David Burt could be forgiven a jovial appearance before the island’s media yesterday and it was not simply because he was looking forward to Christmas.

The Premier and finance minister was able to present a pre-Budget report which contained both the good news that the Government’s budget last year had produced a larger than expected surplus, while the surplus for the current financial year was expected to be even bigger.

More importantly, Mr Burt said, the 2024-2025 Budget had been accomplished without funds from the Corporate Income Tax, which was expected to boost the surplus further.

Those accomplishments, which looked difficult 24 months ago, mean “Bermuda’s fiscal position is now stronger than at any time in two decades”, according to the independent Fiscal Responsibility Panel, whose report was also tabled yesterday.

That report did take something of the shine off Mr Burt’s claims about the 2024-2025 Budget surplus, which was due to an accounting wheeze -- shortfalls in the health budget were paid for from off the balance sheet through the Sinking Fund.

The FRP said: “The headline budget figures did not reflect the ongoing financing directly from the Sinking Fund of deficits in the health budget, in particular the Mutual Reinsurance Fund and the Government Employees Health Insurance fund.

“This totalled $50 million in 2024-25 (compared with the $33 million planned at the time of our last report). Had these expenditures been provided for in the current budget, the overall position would have been a deficit of about $26 million.”

Having previously described these actions as unsustainable, the report did acknowledge that the Sinking Fund had not been raided in the current Budget and that there would be a budget surplus of $14 million before taking CIT revenues into account.

That is a commendable achievement when many governments around the world are grappling with growing deficits and sluggish economic growth.

Now Mr Burt, as he prepares what is likely to be his last Budget before stepping down as Premier next October, must set the path forward for dealing with the CIT.

It is a good problem to have but presents significant challenges.

It is inevitable that virtually everyone can think of a way to spend the $600 million that is projected to come annually from the CIT and working out how to use it wisely is important. Finance ministers have to say no a lot but it is easier when they can legitimately claim the cupboard is empty.

What needs to be borne in mind is that the companies that are going to be paying the CIT represent highly mobile capital and do not need to be in Bermuda.

While there has been no substantial flight from the island as a result of the tax, adding $600 million to their expenses means Bermuda must provide value for money and must also find other ways to reduce the extraordinarily high cost of doing business here.

There is a general consensus from the international companies themselves and from the Government and its advisors that one way to do that is to reduce Bermuda’s $3.2 billion of debt, which costs $127 million a year to service.

However, that is where they part ways, as reported in today’s newspaper. The Fiscal Responsibility Panel argues that all of the CIT revenue should go to paying off debt, interest and/or acquiring net financial assets.

The FRP also said that the Government should record a Budget surplus separate from the CIT.

The latter point is wise, given that CIT revenues could be volatile or depleted by the departure of one or more large companies.

Mr Burt has agreed to that but has differed on the use of the CIT funds. Instead, his rule is: “Over a ruling period of three years, at least 70 per cent of net CIT revenues should be devoted to paying debt interest, reducing net debt, or accumulating net financial assets.”

This may seem an arcane point but 30 per cent of CIT revenues is projected to be $180 million a year. That is real money.

The measures proposed in the Pre-Budget report are attractive and would reduce the cost of living. They include a range of tax cuts on electricity and goods, as well as for payroll tax. It is notable that the Government has not proposed a reduction in the employers’ payroll tax, although this has been proposed by the Tax Reform Commission and others.

More money will also go to reducing the cost of healthcare, which is one of the biggest challenges for ordinary Bermuda residents.

Nonetheless, a more aggressive approach to debt reduction, along with a restructuring of the Contributory Pension Fund, which will otherwise run out of money in less than two decades, would be a better approach.

Eliminating the $130 million in debt service entirely would free up that money over the long term and it could then be used for tax cuts and relief.

Instead the Government proposal is to pay off $500 million of the $600 million in debt that will come due in 2027 but this will only reduce debt service to $100 million.

It is not clear where the 70 per cent figure has come from; using 80 or 90 per cent for debt reduction would stabilise Bermuda’s finances faster.

The FRP has stated that Bermuda has one chance to get this right and “create a durable foundation for intergenerational equity”. The panel is right. Bermuda should grasp the opportunity.