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Budget Address by the Administrator

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  • Bob Conrich
    Ever since I arrived here, I ve been warning the community about the state of the island s economy. I ve been saying that unless we make some significant
    Message 1 of 2 , Mar 15, 2008
      Ever since I arrived here, I've been warning the community about the
      state of the island's economy. I've been saying that unless we make
      some significant changes to the way we operate, the island risks going
      bankrupt within a very few years. Some of you believe me, but I
      suspect a great many don't. I've made some changes and increased some
      Government charges, but these go nowhere near far enough.

      Following the recent visit of an economic expert I can now offer a
      little more detail about the challenges we face, in the hope that you
      will all finally begin to understand that I am not crying wolf. First,
      here's what the consultant has to say about what he found.

      The future medium to long-term economic and financial viability of TDC
      is still uncertain. There is concern that the island will be
      effectively bankrupt in 3 to 4 years unless strong action is taken to
      address the underlying issues that have been ignored or "swept under
      the carpet" for the last decade. The following general observations
      about the future and the need for action were presented to the Island
      Council on 14 th February 2008 . The observations reflect the
      Consultant's views based on the results of the review and discussions
      with a broad spectrum of Government officials and Heads of Department:

      * Island faces a challenging situation that demands bold,
      sustained and consistent action
      * Need for greater awareness and appreciation of the real
      financial situation
      * Need for partnership between Government and the Islanders
      * Need for phased reduction in the open and obscured subsidies
      that have masked the real financial position. In other words,
      Islanders have got to face more of the real costs of maintaining the
      island and its way of life
      * Fact that the island has an ageing population, which is putting
      increased pressure on the health budget and the pensions fund
      * Need to encourage young families, including the potential of new
      immigrant families
      * Commitment to change and progress – including some "belt
      tightening" and increased charges – are important for the financial
      health of the island and will encourage active external support
      * Need to invest in education and training that will improve the
      quality of the human resource base
      * Need to encourage the private enterprise spirit by out-sourcing
      and/or privatising certain operations, and foster less reliance and
      dependence on Government
      * Need to prepare a comprehensive Strategic Development Plan for
      the next 5 years and in general terms for the following 5 years. This
      should provide a consistent framework for development that should
      attract investment funds.

      Before I spell out what this could mean to the community, here's some
      background. Reserves have declined by 72% in the last 10 years from
      more that £3 million in 1998 to £1.5 million in 2002 and £862,000 by
      31 st December 2007 . They currently stand at little more than
      £600,000. At the present rate, they will be exhausted in 2010 or 2011
      (i.e. in 3 or 4 years). There are two main reasons for the decline:
      (i) continuing deficits on the current account – ranging from £17,000
      in 2001 to £164,000 in 2004 and £180,000 in 2000; and (ii) substantial
      capital expenditure of more than £750,000 in the three-year period
      from 1999 to 2001.

      Turning to what we might call our current account, from a modest
      surplus of £166,000 in 1997, the cumulative deficit has risen steadily
      from £600,000 in 2000 to £1.1 million in 2003, £1.3 million in 2006
      and £1.5 million in 2007. That means that in 10 years we've spent £1.5
      million more than we have earnt.

      What I've just said might be a little unclear to some of you, so let
      me spell out the implications. Clearly, Government needs to spend a
      lot less, and earn a lot more. So here are some of the possible
      measures that lay ahead:

      In order to reduce the Government wage bill we may need to cut
      salaries or make a significant number of Government staff redundant.
      Alternatively, but possibly as well, it may also be necessary to
      introduce income tax on everyone's pay;

      The Community tax will have to rise over the next few years to as much
      as 10%;

      Households will have to begin paying for the services they receive
      from Government that are currently free to them (but not to Government);

      Islanders may have to start paying tax on imports;

      The policy of full employment will need to be abandoned;

      And Tristan House (in Cape Town) will not be immune. We have three
      choices:

      * Charge accommodation rates that will yield a commercial rate of
      return of at least 6% and preferably more; or
      * Sell TDCH for approximately £158,000 (net) and transfer the
      money into the reserves; or
      * Sell TDCH and purchase a cheaper property, resulting in a net
      addition to the reserves of approximately £74,000 (net). In addition,
      the new property would need to run on a commercial basis.

