As the finance minister initially indicated, the Budget contains both good news and bad. The good news is that the tabled Bermuda payroll tax system is more progressive. This will be welcome relief for those in the lower-income categories who desperately need some help dealing with Bermuda’s almost incessant escalation in costs.

The progressive nature of the changes, including raising the exemption ceiling to $900,000, sets up a more equitable and fairer system with a benefit for more than three-quarters of the population.

The system also appears to favour small businesses, which are the true engine of growth of any economy, especially job growth. If you truly want more jobs, you need to make the cost of them less expensive — tax breaks in certain brackets can help.

It is also worth noting that the Budget targets broadening the tax base, which is an absolute necessity if we are to eventually balance the budget without crushing certain constituents or lines of business.

Prior exemptions have been reconsidered and the financial services tax has pulled into the mix two business sectors that were previously exempt — insurers and banks. These previously were to be exempt from the goods and services tax, and now have been included in the tax base.

Although bad news to those affected, it is welcome news to others who may find some comfort in the expectation that payroll tax and/or duty alone are not to be the sole source of revenue grab. It is likely that these taxes could be passed on to customers in the form of higher prices, and this does pose a small risk to inflation.

The threat of fiscal instability and international rebuff is a real and present danger, but much more focus still needs to be made on reducing the size, scope and cost of government in Bermuda.

Current projections consider approximately only 2 per cent reduction in current account expenses over the next three years. More needs to be done on scaling down the overall size and cost of the island’s government.

Although the progressive nature of the tax is good, it has a potentially negative consequence: if an executive were to make $900,000 in Bermuda, they would incur payroll taxes of about $166,000 under the proposed new system.

In a competing jurisdiction, that same executive/owner would pay roughly $40,000 — a reduction of about 75 per cent. Bermuda needs to be careful not to incentivise decision-makers to move to higher-paid staff to lower-cost jurisdictions.

Escalating taxes may help to balance the budget, but it is doing so at the expense of enhancing the island’s competitive situation, especially when we consider the potential bad news that Bob Richards described on the horizon.

The potentially really bad news has nothing to do with Bermuda’s debt. There was extensive commentary of two of the greatest geopolitical threats to Bermuda: Trumponomics and tax haven scorn. It may be a bit glib, but it is likely fair to say that if Trump’s corporate tax plan develops into the most aggressive form that does include border adjustment tax on reinsurance and a greatly reduced corporate rate in the United States, all other commentary on budgets and debt become less relevant.

Any massive disruption to offshore models and Bermuda’s largest industry could quickly change the island’s revenue projections. It would be like mending a sail on a ship that is rapidly sinking. Details on these threats are sparse at the moment, but they are so critical to the very foundation on how the island operates and would seem to be the most important thing to monitor at this stage.

Unfortunately, international business executives will be carefully modelling the cost of their operation on the island versus onshore and offshore jurisdictions. Bermuda is raising tax rates and fees when other countries are looking at reducing taxes and costs.

Therefore, it will be increasingly difficult to grow jobs on the island when higher costs are making the island less competitive. While we support a more progressive tax system and appreciate Bermuda’s challenging debt situation, we must also understand that job growth is critical in growing the economy and higher taxes and costs can reduce jobs.

• Nathan Kowalski CPA, CA, CFA, CIM is the chief financial officer of Anchor Investment Management Ltd and the views expressed are his own