Population shift a key concern for business
Bermuda’s shifting population demographics over the next seven years are expected to present significant challenges for the island’s business community.
As outlined in the recently released report, Bermuda’s Population Projections, 2016-2026, the island’s population will both decline by 111 people by 2026 — and get appreciably older. Based on current projections, the report says, the proportion of the population 65 or older will rise from 16.9 per cent in 2016, to 24.9 per cent in 2026. One in nine of us will be 75 or older; the median age will be 49.
The impact of shifting population demographics has wide implications for the business community.
Population decline is expected to result in a lessening demand for the sector’s goods and services.
“For local businesspeople, it will become more and more difficult to maintain the level of activity they have now — or grow it,” says Don Mills, chairman and senior partner of Halifax-based Corporate Research Associates and a partner in local firm, Total Marketing and Communications. “There’s no way it will be different than that — it’s simply a numbers game.”
Meanwhile, an increase in the number of retirees creates a corresponding decrease in the number of people in the workforce. In combination with declining fertility levels, businesses will have more difficulty finding enough qualified young Bermudians to fill the positions made vacant by retiring baby-boomers.
Compounding the issue, as those people retire there will be fewer of the well-educated and skilled workers left in the workforce that make Bermuda attractive to foreign investment.
That scarcity of labour will increase costs for both local businesses as well as potential investors in the island due to increased competition for good employees.
The expected labour shortages will occur across the economy, Mr Mills says. Businesses in the service sector will continue to find it difficult to find Bermudians to work in the area, and those issues will migrate to the retail sector because younger workers are not drawn to that type of work. “There are a lot of challenges,” Mr Mills says.
On the expenditure side, healthcare costs for employers, who are legally bound to provide a health insurance programme for their employees, are expected to increase due to greater use of the health care system by an ageing population.
Referring to Bermuda’s unfunded pension liabilities and spiralling health care costs, the island’s Fiscal Responsibility Panel wrote: “Government has to be concerned that the impact on wage costs of financing the various social insurance schemes does not jeopardise the attractiveness of Bermuda for employers, particularly in the international business sector.”
Meanwhile, businesses on-island are continuing to digest the impact on their bottom line of the living wage legislation announced in the 2018 Budget. Initially pegged at $12.25 an hour, it may rise to above $18 an hour by 2021.
They are also awaiting news, in the 2019 Budget to be delivered on February 22, of any new or increased taxes that might impact their profitability.
Among the new or increased taxes recommended to Government by the Tax Reform Commission are: commercial residential rental tax, general services tax, withholding tax on managed services, withholding tax on dividends and interest — plus reforms to a variety of existing taxes including payroll, owner-manager declared dividend, customs duty, excise, land, financial services, foreign currency purchase, as well as international company fees and immigration fees.
“Viewed as a package, the recommendations would significantly increase the overall tax burden, while shifting the tax system to some extent from taxes on employment income to taxes on other forms of income and consumption, in particular rents and services,” the panel wrote.
“As with any tax increase, there will be an impact on the cost of living and doing business in Bermuda. While we recommend that the Government accepts and implements the package, or something like it, we also acknowledge that it will face a major challenge in explaining the need for the measures to the population and to business.
“It would clearly help if the tax increases could be matched by actions on immigration — as also recommended by the TRC — and by equally firm actions to improve efficiency in the public sector and to cut or at least to prevent future increases in costs, particularly in the health sector.”
It perhaps comes as no surprise that there has been a decline in private sector business confidence, according to a recent survey. “Such surveys, while not definitive, can be leading indicators of developments in the real economy,” the panel wrote.
John Wight, president of the Bermuda Chamber of Commerce, said: “In order to grow, businesses need to increase revenues and without increased demand for their products and services from more people working in Bermuda, it is difficult to see how they will be able to generate increased revenue at a time when there are so many increases in the costs to operate a business.
“Government has rightly talked about the need to grow the economy. It is difficult to see how we can do that without more people being based and working here in Bermuda.
“Our ageing population is a concern. Economically, we lost between 6,000 and 7,000 people between 2010-14. Now, we have seen what impact those individuals had on the economy — paying into the tax system, renting units from Bermudians, eating at Bermudian-owned restaurants, taking Bermudian-owned taxis. Their impact was substantial.
“Their departure is one of the causes of our current economic situation, where we have a national debt of $2.5 billion and we have the challenge of producing a balanced budget.”
Mr Mills said: “After the recession, you lost people who were the highest-spending consumers. The value of their spending was disproportionately higher than their actual numbers.
“When you lose almost 10 per cent of your people, it’s going to affect consumer spending. It’s hard to make up when the highest-spending cohort left the island. It’s a hard part of the economy to replace.”
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