Economy worse than people think’
Bermuda’s economy is in a much worse state than people think, an economist has warned.
Robert Stubbs, previously head of research at the Bank of Bermuda, said government policy mistakes made before the 2008 global financial crisis were to blame.
Mr Stubbs said: “What really surprised me was to learn of the number and scale of structural and fiscal imbalances ailing the economy. Our powers that be were either purposely misrepresenting or failing to fundamentally comprehend the scale of Bermuda’s economic problems.”
Mr Stubbs compared Bermuda with Jersey and Andorra, both offshore competitors similar to Bermuda.
But he said, unlike Bermuda, their economies had rebounded after the economic downturn.
Mr Stubbs began research two years ago and found that the three main issues that had dogged Bermuda’s economy were the island’s regressive tax structure, severe imbalances between investments and domestically derived savings, and the shift of economic development to the centre of the island.
Mr Stubbs said: “A regressive tax structure is bad for social justice in that it exacerbates inequality of incomes.
“It’s also bad for growth in that it acts like a poverty trap and contributes to a hollowing-out of the middle class.”
Mr Stubbs said an increase in overall tax revenues, increased revenues on capital and a substantial degree of progressivity in payroll tax were needed.
He added: “It’s time the public be informed not only of the need for, and range of, options in changing our tax structure, but also the limitations we face in terms of our global competitive pressures.
“Change is quite often frightening to people, but I think everyone will be much better off for these reforms.”
Mr Stubbs presented an economic analysis of Bermuda to the general public for the first time at the Bungalow 56 Talks event in Hamilton last week.
The economist is not the first to criticise Bermuda’s tax structure.
Bermuda College lecturer Craig Simmons said in 2016 that poor people paid a greater percentage of their income in tax than the rich.
Mr Stubbs quoted research by the International Monetary Fund that identified extreme levels of income inequality as a possible threat to future economic growth.
And he said that, although severe imbalances between our investments and domestically derived savings were ideal for global economic growth, it was detrimental to Bermuda’s economy.
Mr Stubbs added that the island’s poor restrictions on private entities and enactment of required private pensions were the underlying causes of this situation.
He said: “While the majority of the island’s residents are living paycheque to paycheque, many of Bermuda’s higher income households are saving significant sums, the vast majority of which are funding the investment of other countries around the world.”
Mr Stubbs added that the 1974 decision to make Hamilton the island’s economic hub had also caused problems.
He explained that created a remarkable disparity between the location of jobs and where people lived.
Mr Stubbs said: “While jobs have been migrating to Hamilton, our residences have been fleeing Hamilton.
“As a consequence, people’s commuting distances have increased enormously over the past 60 years.”
But Mr Stubbs said the policy errors of the past could be fixed easily by monitoring and disciplining lending by banks.
He added: “Twice in 20 years Bermuda’s banks wreaked havoc on the island through runaway credit growth.”
Mr Stubbs said the first time this happened was in the 1980s, and resulted in inflation that increased prices of goods and services — which condemned tourism to 20 years of subpar growth.
He added the second time was a few years before 2008 when inflation showed up in house prices.
Mr Stubbs said: “We all know how destabilising that was.”
Mr Stubbs will make another presentation at Bungalow 56 next Thursday, at 6pm.
The speech, “Bermuda in 2017: Convergence of the Offshore World: An Emerging Common Economic Model?” will review reforms adopted by Bermuda’s biggest competitors in the offshore world since 2008.
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