Chamber fears for jobs if tax relief goes
Payroll tax relief should remain in place for retail and restaurant operations or jobs will be lost, say business owners who have put it at the top of their Budget wish list.
The Bermuda Government’s Budget for 2015-16 will be delivered today at 10am by the Minister of Finance Bob Richards.
Increasing the number of residents as well as visitors is also considered a high priority, say those businessmen, many of whom are enduring a flat year after a long period of economic decline.
Restaurant, hotel and retail business operations were exempted from payroll tax in 2011 because the economy was deteriorating. Other tax breaks to encourage business growth have included customs duty relief for infrastructure improvements and tax incentives for some new employee hires.
Despite some sectors seeing signs of improvement, others, including the retail and restaurant sectors, are still struggling.
“Everyone is holding their breath ahead of the Budget,” Kristi Grayston, president of the Chamber of Commerce, said. “The Chamber will be listening very carefully on Friday morning.
“We understand that governments need to collect revenue to help cover the debt; everyone has to pay their fair share.”
However, payroll tax relief should be continued for struggling sectors because the risk of reinstating it could sound a death knell for at least some operations.
Ms Grayson, who is also the managing partner of gift shop Pulp & Circumstance, explained that the survival of local business was important to the growth of the economy.
“If businesses close, the burden on financial assistance will grow,” she said, pointing to the spectre of an added burden on the Department of Financial Assistance, which would be required to support an increased number of unemployed people. “The demand for revenue from Government will outweigh the benefits of reintroducing payroll tax.
“Normally we can take an educated guess [about the Budget], but this will be a budget no one is going to be particularly happy with.
“We need additional trade and revenue — we need foreign currency, we need an influx of capital into the Island, while keeping the money we have here.”
Paula Clarke, chair of the Chamber of Commerce retail division, said: “The continuation of payroll tax for retail employees and employers is our biggest ask, as all of the retailers polled have stated that without this concession they would surely have to make cutbacks that would affect staffing levels and result in further consolidation.”
She added: “I can tell you that between retail and wholesale, there are over 4,000 employees in our sector, mostly Bermudians.”
Elaine Murray, an executive member of the Chamber retail division and an owner of the Irish Linen Shop, also said the cost of losing payroll relief will be jobs. “Retailers are keeping Bermudians employed and retailers have struggled valiantly with their businesses, sometimes at great sacrifice to the business.
“This is across the board, from the smallest to the largest operations.”
Ms Clarke, who is also chief executive officer of Gibbons Company, added: “The retail sector has been very badly hurt since the downturn in the economy, with many businesses closing. The sector recognises that an increase in the population of Bermuda is essential in order to see real improvement and growth.
“Our hope is to see policies that attract Bermudians who have left, return to Bermuda, and will remove red tape to encourage international business to domicile here.
“Our fear would be duty hikes that would render Bermuda uncompetitive in comparison to other destinations.”
An owner of several business operations said that from an employment perspective, one of the greatest disincentives to hiring is the cost of taxes and benefits that are the responsibility of the employer.
“While Government has provided some payroll tax incentives for hiring unemployed Bermudians for newly created jobs, widening eligibility for these provisions, reducing payroll tax for all new hires or lowering payroll tax across the board by say, 1 per cent, would be an enormous boost for employment and therefore the economy,” he said.
“Certainly, all of these measures pose the risk of reducing government revenues. But if the right number was found, the reductions should generate enough new economic activity that they would produce more tax revenue than the current tax regime as the economy and job numbers expand.”
The multiple business owner also said a greater recognition by Government of the structural problems confronting the retail sector “would be welcome.”
He added: “In particular, reductions in customs duty which retailers can pass on to consumers while reducing their importing costs would improve sales and competitiveness.”
Teresa Chatfield, a director of the MEF group of restaurants, said: “Bermuda is in a tough position with $2 billion in debt and has a major job to retain its international rating; the impact of not making the tough decisions today merely moves the problems farther down the road and makes them more intractable.
“Restaurants in many instances have hung on during the past six dismal years purely because of payroll tax relief, however, and that has made a significant difference to our industry.”
She also pointed to the possibility of business failures and loss of jobs if the Budget withdraws support for restaurants. “Loss of the relief as well as price hikes on liquor and other taxes will impact our sector and may put some places out of business,” she said.
“It is likely that the Budget will be a difficult pill to swallow for every sector, but we hope that the drastic measures taken will be judicious and over a period of adjustment.”
Christopher Garland, chair of the approximately 80-member restaurant division of the Chamber of Commerce, confirmed his sector would like to see the Budget continue payroll tax relief, and said that Bermuda needs an influx of people.
Mr Garland, who is also the general manager and a director of Flanagan’s Irish Pub & Outback Sports Bar, said: “As things get more difficult in the restaurant business, we have to find ways to be cost-effective — it’s not just food and beverage costs.”
Tax relief has been helpful because the sector had faced difficult times, he said.
Mr Gartland pointed to tax incentives for new hires and said all initiatives that save money were important.
In addition, customs duty relief allowing restaurant owners to reinvest in their facilities has meant that many have been renovated to a standard that makes them “look and feel as though they can compete in a global market”.
He added that business had been flat for the past year or so. “A flat year is a positive, unfortunately,” he said.
Kendaree Burgess, executive director of the Chamber of Commerce, said: “People are hoping that the Budget will do two things: fix the economy and not hurt them too much.”
She also cautioned that while reductions in government expenditures were still needed, they need to be done with care so that they do not shrink economic activity or reduce demand.
She said: “Government appears to have moved away from the idea of privatisation of services and mutualisation, which is a shame since, properly managed, such actions deliver government services more efficiently and cost-effectively than the public sector can, especially in those areas where Government is, or should be facing, private sector competition.”
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