A short Budget honeymoon
Initial enthusiasm for the Budget Statement last Friday has proved to be short-lived, ending rather abruptly on Monday at the Chamber of Commerce’s Budget Breakfast.
Arthur Wightman, the head of accounting firm PricewaterhouseCoopers Bermuda, gave a well-rounded and largely critical assessment of both the Budget and the state in which Bermuda finds itself.
In part, Mr Wightman’s speech captured the dilemma faced by David Burt, the Premier and Minister of Finance.
First, the island is burdened with $3 billion in debt and if you add all the guarantees and unfunded pension liabilities facing the Government, there is a total potential burden of $7.4 billion. That equates to almost $250,000 per working person in Bermuda.
Mr Wightman rightly stated: “That level of financial obligation is incomprehensible for the average person. And yet it needs to be comprehended and addressed.”
There is no doubt that Bermuda needs to work to reduce its debts and liabilities, not least because the cost of that debt is $130 million. That cash mainly flows abroad when it could do much to solve many of the island’s social problems.
Those problems, which Mr Wightman also outlined in graphic detail, include persistent unemployment compounded by the further problem — also acknowledged by Mr Burt — of the need to provide financial assistance to working people as well. Put simply, an increasing number of working people do not earn enough to meet their everyday expenses.
In the short term, they need direct financial relief to survive. But that is not a longer-term financial solution, and it is an unsustainable drain on public finances.
The real solution is to put the economy on a footing where people have good jobs and earn enough to meet the cost of living. That is easier said than done, but any alternatives are short-term or magical thinking.
Some of the measures in the Budget are aimed at achieving this. Stimulus measures such as road paving and housing construction must help to boost the general economy.
But it is debatable whether they alone are enough — and they also need to be paid for. As recent reporting has shown, Bermuda is now dependent almost entirely on the success of international business.
Mr Burt was quick to take credit for at least some of this success, and that is the politician’s prerogative. But international business’s recent success also comes as a result of some well-timed and careful growth in life reinsurance, complemented by a long-desired hard market for the rest of the reinsurance market.
What matters now is to ensure that the sector’s success is felt in Bermuda, most directly through jobs, but also through other spillover effects. This may well include increased tax revenues, which would occur naturally as a result of rising incomes, but care needs to be taken not to raise taxes in such a way that the most successful section of the economy is punished for that very success.
Mr Burt rightly said that payroll taxes were not increased on businesses, but he also acknowledged that many international companies pay their employees’ portion of payroll tax as well.
Mr Burt seemed to suggest that this was not his problem, but if — as Chris Schaper, the deputy chairman of the Association of Bermuda Insurers and Reinsurers, averred — the tax changes add 20 per cent to businesses’ tax costs, then it most certainly is.
And, of course, those high-earning individuals who do pay their own payroll tax share have also been hit substantially.
Many people will be tempted to get out tiny violins.
It is hard to shed tears for the wealthy when, for the lesser well off, simply paying rent and putting food on the table is a struggle. But it would be cavalier to ignore the potential ramifications of killing the proverbial goose that lays the golden egg.
While there are consistent claims that warnings about international business leaving Bermuda are scaremongering, there can be no disputing that making sure your biggest business feels welcome — especially when it is highly mobile — is just common sense.
And no one should doubt its ability to move, since Bermuda has already experienced this in the past. That ability to move businesses or people is even more feasible since the pandemic, which proved many office workers can work from home — and, by extension, home does need not be in Bermuda.
Mr Burt must understand this at some level. It does not change the problem of improving revenues to help those who most need it without driving out the very people and businesses who provide the bulk of those revenues.
But the problem is exacerbated by the threat of the global minimum tax, which Mr Burt raised in the Budget and of which he seemed to be oddly accepting. Even if it has some benefits, it could result in the biggest dislocation of international business in decades.
Early reaction from the Budget suggests that Mr Burt may have pushed too far. It may be a natural reaction for him to want to push back and suggest Mr Wightman and Mr Schaper are mistaken.
But what he needs to do instead is to reach out to these stakeholders and determine if their complaints have any legitimacy. If they do, he needs to make sure they are redressed — and quickly.
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