Taxpayers were encouraged to take a close look at the Government’s Pre-Budge Report unveiled on Tuesday (Jan 19) by Finance Minister Curtis Dickinson, in the lead up to the new Budget next month, in what has been a “challenging” year.
Speaking at a news conference yesterday, the Minister said: “The COVID-19 pandemic brought an unprecedented level of economic hardship for Bermuda and its people and caused a significant decline in Government revenues.”
Based on the huge impact of the global pandemic on Bermuda’s economy, reflected “appropriately”, he said the report “will also allow the people of Bermuda to provide feedback that will be valuable as the Government prepares the 2021/2022 Budget”.
Other factors which have had an impact on the framing and composition of the 2021/2022 Budget include:
- Continuing deficits, high debt levels and the debt ceiling
- Government’s 2020 General Election Campaign Platform and the 2020 Speech From The Throne
- Economic considerations
- Taxation sensitivities
- Continuation of Zero-Based Budgeting that will include a Public Service Value Assessment to provide for a better-quality portrayal of the range of services delivered by the Government of Bermuda
- Feedback from the Pre-Budget Report in advance of fiscal year 2021/2022
- Risks facing the country; and
- The implementation of the Government’s fiscal strategy; which is to reduce net debt and balance the budget by 2023/2024
Topping the list of “other significant challenges” was “the failed development at Caroline Bay”, since 2019, when “the Government was forced to respond to legal demands on its guarantees of the project loans”, the Minister added.
“It did so by purchasing the loans (as opposed to direct repayment of the guaranteed loans) to avail itself of all legal remedies available to the lenders. Around the same time, the Government also purchased claims related to subcontractors who remained unpaid for up to 1.5 years, many of whom are Bermudian and were struggling.
“The rights attached to the loans and subcontractor claims allowed the Government to petition to the Supreme Court of Bermuda for the winding up of George’s Bay Limited (“GBL”), the corporate entity that owns the assets subject to the guaranteed loans, and the appointment of joint provisional liquidators (“JPLs”) to take control of the company and its assets.”
On that note, he said: “The liquidation process is still ongoing, and thus the GBL assets are still under control of the JPLs. Therefore, while we expect control to transfer to the Government during this year, the Government currently only has a claim on those assets. This has an impact on valuing the claims according to Public Sector Accounting Standards (PSAS).
“Our accountants and advisors have concluded that, according to PSAS and considering the current status of the liquidation process, they do not have enough information from the JPLs to provide a valuation range for accounting purposes at this time.
“Therefore, the claims asset has been written down by $183.3 million to a nominal value of $1,000.
“It is important to understand this does not mean the asset is worthless. In fact, once the Government obtains control, we expect to restructure the assets as a going concern. The Government has engaged professional advisers to assist in the development of a realization strategy that seeks to maximize the value of the Government’s claim. With the successful execution of any realization strategy, we expect to see value flow back into the financial statements. However, there are still a lot of challenges to overcome in order to obtain a return on the Caroline Bay assets. Although a non-cash write-down, it is of significant value and is a stark reminder that there can be a real cost to a government guarantee.
“Our budget process is clear and transparent, and this Pre-Budget Report explains the complex issues and factors driving the Government’s fiscal policy decisions, while also giving everyone an opportunity to participate by giving us your views,” he added.
“I encourage everyone to please take the time to read the Pre-Budget Report, and once you have read it, submit your thoughts, recommendations and concerns by email to email@example.com.
“We anticipate that this report will give the public a better understanding of our aims and objectives and encourage discussions on the budget strategy and how effectively it deals with our current economic and social priorities, especially as we continue to navigate through this pandemic and the uncertainty it brings.
“This report will also allow stakeholders such as business and social groups to understand and comment on options for the next budget. This can give stakeholders confidence that the administration’s budget policies are grounded in longer-term fiscal and budget strategies.”
Meetings will be held “in the coming weeks with members of the International Business community, the Chamber of Commerce, local businesses as well as the Trade Union Congress (TUC) leaders”.
“Due to the pandemic our meetings this year will be virtual,” said Mr Dickinson.
“Once the consultation period has ended, on February 1st, we will carefully evaluate all responses we receive as we finalise the Budget.
“I encourage everyone to please take the time to read it and submit your thoughts, recommendations and concerns by email to firstname.lastname@example.org. We want to hear from you.”
The new fiscal plan to be set out in the 2021/2022 Budget will be delivered in the House of Assembly on Friday, February 26.
The Pre-Budget Report is available online on the Government Portal, www.gov.bm/prebudgetreport.