Expanding the economy
Recently weve started thinking, as we are sure have many others, about what circumstances would be necessary for a recovery to finally take hold in Bermuda. Well ... first we have to come to terms with just what our current ugly truth is and its direction and all the negatives that go with it.
The bad news
This year Bermudas government will collect $885m or something close to it and borrow another $190m for a total of approximately $1,075m minus debt service costs of $115m which leaves $960m to spend. Our capital expenditures will actually decrease from two years ago from $580m to this years $398m. Thats $182m less floating around to stir employment and confidence in the economy. Confidence is intrinsically important right now. Thats the negative aspect of increasing interest payments and decreasing tax revenue.
Bermudas per capita public debt is something north of $32,000 over $30,000 for every man, woman and child residing here. If we take Greece on the other hand, it sits at $34.699, and Portugal, also in the news lately, comes in around $39,500. Of course those numbers arent current, theyre from, 2007 so Im sure things look much bleaker there now. The problem is we now live financially in the same kind of neighbourhood as countries we formerly looked down our fiscal noses at and its happened incredibly fast.
We keep talking about America being in recession too, well lets look at America. It has actually been out of recession for about two years at now. They havent had a smooth recovery. Its been ugly, its been slow and its been bumpy, ask President Obama, but they have had a more than two percent drop in their unemployment rate from above ten percent at its peak. They also just announced a 2.8 percent third quarter year over year increase in GDP growth.
Canada on the other hand had a very shallow recession, two quarters basically, according to the Conference Board of Canada, partly because of its stricter banking/ mortgage regulations and conservative lending policies. They didnt have a lot of that bad debt build up to deal with. So why do we find ourselves, Bermudian and expat alike, in this situation?
Firstly, lets be clear about one thing, what we are experiencing is not a recession, nor is it a down turn or an economic blip; it is, in fact, a depression and it has largely been self inflicted. What may have started as a mortgage/financial debacle in the US, which engulfed the world, rolled up on our shores and our economic policies were found wanting big time.
We were not prepared. We made bad policy decisions and we drove away business when we should have been doing the opposite, all with the thought of transferring those well paying expat jobs to local Bermudians, only to learn the world is not that simple.
Im not saying the Government didnt implement some good policies, but good inclusive social policies have to be paid for in perpetuity with money we get from business. It is great to implement programmes but if your economy goes bust from neglect it doesnt matter how many nice bills you pass in the House of Assembly, you are not going to be able to pay for them.
We are sorry to be blunt here, but Governments dont create wealth, businesses and their employees do. Governments get to distribute it and hopefully manage it, period. The other part of our negative downward spiral is the quiet exit of capital, companies and high paid individuals due to Bermudas high cost of doing business. We are just too expensive.
Two things businesses doesnt like uncertainty and high cost. We need to be cost effective to win in the 21st Century as we are competing with Cayman and Guernsey, London and New York.
We dont have extra money to stimulate our economy but from my perspective we have to find it, we are on a slippery slope and it is one heading in a badly directed downward spiral. The only way to reverse the direction I believe is to have a large infusion of cash to kick start the economy. To facilitate this inflow of new capital changes must be made in immigration and investment policies.
We need to create a critical economic mass that helps us to keep costs down and we also need policies and legislative direction that defines what can be done in a market economy that is competing with the rest of the world.
We present the following that would give a comprehensive approach which would help to restore Bermudas economic activity and social and civil order that we have become so accustomed to.
These recommendations will create jobs, provide rental income and income for Government to provide needed public services.
n Increase air traffic flow through our airport to retain US Pre-Customs clearance
n We have to implement an ease of entry procedure for business and high net worth individuals as well as tourists to minimise time spent waiting to clear immigration
n Improve the private jet facilities and procedures
City of Hamilton
Development of the Waterfront to include:
n Retail shops
n Convention/Entertainment Center
n Waterfront Market
4 Consider allowing retail shops managed, financed and owned by non-Bermudians
4 Extend the city limits
n Within the new city limits allow international companies, key employees, PRC Holders and employees of high net worth individuals to purchase high rise condos. Most foreigners are used to living in a city environment and this would keep the outlaying country areas available to Bermudians and their families.
