Budget extension for hotel concessions to make resort development more attractive
The burden of the high costs of labour and doing business in Bermuda will be lightened for hotel developers by an extension of concessions, the Premier said.
David Burt, also the Minister of Finance, highlighted that some Caribbean destinations offered tax breaks for 30 years to attract top tier resorts.
Mr Burt said in the Budget statement: “Hospitality development presents a difficult paradigm for Bermuda on account of the high cost of labour and doing business.
“The concession framework within which we operate is simply not competitive.
“We will not have new or redeveloped hotels, or attract superior events, with the current structure.
“Our competitors understand this, and we see elsewhere branded hotel development, which positions them favourably for thriving arrival numbers in the very markets that match our price point.”
He said that strict border controls introduced to manage the Covid-19 pandemic were only “part of the story” of why tourism had not bounced back like it had in other countries.
Mr Burt explained: “Our fellow Overseas Territory Turks & Caicos saw excellent numbers last year, but Mr Speaker, it is important to understand why.
“In 2016, the then newly elected Premier and Minister of Finance of Turks and Caicos committed to expanding concessions for hotel development on the island.
“The result of that decision is that, over the last five years, a significant number of new hotel properties have been constructed, with new hotels opening last year.
“Most of our competitor jurisdictions offer tax concessions far in excess of what is offered in Bermuda.
“That is counter-intuitive as Bermuda has a high cost of business operations and additional support is needed for success.
“This is the crux of our tourism issue – it is difficult to make money in the hotel business in Bermuda and we must change that.
“Those who have dollars to invest take their money to jurisdictions where it is welcomed and where they can make a better return."
Mr Burt added that his Progressive Labour Party administration made sure that the Government guaranteed hotel developments only when the projects were fully funded.
He highlighted that the Tourism Investment Act, passed in 2017, extended concessions for hotel developments.
He said: “We doubled the length of concessions from five to ten years, but it is evident that there is still more work to be done.”
Mr Burt said that hotel concessions in the Turks & Caicos Islands were extended to 25 years in 2016, which led to the creation of more visitor beds.
He added: “Those are not even the most generous hotel concessions, as there are jurisdictions in the Caribbean that offer 30 years or more of tax concessions to attract branded five-star hotel developments to their shores.
“Mr Speaker, hotel concessions of that length seem extreme, but governments have recognised that the revenue from direct taxation of hotels pales in comparison to the money and employment generated for the country through having hotels open and operating.”
Mr Burt said: “Hotel employment is vital, and although tourism only contributes 5 per cent to our gross domestic product, it contributed approximately 14 per cent of the jobs in Bermuda in 2019.
“Mr Speaker, this government will this year introduce amendments to the Tourism Investment Act to increase the duration of concessions available to hotel developers in Bermuda.”
But he said: “We have seen what a desire to develop hotels at any cost can mean to the taxpayers of this country.
“The former government’s failed bid to support the Caroline Bay project has had dire consequences for our public purse.
“In that deal, the former Government guaranteed virtually all the debt for the project, and construction was started before sufficient funding was in place to support its completion, with the project reliant on real estate sales to fund the balance of the development.”
Mr Burt said that the guarantee was “an unacceptable risk” for a large-scale development that involved people who had no comparable experience in the resort construction field.
He told MPs that taxpayers had paid more than $210 million “for the previous administration’s poor judgment”.
Mr Burt added: “By contrast, this PLP Government has taken a different approach.
“We have ensured that guarantees extended to hotels, like the one provided to the new St Regis property in 2018 or the 2019 agreement between the former Minister of Finance and the developers of the Fairmont Southampton, do not overexpose the Government.
“We are making sure that all hotel development is fully funded so that taxpayers are not left bearing the cost.”