Panel: realise reforms or face tough future
Progress on reform of the tax, healthcare and immigration systems urgently needs to happen, because “the status quo will not deliver a good future for Bermudians and their children”.
That is the clear message from the Fiscal Responsibility Panel, the three-strong group of experts who effectively serve as the Government of Bermuda’s fiscal conscience.
In an interview, Jonathan Portes, Peter Heller and Marian Bell also warned that the island remained vulnerable to external shocks such as an economic downturn or a financial market dive — considered more probable events for 2020 than they had been in 2019.
The panellists gave the Government credit for beginning to address the island’s biggest long-term challenges, but urged faster progress, while recognising the political difficulty in tackling the thorny issues.
The trio were on island last week meeting with representatives of the Government, business and the broader community as they prepared their fifth annual report, due to be tabled in the House of Assembly in the coming weeks. Mr Portes has taken over as chairman from David Peretz, who retired this year.
Referring to external risks, Mr Portes said: “The chances of some sort of economic crisis are bigger in the year ahead than they were last year, for a number of reasons.
“Whether it’s a 30 per cent chance or a 70 per cent chance, it’s hard to say, but’s it’s high enough that Bermuda ought to be worried.
“The good news is that Bermuda will be running a budget surplus and its debt to GDP [gross domestic product] ratio is not high by international standards. However, Bermuda does not have the luxury of complacency.”
Bigger economies, like that of the UK, could sustain a larger debt ratio, but as a smaller and less diversified economy, Bermuda was much more vulnerable to economic shocks, he added.
The challenge, Ms Bell said, was to gain public support for policies to reform immigration, tax and healthcare, as she said “in the long run it will improve people’s lives, including the lives of the less well off”.
To help convince people of why change was necessary, Mr Heller said a key message was that “the status quo is not sustainable and it will not deliver a good future for the people of Bermuda or their children”.
Reducing the island’s debt burden over time should be a priority, Mr Portes said. The recommendations of the Tax Reform Commission, which were broadly supported by the panel, had “largely not been implemented”, he added.
“We think the Government needs to set out a clear strategy on changing the structure of the tax system,” Mr Portes said. “We’ve heard a lot from stakeholders that people think taxes are high. But looked at against comparable jurisdictions, taxes overall are not high here.”
The panel has repeatedly suggested that immigration reform is essential to Bermuda’s economic prosperity.
Ms Bell said: “Immigration reform has to be seen in the context of demographics: the population is ageing and the workforce is shrinking.”
Immigration reform was essential to build up the workforce, Mr Portes said. Asked what the economic value of allowing more people into Bermuda without having created the jobs for them to fill, Mr Portes said it was “a chicken-and-egg situation”.
He added: “Immigration reform is likely to be a precondition for job creation.”
He explained that people were much more likely to start up businesses if they knew they would be able to have access to the right people to fill specialist roles. While some of the talent to fill those key positions may exist on island, it is likely that others would have to be brought in.
This would not take jobs away from Bermudians, rather it would create more employment opportunities for locals by promoting business growth, he added.
Mr Portes has this year written a book entitled What Do We Know And What Should We Do About Immigration? Published by Sage, it examines the implications of immigration, economic and otherwise, for the United Kingdom.
“Over the past decade, there has been net immigration of well over two million people of working age into the UK,” Mr Portes said. “Fortunately, this has allowed businesses to grow and take on both British and non-British workers.”
Without wishing to pre-empt the report, Mr Heller said the panel recommended that the Government develop a long-term taxation strategy to get “ahead of the game” as international pressure on low-tax jurisdictions was set to intensify.
Mr Portes added that “the Government and the Ministry of Finance have done a very good job with very limited resources” to keep up with evolving international standards.
But as there was no way Bermuda could stand up against ever-increasing international pressure on taxes, it needed to come up with a plan to stay ahead of potential external threats for the coming years.
The panellists were encouraged by the Government’s efforts to reform the healthcare system, which they saw as a step in the right direction.
The rapidly ageing population meant more strain on the healthcare system was coming and the existing system was unsustainable, so progress on the consultation process was essential.
The triggering of $165 million debt guarantee on the Caroline Bay development has added to the Government’s borrowing requirements this year.
Mr Portes said that Caroline Bay was “material and undoes some of the progress that has been made, but is not catastrophic”.
The extra debt would have an impact on the Government’s future interest payments that the panel would factor into their calculations, he added.
Mr Portes is professor of economics and public policy at the School of Politics and Economics of King’s College, London and a former chief economist at the UK’s Cabinet Office.
Ms Bell is a British consultant economist, whose experience includes serving as an external member of the Bank of England’s Monetary Policy Committee from 2002 to 2005.
Mr Heller is the former deputy director of the Fiscal Affairs Department of the International Monetary Fund.
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