Kowalski voices payroll tax jobs concern
There was a short but spontaneous burst of applause when Nathan Kowalski pointedly said that “if you want people to use more of something you don’t typically make that something more expensive”.
Speaking as a panellist at the PwC Bermuda-sponsored Chamber of Commerce’s Budget Breakfast event yesterday, he was referring to the one percentage point payroll tax hike, to be shared 50/50 between employers and employees, revealed in the Budget on Friday.
“Raising the cost of labour simply makes labour less attractive as a productive input,” said Mr Kowalski, chief financial officer at Anchor Investment Management.
The higher payroll tax was one of the items of concern he highlighted, although he initially spoke about what he saw as the Budget’s positives. These included a move to address the imbalance of equity, acknowledging a need for a more progressive tax system, and identifying the “serious denominator problem” the island faces with a shrinking population and workforce against a background of growing obligations ranging from debt repayments to healthcare and pensions.
While higher payroll tax was one concern for Mr Kowalski, he also spoke on the lack of diversification within the economy. He noted that Bermuda seemed to be lacking any exposure to future technologies and innovations such as biotech, robotics, artificial intelligence and nanotech.
“Although it is not up to government to create these industries, it can help create policies that encourage their formation on the island.”
And he said it was painful to see an increasing burden placed on the private sector “when one notes the almost static size of the Government’s cost structure”.
He stated that if the near-term economic prospects are providing a window to reduce debt through tax increases, then it must also be a window for cuts in civil service expenses. Furthermore, he wanted to see the civil service run more like the private sector with greater accountability and discipline.
In response, Bob Richards, the Minister of Finance, said the civil service has shrunk by 225 by attrition.
“Not one was fired or laid off. They were the results of retirements and early retirements,” explained the minister, who was the main speaker at the Budget breakfast.
Every Tuesday when the Cabinet meets he said he battles to enforce Government’s hiring freeze policy.
“Every ministry wants to provide their services and say they need more staff. The Darth Vader in the group is moi,” he said.
“We have those battles every Tuesday. We have won because the size of the civil service is declining. It is being forced down.”
Mr Richards agreed that not enough has been done on cutting expenses, but said a lot of the fat in government has been cut out. He said the issue of efficiency is being addressed, and rules and regulations to improve accountability from the top down are being put in place.
On the issue of diversifying the economy, Mr Richards said the history of Bermuda in the 20th century had shown that it was entrepreneurs in Bermuda and outside the island who had come up with business ideas and made Bermuda the place where they could take root.
He said people should not look to Government to come up with “the next big deal, because whatever government thinks is the next big deal — it’s not that”.
However, Mr Richards agreed that Government’s role was to provide the environment for entrepreneurs to pursue new ideas.
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