The Budget Reply
For some time now, the One Bermuda Alliance has been criticised for not providing enough detail on its policy proposals.
Shadow Finance Minister ET (Bob) Richards’ Reply to the Throne Speech was clearly aimed at answering that criticism as it laid out a comprehensive plan to bring Bermuda’s economy out of its current malaise and to begin recovery.
To be sure Mr Richards was also highly critical of the Government’s policies, and for the most part his criticisms were accurate. It maybe that the Progressive Labour Party’s attempts at character assassination and to frame Mr Richards as “Doomsday Bob” are at least partly a result of the fact that his predictions and criticisms have been largely accurate, while the Government’s policies and forecasting have been woefully wrong.
Those points have been made before, but Mr Richards’ criticisms are well founded for the current Budget as well. He rightly points out that the Government has failed to draw up a realistic plan for creating jobs or for encouraging growth in Bermuda’s main industries. At the same time, its failure to meaningfully reduce the size of Government and to reduce the tax burden means that the weight of Government spending continues to hamper growth.
Mr Richards also makes one especially insightful point. The departure of many younger expatriates has not just reduced spending in the economy, but it has left a smaller and older population to fund an increasingly heavy health insurance and pensions burden.
And Government’s answer to that is to continue to pursue the national health plan and to allow pensions not to be funded for a year.
So what would the OBA do? It would immediately suspend the term limits policy which would send an immediate signal that Bermuda is open for business.
It would also freeze hiring in the Civil Service and reduced its size through attrition. Significantly, it has made a promise of no redundancies, which will shield it from political criticism.
It would do a host of smaller measures, including reserving some contracts for small businesses, paying bills within 30 days, eliminating duplication for company formations, which taken in total would help to improve economic performance. Like the Government, it also supports bringing more investment managers to Bermuda.
The most controversial proposal is for a revision of the 60:40 ownership rule, which it boldly states has outlived its usefulness. While it is true that several large sectors of the domestic economy like tourism and banking are no longer governed by the 60:40 rule, it is debatable whether the whole economy needs to have this measure dropped.
The question Bermuda must ask is whether it wants a large proportion of its businesses to be run and owned by foreigners. While the addition of capital and some economies of scale may be possible, Bermudian ownership of local businesses is part of what makes Bermuda unique, so this declaration will lead to fierce debate.
Despite this, the general tenor of the Budget Reply is correct. The emphasis on reducing the cost of doing business and creating jobs is welcome, and overall, it is a more far-sighted document than the Government’s.
This newspaper would have liked to see some movement towards reducing the cost of living and business by moving towards lower Customs rates. While the freeze on payroll tax for businesses that hire Bermudians is sensible, a general reduction in payroll tax would spur hiring and growth. Bermuda must find ways to lower the cost of its services.
Tax reductions carry the risk of lowering revenues if the economy does not grow fast enough to offset it. That’s why cuts in spending are also vital, and here the OBA has some good ideas, including the continued reduction in consultants, both local and foreign.
But it may be necessary to incur further short term budget deficits to get the economy going. This is acceptable if the Island’s current economic spiral and collapse of confidence is replaced by a virtuous circle of growth, in which expansion and growing confidence spurs further growth and confidence.
That’s the answer to the Island’s current malaise, and it needs to happen soon.
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