Remove the 60/40 rule on commercial activity but retain real estate.
Economic Empowerment Zones (EEZ)
Look at making the following economic zones:
n Dockyard including Ireland Island
n All of extended Hamilton
n Extend the provisions in the newly created EEZs to include lower costs, taxes and rents
n Give tax incentives to people who import and utilise environmentally friendly products/services
4 Initiate legislative reform to encourage trust companies, non-retail banking and fund management to establish here
High Net Worth Individuals
4 Provide permanent residency and/or domicile status
4 Allow private possessions and assets to be imported without duty
4 Reduce property purchase tax to half its current assessment
4 Allow for approval in principle to bring key employees, both professional and domestic, with them
4 Infrastructure projects such as Waterfront, Airport and any other revenue generating project could be allowed to be privatised (majority ownership by non-Bermudians) which must be listed on the Bermuda Stock Exchange (BSX) or should be private/public structures
4 Projects that are without revenue should be developed in a private/public partnership in concert with a revenue generating project — eg the causeway in conjunction with the airport
4 Make it easier, more efficient and welcoming to do business in Bermuda. Bermuda has to realise the competitive environment is different and cannot do business on its own terms — we have to adjust to our customers needs and wants
4 Any public utilities or broad service organisations that impact on the general Bermuda public which are exempt from 60/40 should be listed on the BSX
4 Lift ownership restrictions on PRC holders to allow for the purchase of one property
4 Change condo ownership policy to allow for Bermudians to sell to non-Bermudians where property is above a set ARV
Restrict land ownership of companies after 60/40 removal to:
n Major Government Infrastructural Projects:
n 100 percent foreign ownership of the facility with long term leasehold on the land. Company must be listed on the BSX
n Major Service/Utility Companies: Foreign ownership of real estate for the purpose of operation and management of the business. Company must be listed on the BSX
n Commercial/Retail Business: Foreign management with Bermudians retaining real estate
n Grant Bermudian status to a limited number who have acquired PRC status and whose continued presence would enhance the employment opportunities and skills of Bermudians
n Develop a plan that helps to define Bermuda as a destination which would include development of the waterfront and other amenities that would cause people to come to Bermuda.
n Encourage development of accommodation of hotels, timeshares, condos and fractional ownership properties
n Incentives to encourage both destination and accommodation development are:
4 Free payroll tax
4 Import duty relief
4 Free licensing fees
4 Decrease taxes on fractional, residential and condo ownership
4 Payroll taxes should be reduced to zero for at least three years for employers paying full-time Bermudian employees and self-employed individuals (e.g. Taxi drivers) receiving less than $50,000 per annum
Offer a two year payroll tax holiday for:
4 new international or local business which hires Bermudian employees
4 new Bermudian employees hired by existing businesses
4 Remove tax on boats and increase mooring fees to encourage Bermuda to become an international boating centre
Bermuda should free up and upgrade the telecommunications market to:
n Minimise cost as a result of competition
n Allow for the use of cost saving technologies
n Attract a new industry to Bermuda — Intellectual Capitalism
4 Allow companies during the incorporation process to apply to immigration for approval in principle of key employees and both processes should be executed in a prescribed time period
4 If someone is key and is moving to Bermuda consider granting their corporate and/or domestic employee a permit in concert with the key employee
4 Remove term limits on work permits
Growing the economy will make a huge difference between a 2.5 percent deficit or 2.5 percent growth. A 2.5 percent deficit would mean Governments revenue would be $22m less but 2.5 percent growth would mean $42m extra.
Growth creates jobs, the ability to pay down private and public debt, rental income and more importantly restores public confidence that has been recently shattered.
It is not about what we are going to do, it is about how we are going to do it and with whom.
We would like to thank Andre Labonte for his significant contribution to this article.
This continues to be a collective effort by all Bermudians and we need your support, comments and ideas. For further information or to express your comments e-mail Suzie Arruda at email@example.com or visit us on FACEBOOK — Regeneration of Bermudas Economy.