and capital spending was less than budgeted. But, Government still ran a material deficit of $44 mllion, and the net debt was increased by $67 million.
Expenses and capital spending would have been even higher, except that it’s likely the Government did not meet its hiring goals – historically this Government’s headcount has ended up about -5 to -9% below the budgeted amount. Put another way, the cost of these unfilled civil service jobs in the budget are padding that gets used up by overruns in other areas. Hardly prudent fiscal management.
Also, the only reason capital spending was not higher is because of supply chain issues. That is, the Government would have spent that money if only the goods were available.
Finally, one item in the Premier’s statement stands out, the larger than expected amount of foreign currency purchase tax – or FCPT. This is the tax you pay every time you convert Bermuda Dollars to a foreign currency. One interpretation of this is that more Bermudians are moving their investments out of Bermuda-based property and businesses into overseas funds and increasingly shopping overseas. This is consistent with the March retail sales report which shows -5.4% decrease in retail sales, and +11% increase in overseas customs declarations. Another sign of local decline on the high street under the PLP.
Q. Is the Government’s Economic Development Strategy any good?
A. There’s not much new in it, and it all depends if Government can actually get it done.
About a quarter of the Bermuda Government’s revenue comes from IB payroll tax which requires a reality-based understanding of why IB is so critical to our economy. This report does a good job laying out Bermuda’s value proposition to IB, and vice versa and it is
gratifying to see the PLP Government finally demonstrating that they understand the importance of IB to Bermuda.
But there are three main areas of concerns with the strategy.
First, there don’t seem to be any timelines on any of the initiatives or any indication of how they will get done. Based on Government’s track record, many may remain skeptical.
Second, outside IB, the plan gets very thin on the ground when it comes to progressing the existing economic plan, small businesses and immigration. For example, there is no robust plan for increasing the working population, despite Government’s own admission that it needs to attract 8,000 more people to grow the economy.
Thirdly, many of these initiatives are not new and come from existing reports or strategic plans. While we would be glad to see these initiatives come to fruition, they are nothing new. And we are still waiting for Government’s Economic Recovery Plan to be fully realized.
Given all of the above, while we are hopeful for success, it would be wise for us all to take a “wait and see” approach to this new strategy.
So if you are tired of the PLP Government that continues to mislead you with its announcements, that can’t things done, then look to the OBA. If you are ready for a Government with integrity, that will be fair and transparent, and that will achieve for Bermuda and her people, then the OBA is ready for you.