A bold step to drag Bermudian economy into the modern world
David Burt delivered an impressive maiden Budget statement yesterday, driven by an appreciation of economic reality, spiced with a touch of political boldness.
As the Premier and Minister of Finance, he faced the largest test of his young political career against a backdrop of supporters baying for action to close the gap between the “two Bermudas” — a campaign message that helped the Progressive Labour Party to emphatic electoral success last July.
But while populism can win campaigns, it has to be set firmly to one side when it comes to the business of setting out the national budget, the moment when the rubber really hits the road in the transition from opposition to government.
Bermuda’s economy is in way too fragile a state to bear the consequences of any policy moves aimed at “settling scores” or bluntly redistributing wealth, moves that would inevitably deter the foreign investors that the island’s prosperity depends on.
Burt showed in his Budget that he appreciates this reality, perhaps better than some had feared. He set out a case for closing the inequality gap by “growing the economic pie”, lowering barriers to foreign investment, and modernising the economy, while at the same time ensuring Bermudians can participate fully.
Perhaps the most eye-catching initiative was the flipping of the 60:40 rule to become the 40:60 rule, something that will allow non-Bermudians to become majority owners of domestic businesses. It appears a politically risky move, given that it runs directly counter to the protectionist slant traditionally held by the PLP.
It sends a clear signal that this young, tech-savvy leader brings a more pragmatic, less ideological approach than the PLP of old and that he intends to drag the Bermudian economy kicking and screaming into the modern world.
His argument about the benefits to Bermuda and Bermudians is inescapably logical. Burt is right to point out the absurdity of billions of dollars earned in Bermuda flowing straight out of the country, at least partly because of self-destructive rules that prevent the money being invested on the island.
As he put it: “In Bermuda, we allow persons such as PRCs to earn money and stay here indefinitely, but then tell them to invest their money overseas, which creates jobs and opportunities elsewhere.”
Of course, had the One Bermuda Alliance proposed such a thing during its tenure, it’s a fair bet that street marches and outrage would have followed. The difference is that Burt, fresh from the success of the PLP’s “Bermudians first” election message, is unencumbered by suspicion that he has more interest in cosying up to wealthy foreigners than serving the electorate. Thus he is afforded the opportunity to make a logical economic argument that will be heard and considered on its merits throughout the community, rather than instantly rejected by a sizeable number, simply because of who is putting the idea forward.
Further bold moves such as opening up the island to more foreign law firms — something that will put Bermuda on the radar of their clients around the world — and allowing more competition for banks reinforces the message that Burt is serious about modernising the economy.
The decision to reform payroll tax as it applies to notional salaries will be widely applauded. Workers struggling to make ends meet on a modest salary, completely subject to payroll tax, might rightly wonder how wealthy partners of law and accountancy firms have managed to get away with being taxed on a minority of their employment earnings for so long. It is fair and reasonable to close this loophole and should do less damage to Bermuda’s international competitiveness than the now-scrapped alternative of a professional services tax.
If there was one thing about Burt’s presentation that was disappointing, it was the lack of any credit given to his predecessor, Bob Richards. In his speech yesterday, Burt was able to put forward the options of stimulus and austerity because the relative fiscal stability and positive economic trajectory he has inherited mean he has those options.
It should be remembered that on arriving in the Ministry of Finance in late 2012, Richards took the wheel of a fiscal train wreck amid an economy in deep recession. His options were austerity or insolvency.
Through a series of painful decisions — such as furloughs for public-sector workers and hiring freezes — and politically self-damaging austerity budgets, Richards got Bermuda out of a hole. This period of disciplined fiscal management was needed not only to keep public services functioning and international business from walking away, but also regain the trust of rating agencies and international investors who today prop up the finances of the Bermuda Government.
Burt is now reaping the benefits. The new government was able to give civil servants a 2.5 per cent pay rise last year with little apparent impact on government finances because of a fiscal performance that in 2017-18 exceeded projections. That was in large part owing to the policies put in place by the OBA in the last Budget and the considerable economic stimulus provided by the America’s Cup.
But Bermuda’s divisive brand of politics apparently leaves no room for giving credit when the credit is due to someone on the other side of the aisle.
Numbers are unforgivingly exact, taking accountability to a different level from fiery words and catchy slogans. Richards’s projections for revenue and expenditure proved remarkably accurate over the years and time will tell how Burt compares in this regard.
John Wight, the president of the Bermuda Chamber of Commerce, while praising Burt for scrapping “outdated policies”, questioned whether the expectation for revenue to rise 4.6 per cent in the year after the extraordinary boost of the America’s Cup was reasonable. He may well have a point.
However, Burt deserves the backing of Bermudians in his mission to modernise and grow the economy. Our fortunes are tied to his success.
Hopefully, he will be more successful than Richards was in convincing the majority — on all rungs of the economic ladder — that opening up what he described as Bermuda’s “uncompetitive, expensive and inefficient” economy is to everyone’s benefit.
“As a country with a stagnant economy and an ageing population, we cannot afford to stand still while other countries modernise to compete in the new global economy,” Burt said.
“We must adapt to the realities of the global, technology-driven economy, or as a country we will continue to fall farther and farther behind, finding ourselves unable to afford to take care of our seniors, educate our students, fund public services, or pay our pensioners. We must grow, and the only path to growth is via increased investment in the Bermuda economy.”
There is a theory that our political differences are these days less about Left and Right, and more about open and closed. Open to the world in terms of being welcoming to trade, foreign investment and foreigners, or closed, as exemplified by Brexit and Trumpism.
Bermudians can feel hopeful in the knowledge that our Premier and Minister of Finance falls firmly in the open camp.
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