Sidestepping the elephant in the room
Curtis Dickinson cannot have upset too many people with his Budget yesterday, given that most of us are concerned mainly with how any changes will affect our own immediate financial wellbeing.
That may well have been the political aim of the exercise, but it was achieved at a price of once more spending beyond our means and once again adding to a debt mountain of staggering proportions that casts a long shadow over our future.
It should first be said that there were many laudable elements of Mr Dickinson’s second Budget. Dropping the rate of payroll tax by half for those earning up to $48,000 will ease the struggles of those most in need of a boost. Putting more money in the pockets of those on low incomes has the added advantage of being a very effective means of economic stimulus.
As the loss in payroll tax take is mostly offset by increases for those earning more than $96,000, this also takes a step towards a more progressive tax system.
There were also payroll tax and duty breaks aimed at small and medium-sized businesses that may help young businesses to start up, grow and feel encouraged to hire.
The lack of any new taxes and the decision to leave vehicle licence fees unchanged, instead of imposing the traditional biennial increase, will be widely cheered.
A $20 million increase in capital spending will step up maintenance work on our roads and public buildings, and also help to implement technology that could provide some return on investment by making Government more efficient.
What was evidently missing from the Budget was the language of urgency that we have heard in recent years over our precarious debt situation. In 2020-21, the Government plans to spend about $20 million more than it takes in, putting back for yet another year the day when Bermuda can finally declare an overall budget surplus.
Of course, 2019-20 was supposed to be that year, but a missed revenue target coupled with an expenditure overshoot, not helped by the curve ball of the guarantee on the Caroline Bay project being called, put paid to that. So a projected $7.3 million surplus became an actual $14.6 million deficit.
Three years ago, Bob Richards, one of Mr Dickinson’s predecessors, warned that a casual attitude towards extra borrowing would be “irresponsible and dangerous”, as he mapped out a painful path to stabilising the fiscal situation. In 2017, Bermudian voters chose a platform that promised stimulus over austerity and our debt has continued to climb since.
We now find ourselves looking at net debt climbing to almost $2.68 billion by March 2021, while interest payments — without paying off one cent of principal — will total $121.4 million, or $332,600 per day. That breaks down to about $46 a week for every Bermudian man, woman and child.
Such a debt-servicing burden puts heavy limitations on what services Government can provide. That will become an increasingly serious problem with the ageing of our population and the shrinking of the workforce being taxed to help provide for them.
Bermuda has always been vulnerable to external threats, but the enormous debt coupled with our demographic trajectory, makes us weaker still. A US recession, or implementation of a global minimum tax rate for corporations, as is being proposed by the Organisation for Economic Co-operation and Development, or an increase in interest rates at a time when we need to roll over debt, present three potentially nightmarish scenarios for a debt-weakened Bermuda on the medium-term horizon.
In last year’s Budget Statement, Mr Dickinson described the ageing of our population as “perhaps the single most serious long-term issue Bermuda faces”, adding that “it will not be possible for the Government to meet its obligations to our retirees and pensioners without significant structural reforms to our economy”.
This year he barely touched on this elephant in the room.
However, the proposal to flip the 60:40 rule to become the 40:60 rule, enabling majority foreign ownership of local companies, was perhaps one of the structural reforms to which he was referring. On the face of it, this breaks down a protectionist barrier that has impeded foreign investment and is welcome news.
The caveat is that the requirement for the board of directors to be 60 per cent controlled by Bermudians remains, destroying much of the incentive created by the rule change. Who would want to be the dominant investor in a company and at the same time be forced to cede control of how that capital is deployed?
Protectionism is an illusion: it will not protect our jobs, our standard of living or provide a prosperous future for younger generations. More likely, it will achieve the opposite. It was not protectionism that enabled Bermuda to become an extraordinarily prosperous island; it was opening up to the world.
One of the advantages of a small-island economy is that modest policy changes can have a big impact. The Government has several levers it can pull to improve our fortunes. Opening up does not mean opening the floodgates. It can be carefully controlled to meet the needs of Bermuda and Bermudians.
BermudaFirst, an apolitical group of 80 Bermudians from many different walks of life, has frankly done a better job of drawing up a plan to tackle our daunting 21st-century challenges than any political party.
Its recommendations are founded on pragmatism: an immigration policy designed to promote economic growth and based on the island’s skills needs; an independent education authority to raise standards and ensure our children graduate with the skills they need to participate in the knowledge-based economy; and healthcare reform based on patient outcomes.
Indeed, one senses that Mr Dickinson is much more comfortable with pragmatism than in playing party political games, as he hinted with the words: “We as elected officials on both sides must put away our petty politics and recognise that the sacred trust of the electorate means more now than ever.”
Well said, sir.
Our plight today is far too precarious for politics to get in the way of common sense.
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