Budget 2014-2015 is arguably the best we’ve seen this century.

It is historic: this is Bermuda’s first multiyear budget; it is a medium-term expenditure plan (MTEP) with the operative word being plan.

For too long, we have stumbled from year-to-year loosening our sails to take advantage of windfalls and trimming them to meet threats.

Most economists believe that government expenditures should run counter to the business cycle.

Ideally, in the present depressed environment, government expenditure would attempt to compensate for weak private spending; or as some might say, “holding the slack tight”.

But these are not ideal times: government debt is at an unprecedented level. Keynesian-type spending is simply out of the question.

The Finance Minister’s plan is largely a sensible one. Recognising that we are in the early stages of a recovery, he has resisted the temptation to focus on debt reduction.

Spending remains above $1 billion and he hasn’t increased taxes.

A focus on debt reduction would run the risk of sending the economy back into recession. But, the expenditure glide path for the next three years is backwards.

The biggest expenditure cuts are for the coming year — seven percent — with smaller cuts in subsequent years of five and three percent.

Given the uncertainty surrounding the recovery effort, it would have been better not to withdraw government spending support until there is clearer evidence that the private sector was in fact on the road to recovery.

Thus, as the private sector takes up the spending slack, public spending could then quickly go into reverse, perhaps by as much as ten percent or $100 million in 2016-2017 or alternatively, stretch the MTEP glide path to 2017-2018.

Looking forward to 2015-2016 and beyond, revenue driven opportunities for debt reduction are surely on the Minister’s drawing board. Conventional wisdom dictates broadening the tax base. A value-added tax is chief among possible candidates.

And, given that the interests of Bermuda’s banks are at odds with the national interest, increases in lump-sum financial services taxes are justified.

The government’s economic growth plan is too heavily reliant on external funding sources, namely foreign investment.

Many medium-sized Bermudian businesses and small businesses in particular need access to local credit (lending).

The Minister is under the illusion that there is no scope for quasi-independent monetary policy. The purpose of monetary policy is to influence the creation of credit.

In the present environment of credit contraction, the immediate goal is to open the credit channel with moral suasion — which doesn’t seem to be working- or with a more radical approach such as quantitative easing (QE).

Whilst there are many variants of QE, the appropriate one for the Island at this time is a Bermuda Monetary Authority (BMA) purchase of non-performing loans via conditional swap arrangements.

Further, it is not enough simply to increase the flow of credit. Credit directed at businesses will generate more economic activity than credit directed at consumers or asset purchases.

This brings to the fore credit guidance by the BMA for banks since they have demonstrated time and time again an inability to serve the national interest.

Craig Simmons is a Bermuda College lecturer on Economics.