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Time to rebuild the economy

Clear and logical ruling: Chief Justice Narinder Hargun (File photograph by Akil Simmons)

The Government won a significant legal victory on July 23 in its efforts to contain the coronavirus pandemic when the Chief Justice dismissed a challenge to its mandatory supervised quarantine order for unimmunised travellers.

Narinder Hargun, in a clear and logical ruling, found that the requirement was reasonable and that the elected government had acted within its rights in the face of a public health emergency.

Although the group challenging the order have said they will challenge the decision, Mr Justice Hargun’s ruling does not appear to leave many grounds for appeal.

In practical terms, the Government should move forward without any great fear that the decision will be reversed, and that is what it says it will do. David Burt, the Premier, said the Government may relax some of the quarantine requirements and will likely do more as the island reaches higher levels of vaccination.

And therein lies the rub. With vaccination rates rising fast and supplies plentiful, Mr Burt first said around April that he believed 70 per cent of the Bermuda population would be immunised by the end of May. He admitted it was an ambitious goal, but said it was achievable.

May and Bermuda Day came and went and the Government seemed to move the target to Cup Match. Despite 12 to 15-year-olds now being able to get the vaccination, immunisation rates have slowed to a crawl and for several weeks Bermuda has been barely inching towards 65 per cent, never mind 70 per cent.

The Ministry of Health said last week that it “remains optimistic about reaching community immunity, albeit at a slower pace”, an admission of the glaringly obvious.

Against that, the Government has closed the Bermuda College vaccination centre and has cut back on the number of mobile vaccination events, with that on July 24 being the first in a while.

While the Government will insist this is not the case, it appears to have given up, at the same time that logic dictates that Bermuda should be aiming for a higher level of herd immunity, with Carika Weldon, the government virologist, saying the greater virulence of the Delta variant means that Bermuda needs 87.5 per cent of the population immunised.

That may not be achievable, given that there is a substantial portion of the community that will refuse to be vaccinated under any circumstances.

But it adds urgency to the need to get the rest of the population vaccinated.

Failure to do so leaves Bermuda permanently at risk of experiencing another spike in cases, and with that the possibility of a fourth lockdown — causing yet more harm to the community and to the economy. Bermuda has to break the cycle and the only way to do that is through vaccination.

At the same time, the Government must move forward on economic recovery. It cannot wait for the perfect resolution to the pandemic before doing so.

As evidenced by the Government’s decision to extend eligibility for financial assistance, the island has not bounced back from the first shutdown in April last year, let alone the succeeding lockdowns. Unemployment remains high and will do so until tourism returns to something closer to normal, which again will depend on Bermuda being as close as possible to Covid-free.

Even then, there are plenty of threats to the Bermuda economy.

The most significant is the movement towards a global minimum tax, which poses an existential threat to Bermuda’s international business sector as it is structured at present. To be sure, the main driver of this sector, re/insurance, has been in Bermuda long enough that it is a market and industry in its own right, and is not dependent on Bermuda’s commitment not to levy corporate income tax on it.

But that does not mean tax plays no role; it is a significant reason for companies coming to and staying in Bermuda. The risk is less for the companies that are already based here, although that risk should not be underestimated, but with the companies that will not come in the future.

No one knew in the 1980s that Ace and XL, now significant parts of Chubb and Axa, would grow into the behemoths they became, and it is not clear what new company today might achieve the same kind of scale.

If Bermuda cannot offer a compelling reason for new international companies to come here, the sector will slowly wither away.

The risk is greater for the broader international company sector where tax advantages play a bigger part in companies’ decisions to locate in Bermuda.

In some cases these companies do not contribute much to Bermuda, especially where they employ no one. This should change under economic substance requirements, but these are predicated on the idea that companies should not realise a tax benefit unless they have a meaningful presence on the island. Take away the tax benefit and there may be no reason for them to be in Bermuda at all.

Take those companies away and the same problem arises; which one of them would have been the next Ace or Bacardi?

It may well be that Bermuda’s long-term ability to continue as a country with no corporate tax is impossible. The threat of some kind of challenge to its tax status has been real for some time, and political and business leaders have been well aware of it. It may be that Bermuda will be conducting a long retreat from this business in order to buy enough time to rethink the economy.

The 2008 financial crisis laid bare the risk of being a single-industry town and both the Progressive Labour Party and the One Bermuda Alliance have worked to diversify the economy, most notably through Mr Burt’s fintech initiative.

Regardless of where a person falls on the cryptocurrency divide, the achingly slow growth of this sector in achieving the only things that matter for Bermuda — jobs — shows how difficult this is. It also shows the same danger of trying to pursue just one strand of diversification, or at least giving that impression.

There’s a question, too, of whether governments are well suited to picking winners and losers in business. The usually sensible Curtis Dickinson confirmed in the House of Assembly that the Bermuda Housing Corporation would get a $10 million guarantee to lend money to a hotel developer.

The hotel developer is turning the Grand Atlantic property, on which the BHC blithely built perhaps the ugliest condominiums in Bermuda and then could not sell them, into the Bermudiana Beach Resort.

Having failed to raise the money himself, the developer, Robert McLellan, is now being lent the money by the BHC — thanks to the government guarantee without which the BHC would not have been able to borrow the money, either — in return for which the BHC, or in reality the taxpayer, would end up being the majority owner of the property.

Should the Bermuda Government really be involved in this kind of doubling down? Even, or especially, in an environment when lenders are nervous about financing hotels, should the taxpayer be getting involved in this at all?

This is just one example. Some of the other ideas — vertical farming and fish-processing plants spring to mind — also have white elephant written all over them.

It is surely better for the Government to focus on the things it does well, such as creating a framework where many businesses can thrive. The reinsurance sector is the classic example of a government and industry working closely together to make sure the legislative and regulatory frameworks are sensible and practical. Instead, the Government seems to be trying to out-venture capital the venture capitalists — all to prove they are the smartest guys in the room.

The Government would do better to keep taxes at a reasonable level, create an environment where there are incentives for job creation, ensure the island’s infrastructure is sophisticated and reliable, and then to get out of the way.

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Published August 02, 2021 at 8:01 am (Updated July 29, 2021 at 6:14 pm)

Time to rebuild the economy

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