      There must also be a huge question mark over the future of the Wave
      Dancer.

      You might like to know why we've got ourselves into this mess.
      According to the consultant the reason is mainly this. From 1997 to
      2007 there has been no concerted effort to address and/or reverse the
      Government's declining financial performance. Indeed, there have been
      periods when executive decisions have been taken that have accelerated
      the decline; and past Administrators and Island Councils have ignored
      the periodic warnings of the Finance Department. That's it in a nutshell.

      I've been very selective in drawing from Malcolm Summerfield's report.
      It contained very little good news. But it did contain recommendations
      and ideas of what we can do to increase our income as well as cut our
      spending. I'm not going to go into these now. The purpose of this
      presentation is to try and convince everyone on Tristan that the
      chickens have now well and truly come home to roost.

      And it's no use saying that the British Government must help. It is
      currently helping us in a number of ways (harbour, medical, training)
      and will continue to help, but only if Government gets a grip on its
      financial management and eliminates its budget deficit. In return for
      this, HMG may offer new support in areas such as education, Government
      planning and financial management. But it's up to us to show that this
      won't be good money after bad.

      And the same applies to Ovenstone. The loss of the old factory, and
      its replacement, as well as the measures needed to ensure that we
      actually have a fishing season this year, will cost it a great deal of
      money.

      Islanders have got to face the reality – we got ourselves into this
      mess. No one is going to get Tristan out of it except the community
      itself. As a first step, with effect from tomorrow, all Government
      expenditure will require Treasury authorisation, so Heads of
      Department should clear in advance with Lorraine any expenditure they
      plan to commit. I'll circulate details of this shortly.

      D J Morley
      Administrator

      9th March 2008
    • Schaub
      Just print more stamps, Wolfgang ... Von: tristan-da-cunha@yahoogroups.com [mailto:tristan-da-cunha@yahoogroups.com]Im Auftrag von Bob Conrich Gesendet:
      Message 2 of 2 , Mar 15, 2008
        Just print more stamps,
         
        Wolfgang
         
        -----Ursprüngliche Nachricht-----
        Von: tristan-da-cunha@yahoogroups.com [mailto:tristan-da-cunha@yahoogroups.com]Im Auftrag von Bob Conrich
        Gesendet: Samstag, 15. März 2008 19:39
        An: tristan-da-cunha@yahoogroups.com
        Betreff: [TdC] Budget Address by the Administrator

        Ever since I arrived here, I've been warning the community about the
        state of the island's economy. I've been saying that unless we make
        some significant changes to the way we operate, the island risks going
        bankrupt within a very few years. Some of you believe me, but I
        suspect a great many don't. I've made some changes and increased some
        Government charges, but these go nowhere near far enough.

        Following the recent visit of an economic expert I can now offer a
        little more detail about the challenges we face, in the hope that you
        will all finally begin to understand that I am not crying wolf. First,
        here's what the consultant has to say about what he found.

        The future medium to long-term economic and financial viability of TDC
        is still uncertain. There is concern that the island will be
        effectively bankrupt in 3 to 4 years unless strong action is taken to
        address the underlying issues that have been ignored or "swept under
        the carpet" for the last decade. The following general observations
        about the future and the need for action were presented to the Island
        Council on 14 th February 2008 . The observations reflect the
        Consultant's views based on the results of the review and discussions
        with a broad spectrum of Government officials and Heads of Department:

        * Island faces a challenging situation that demands bold,
        sustained and consistent action
        * Need for greater awareness and appreciation of the real
        financial situation
        * Need for partnership between Government and the Islanders
        * Need for phased reduction in the open and obscured subsidies
        that have masked the real financial position. In other words,
        Islanders have got to face more of the real costs of maintaining the
        island and its way of life
        * Fact that the island has an ageing population, which is putting
        increased pressure on the health budget and the pensions fund
        * Need to encourage young families, including the potential of new
        immigrant families
        * Commitment to change and progress – including some "belt
        tightening" and increased charges – are important for the financial
        health of the island and will encourage active external support
        * Need to invest in education and training that will improve the
        quality of the human resource base
        * Need to encourage the private enterprise spirit by out-sourcing
        and/or privatising certain operations, and foster less reliance and
        dependence on Government
        * Need to prepare a comprehensive Strategic Development Plan for
        the next 5 years and in general terms for the following 5 years. This
        should provide a consistent framework for development that should
        attract investment funds.

