The Tax Reform Commission’s recent report is a good example of how a cross-community group can come together to make thoughtful and meaningful proposals for the betterment of the island.

The commission, whose members were drawn from both political parties, business, the trade unions and other segments of the community, deserves credit for tackling a diverse set of terms of reference and doing it well.

It should be noted that the chief executive of Bermuda Press (Holdings) Ltd, parent company of The Royal Gazette, is a member of the commission.

The commission’s mandate was to review the tax system with a focus on reducing the cost of living and the cost of doing business while making the tax system more equitable. It was also tasked with recommending ways to stimulate job growth and the economy. Significantly, the review required a wide public consultation.

On top of that, the commission’s primary reason for being was to consider how best to manage corporate income tax, which came into effect this year, and to see how tax credits could be best used to encourage cost reduction and economic growth.

The TRC’s wide range of recommendations reflected these varied goals and has resulted in a report that not only tackles how Bermuda raises money, but how it should spend it. For the most part, it gets its policy prescriptions right, but it will be a test to see what recommendations survive the political process.

Deciding how to manage a new source of revenue, one that is worth hundreds of millions of dollars but could vary quite radically from one year to the next, is a more pleasant task than trying to stretch a dollar ever further, which has been the job of successive governments since the 2008 financial crisis.

But that does not make it easy. The commission had to balance rival needs that are not necessarily aligned.

That posed several problems. The first was that no one can be quite sure how much revenue will come from the CIT, which taxes 15 per cent of the profits of multinational companies with income of more than €750 million (about $878 million) with operations in Bermuda. The single largest payer will be international re/insurance companies, whose earnings can be uneven, most notably when a catastrophe such as a hurricane or an earthquake hits North America or Europe.

The second problem for the commission is that while the vast majority of the affected companies have accepted the necessity of the tax, it inevitably removes a reason for operating in Bermuda, one of the highest cost jurisdictions in the world. So the need to reduce the cost of doing business had to loom large in the commission’s work.

There is not space here to go into every item in this detail-rich report, and the question of tax credits, which have just been subject to a consultation, will have to be dealt with separately.

But the commission has got the general principle of how the money should be allocated basically right.

Given the uncertainty of income flows, the commission proposes a “waterfall” approach based on a prioritised list in which money will be applied to the first priority before a penny goes to the second and so on. This means that in some years, some priorities will not be met, while in others, there may be higher than expected revenues.

Thus the commission proposed that a stability fund should be the first priority. This would allow for variations in revenue collections both within a year and from one year to the next. Once this reserve is established, the commission said the next priority should be debt reduction, and this makes sense.

As the report noted, Bermuda’s national debt is $3.2 billion and debt service is $128 million. Some of the debt is coming due soon, which could drive debt service at existing interest rates to $180 million. By contrast, cutting $100 million from the debt would save $4 million to $6 million a year.

It has been argued by economist Craig Simmons that this, along with infrastructure projects, should be the main focus for funds from the CIT. The commission proposes putting $200 million a year towards debt reduction, but would allocate that much again towards other spending priorities and on tax cuts.

If Bermuda were instead to spend $400 million a year on debt reduction, it could eliminate debt in eight years, thus freeing up millions of dollars for social needs, infrastructure and possibly tax cuts.

While this would improve Bermuda’s fiscal position markedly, it is debatable whether it would make a material difference to the cost of living for ordinary Bermudians — at least in the early years.

Instead, the commission aims to ease the cost of living by proposing healthcare subsidies totalling about $60 million as three of the next four priorities. The commission’s ninth priority, a subsidy for employer’s health insurance payments, also broadly falls into this area, although the bigger effect would be to reduce the cost of doing business.

Few would dispute that healthcare financing has failed in Bermuda, particularly for the elderly and for those who are not members of a company insurance plan. To that end, the commission is right to identify this as a suitable place to reduce the cost of living and to make the island more equitable. It is also a relatively easy target, compared with things such as subsidising food costs or implementing price controls.

But the commission also says this should be a temporary measure, given the Government is reforming healthcare. That may be a triumph of optimism over reality, given “healthcare reform” has been under way for eight years and is seemingly little closer to a solution now than it was in 2017. The danger here is that the subsidies would be no more than a band-aid approach, enabling a broken system to limp on for even longer.

Many of the other measures in the “waterfall” relate to relief for employers, of which a $68 million payroll tax reduction is the largest, although employers will also get the reduction in health insurance payments and will be the main beneficiaries of the elimination of the foreign currency purchase tax.

This is supposed to encourage job creation as the overall cost of employment falls. The commission ruled out lowering customs duty because it could not be certain that importers would pass the savings on to consumers, but the same thing holds true here. Reductions in employment costs could result in either more jobs or lower costs for goods and services, but employers may also choose to take their savings in profits.

In fact, the commission puts a greater emphasis on job creation, but here again it is not certain if creating more jobs will happen, and if they do, whether this would lead to higher Bermudian employment, which has been flat since the pandemic. Apart from demographic changes leading to a smaller Bermudian workforce, this is also owing to mismatches between available jobs and training. That’s a problem that cannot be fixed, at least directly, by lowering employment costs.

Nonetheless, it may be worth it if it encourages employers, especially international companies, to remain on the island. Overall, the commission has produced a thorough and thoughtful report, which — if adopted — will do some good.