Austerity, jobs and growth
Premier Paula Cox has defended her Government’s Budget policies of recent years as a choice between austerity and growth.
She has claimed that the policies, along with the rollbacks on payroll taxes and payroll tax relief, have saved something on the order of 8,500 jobs.
She has stated that if Government had embarked on the kind of austerity measures that many, including this newspaper, have called for, the results would have been “devastating”.
Aside from defending her own record, Ms Cox clearly is laying this argument out as a central theme for the coming general election. It seems likely that the Progressive Labour Party will argue that it is the party that can save jobs, while the Opposition One Bermuda Alliance, in calling for hiring freezes and budget cuts, will put people out of work.
These are arguments that have been taking place around the world, and in that sense at least, Bermuda is not alone.
Leaving aside how the OBA will respond and whether that’s an accurate characterisation of its policies (it’s not), who wins the argument and possibly the election, depends on how the PLP Government’s record is viewed and whether the facts match the rhetoric.
First, Ms Cox’s payroll tax rollbacks only go back one year. In 2010, when she was Finance Minister, Government raised payroll tax from 14 percent to 16 percent and, without warning, hiked the ceiling on payroll tax for senior executives.
At the time, this newspaper criticised that decisions because of the negative effect it would have on jobs, and because the increase in the payroll tax ceiling could drive senior executives and their companies out of the Island.
That seems to have been the case. When Government reversed itself and took payroll tax revenues back to 14 percent, the damage was done. In 2009, $349 million was raised from payroll tax. In 2010, it jumped to $423 million when payroll tax was raised. When payroll tax was taken back to 14 percent, the tax take slumped to $315 million, $35 million less than Government expected and $34 million less than it had earned two years earlier, even with the hike in the salary ceiling. Some of those jobs would have been lost anyway as the recession took hold, but Government’s error, which it acknowledged by rolling the tax back to its previous level, cost jobs, many of them high earning, which might still be being spent in Bermuda otherwise.
So far from saving jobs, Government’s ill-advised tax hike cost them.
What was needed then, and is now, was a cut in the payroll tax from the 14 percent level to save jobs. Government has provided very welcome payroll tax relief for retailers and the hotel and restaurant sectors and these measures have undoubtedly helped to save some jobs. But this kind of piecemeal approach simply shifts the burden from struggling companies onto businesses that are more successful, at least for now. Without a concurrent reduction in the cost of Government and therefore the tax burden, all these stopgap measures do is cut into the viability of the few taxpayers who are able to pay.
What is needed, along with tax cuts to make Bermuda competitive again, is a plan to expand the economy. It’s not in the Budget or in the Government’s overall policies. A tax on aircraft crossing Bermuda’s air space is not a growth plan, it’s a revenue grab. The idea of taxing foreign trawlers, while less woolly, may prove difficult and expensive to enforce. The idea of placing a large scale commercial fishery in Bermuda, meanwhile, runs the strong risk of being a white elephant.
This newspaper does welcome the $250,000 grant to the task force for attracting asset managers to Bermuda, but the fact that grants to other international business organisations have been cut is disappointing, unless they have been unable to show they are giving value for money.
Equally, the cut of $1.1 million in the advertising and promotion costs for tourism is mind-boggling. If Bermuda is to grow its way out of this recession, it has to market its services to the world. Instead, the budget for tourism’s global operations, much of which encompasses sales and marketing, has dropped from almost $25 million in the 2010-11 financial year to just $20 million in the forthcoming year.
So while the PLP may say it is trying to save jobs, its funding of marketing for international business and tourism, the Island’s only foreign exchange earners for the foreseeable future, says it is not committed to growth.