        Before I spell out what this could mean to the community, here's some
        background. Reserves have declined by 72% in the last 10 years from
        more that £3 million in 1998 to £1.5 million in 2002 and £862,000 by
        31 st December 2007 . They currently stand at little more than
        £600,000. At the present rate, they will be exhausted in 2010 or 2011
        (i.e. in 3 or 4 years). There are two main reasons for the decline:
        (i) continuing deficits on the current account – ranging from £17,000
        in 2001 to £164,000 in 2004 and £180,000 in 2000; and (ii) substantial
        capital expenditure of more than £750,000 in the three-year period
        from 1999 to 2001.

        Turning to what we might call our current account, from a modest
        surplus of £166,000 in 1997, the cumulative deficit has risen steadily
        from £600,000 in 2000 to £1.1 million in 2003, £1.3 million in 2006
        and £1.5 million in 2007. That means that in 10 years we've spent £1.5
        million more than we have earnt.

        What I've just said might be a little unclear to some of you, so let
        me spell out the implications. Clearly, Government needs to spend a
        lot less, and earn a lot more. So here are some of the possible
        measures that lay ahead:

        In order to reduce the Government wage bill we may need to cut
        salaries or make a significant number of Government staff redundant.
        Alternatively, but possibly as well, it may also be necessary to
        introduce income tax on everyone's pay;

        The Community tax will have to rise over the next few years to as much
        as 10%;

        Households will have to begin paying for the services they receive
        from Government that are currently free to them (but not to Government);

        Islanders may have to start paying tax on imports;

        The policy of full employment will need to be abandoned;

        And Tristan House (in Cape Town) will not be immune. We have three
        choices:

        * Charge accommodation rates that will yield a commercial rate of
        return of at least 6% and preferably more; or
        * Sell TDCH for approximately £158,000 (net) and transfer the
        money into the reserves; or
        * Sell TDCH and purchase a cheaper property, resulting in a net
        addition to the reserves of approximately £74,000 (net). In addition,
        the new property would need to run on a commercial basis.

        There must also be a huge question mark over the future of the Wave
        Dancer.

        You might like to know why we've got ourselves into this mess.
        According to the consultant the reason is mainly this. From 1997 to
        2007 there has been no concerted effort to address and/or reverse the
        Government's declining financial performance. Indeed, there have been
        periods when executive decisions have been taken that have accelerated
        the decline; and past Administrators and Island Councils have ignored
        the periodic warnings of the Finance Department. That's it in a nutshell.

        I've been very selective in drawing from Malcolm Summerfield' s report.
        It contained very little good news. But it did contain recommendations
        and ideas of what we can do to increase our income as well as cut our
        spending. I'm not going to go into these now. The purpose of this
        presentation is to try and convince everyone on Tristan that the
        chickens have now well and truly come home to roost.

        And it's no use saying that the British Government must help. It is
        currently helping us in a number of ways (harbour, medical, training)
        and will continue to help, but only if Government gets a grip on its
        financial management and eliminates its budget deficit. In return for
        this, HMG may offer new support in areas such as education, Government
        planning and financial management. But it's up to us to show that this
        won't be good money after bad.

        And the same applies to Ovenstone. The loss of the old factory, and
        its replacement, as well as the measures needed to ensure that we
        actually have a fishing season this year, will cost it a great deal of
        money.

        Islanders have got to face the reality – we got ourselves into this
        mess. No one is going to get Tristan out of it except the community
        itself. As a first step, with effect from tomorrow, all Government
        expenditure will require Treasury authorisation, so Heads of
        Department should clear in advance with Lorraine any expenditure they
        plan to commit. I'll circulate details of this shortly.

        D J Morley
        Administrator

        9th March 2008

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