Chamber: No quick fix to economic woes
Dont expect Bermudas economy to do an about face in the New Year though work is beginning in order to climb the mountain of fiscal recovery.
Thats the message from economic experts who explain that Bermudas public debt combined and lagging foreign investment will continue to hamper the Islands economic rebound in 2013.
Adding to the backlog is the new governments task of familiarising itself with public finances.
The outlook for the economy in 2013 will really depend on the state of the Governments finances: what the new administration finds when it has the opportunity to look under the hood, as our new finance minister put it, said Diane Newman, co-chair of the Chamber of Commerce Economics Advisory Committee. This will likely determine what actions the Government can take in the budget it creates for the year.
Even if the US or Europe begin to show signs of recovery, Bermuda will likely not to feel those affects until a year or two later, said Ms Newman.
So any benefits that will come from the recovery currently being experienced there unlikely to be felt here this year, she said.
One of Bermudas key financial concerns, the Chamber believes, is the Islands debt — which now stands at $1.4 billion, roughly $28,000 per Bermudian, with a debt-to-GDP ratio of 25 percent.
Since 2005, the debt has shot up more than 700 percent, with todays total coming with fiscal year interest payments of $85 million or approximately $233,000 a day.
The size of the current debt means there is no quick fix to the situation, said Ms Newman. It is clear that the existing level of accumulated public sector debt is not going to be paid off entirely within the next 20 years and therefore will continue to affect future government budgets and the overall economy.
But, the Chamber has laid its cards on the table, offering their strategies to tackle Bermudas borrowing and lack of foreign investment.
Throwing their weight behind ideas such as abolishing term limits, extending the 60-40 rule and opening up the real estate market to foreigners by cutting the taxes to be paid on their purchases, the Chamber produced and presented a debt strategy plan to the Government in June of 2012.
The business group is now studying the viability of Value-Added-Tax (VAT). Their final report is expected to be ready within the next month.
According to the Chamber, VAT is a consumption tax, which continues to grow in popularity internationally, and is a revenue-producer for governments. While the Chamber doesnt have an official position regarding a VAT system in Bermuda, they believe that it is important to investigate its potential implementation in Bermuda.
In Bermuda, there is a customs duty for imported goods already in place, but, apart from mandatory tipping in restaurants, there is no tax on services, said Ms Newman. This would add to the cost of living on the Island, but would not add to the taxes imposed directly on businesses.
Other new strategies to encourage small business include amending the payroll tax to include sliding scales of tax rates for various employee types.
Having a reduced rate of payroll tax for part-time workers would be an incentive for businesses to add to their staffs, said Ms Newman.
The Chamber also endorses the idea of payroll tax holidays for new Bermudian hires along with privatising some Government services, including the ferry service, the post office and the bus service.
These departments all run at a significant loss, says the Chamber.
As privately run enterprises, they would still require the expertise and skills of people currently employed as civil servants, said Ms Newman.
As part of the new governments election platform a Tripartite Economic Advisory Council was proposed bringing together government, unions and businesses to tackle Bermudas economic future.
The Chamber, says Ms Newman, is eager to be a part of the initiative but is tempering their fiscal hopes for recovery in 2013.
While there are many new policies and programmes Government could put in place to put Bermudas economic house in order, and to encourage new business development and growth, the results might not be evident for some time, she said.