The recent Throne Speech contained a promise that the Government would create a “sovereign wealth fund”. This article will tell you a little about what that is, why we might want it, and why you should take any government promises about it with quite a few grains of salt.

A sovereign wealth fund can be created when a country raises extra money that it wants to put away for the future, to get the most long-term benefit. For example, an oil-producing nation such as Norway can bank the proceeds of its oil into a wealth fund. One day, when the oil runs out, Norway will still have income from the fund. In this sense, it is like an endowment for a school, club or charity, where the interest or investment returns from the endowment money (“capital”) can fund the organisation — ideally without touching the bulk of the capital and leaving it safe for the future. However, sovereign wealth funds require consistent budget surpluses, and Bermuda has not run a budget surplus since 2003.

How would Bermuda build such a fund? One idea is that we will receive so much money from the corporate income tax — more than we need for immediate expenses — that there will be plenty left over to put into a wealth fund. It’s a nice thought and in the long term, it may become feasible. However, several urgent financial issues must be resolved first, making a sovereign wealth fund merely an idea for now. These issues include:

1, Revenue volatility and fiscal uncertainty

There will be a lot of volatility, or uncertainty, around the CIT income owing to how global disasters can impact insurance company earnings. The recent California wildfires, Midwest tornadoes and Australian typhoon are reminders of that. And we still don’t know how companies will adjust their Bermuda operations and tax strategies. Perhaps we are going to get a lot less CIT than we think in the long term. To counter the CIT uncertainty so that the Government can plan its budget, it would be useful to have something like a “stability fund” of, say, $500 million to $1 billion to fund the Budget even when CIT revenues don’t come in like we hoped.

2, Bermuda’s debt burden and underfunded pensions

Bermuda is sitting on a lot of debt. Based on the Fiscal Responsibility Panel report, there is $3.2 billion in net debt that Bermuda owes bondholders — the organisations that lent us money. Plus, there is an $800 million shortfall in the social insurance fund and another $1 billion shortfall for the Public Service pensions. Then there is a $270 million guarantee for the hospital and another $300 million miscellaneous guarantees. All told, that’s $5.6 billion that we have to pay off or cover.

3, Infrastructure decay

Our infrastructure is crumbling and needs a massive investment boost. Can you imagine if the bridge to the airport or St George failed? Call it $100 million to pave all the roads, and another $200 million for things such as bridges and the incinerator — back of the napkin. In fact, to be safe, we better round that up to $500 million for all the lack of maintenance under the present government.

The above adds up to about $6.6 billion that needs to be paid or funded before it makes sense to start putting money away into a sovereign wealth fund. Put another way, it is like paying off the mortgage and credit-card bills and fixing the leaky roof and tank before “investing” in that holiday home.

On top of all that, our island’s running costs are increasing — new salary increases for the Civil Service, funding healthcare and taking care of seniors all come to mind. Call that $125 million per year of additional spending. At the same time, Bermudians and the companies paying the corporate income tax will be expecting to pay less in taxes such as payroll tax and customs duty. Call those expected reductions 50 per cent of the CIT income. If we take government estimates of a “new” $750 million per year from CIT, include a provision for tax reductions and deduct the estimate for increased spending, which leaves only about $250 million per year “extra” or left over to pay down the $6.6 billion — or about 26 years before we have money for a sovereign wealth fund.

Can this government be trusted with a wealth fund?

Even if a sovereign wealth fund were created, who would control it? The present government has a track record of bad decisions and financial misconduct. David Burt, the Premier and Minister of Finance, authorised an $800,000 payment to the failed Savvy Entertainment scheme. Under his leadership, multiple violations of procurement laws and financial mismanagement have occurred. This is the same premier who negotiated a disastrous deal for the Fairmont Southampton property while claiming to have “balanced budgets”, even as Bermuda’s net debt increased by $105 million over the past two years.

Other concerning examples of government misconduct include:

• Cabinet minister Zane DeSilva receiving $100,000 from Savvy Entertainment, which he later admitted was obtained through unlawful conduct

• Cabinet minister Jaché Adams involved in granting the National Sports Centre solar contract to a Progressive Labour Party insider without board approval

• Former attorney-general Kathy Lynn Simmons’s husband being hired into her own ministry on a lucrative contract, shortly before being disbarred as a lawyer

Not only is a sovereign wealth fund highly unrealistic given Bermuda’s financial state, but even if one were established, would you trust this PLP government to manage it?

• Douglas De Couto is the Shadow Minister of Finance and the One Bermuda Alliance MP for Warwick North East (Constituency 25)