Economist urges focus on national debt reduction
Revenue from the corporate income tax should fund debt repayment and capital projects, and not a stability fund, an economist has said.
The Tax Reform Commission Report released last week suggested a “waterfall” approach starting with a stability fund and debt repayments.
Craig Simmons, a former Bermuda College lecturer, still supports the creation of a stability fund, and said the report should have only included that fund and debt repayment.
Age Concern also gave its take on senior healthcare support, welcoming measures to reduce the burden for seniors to receive FutureCare, but saying more can still be done.
The commission’s report said the committee had sought to strike the right balance between financial stability and reducing the financial burden on the public.
Mr Simmons said: “The report suggests 11 different uses for CIT, I think that’s too many. To my way of thinking, CIT should only be used for debt repayment and capital projects, and not as a ‘stability fund’ for current spending to support tax relief. In other words, CIT should target future generations.
“The need for a debt sinking fund is obvious given that $605 million is due in January 2027, just over 500 days.
“I would have thought that paying off that senior note and not rolling over the debt is priority one, given the fact refinancing costs, presently at 3.72 per cent, will increase significantly.
“Another $450 million is due in January 2029, and another $675 million is due in August 2030.”
Mr Simmons said he favours a “more aggressive” approach to debt reduction that would repay half the national debt by 2030.
He said: “We need to prepare for the next unexpected event (black or grey swan) that will add hundreds of millions of dollars to our national debt.”
Under the proposed “waterfall” approach, a stability fund and debt repayments would take top priority, with additional revenue collected going to senior healthcare support, healthcare for the underinsured, employer payroll tax reductions, healthcare subsidies and utility tax relief.
Mr Simmons said some recommendations in the report intended to provide economic stimulation “meddle” in the micro-economy in undesirable ways.
“For example, duty relief for fossil fuels for electricity generation works against the Integrated Resource Plan goal for a dramatic increase in cleaner, renewable energy.
“High prices for fossil fuels will incentivise businesses and households to make the transition to renewable energy and sure up our energy security,” he said.
Mr Simmons also said he did not understand the logic behind abolishing the foreign currency purchase tax.
“There is no doubt that the intended Tax Reform Commission recommendations are progressive,” he said.
“In other words, the recommendations penalise high-income people more than low-income people and government spending recommendations benefit low-income people more than high-income people.
“However, foreign currency purchase tax is a flat tax on overseas consumption of services and goods. High-income people spend a greater percentage of their income on overseas services and goods.
“High-income people spend a greater percentage of their income on overseas services such as travel, medical care and education, and goods such as luxuries.
“As a result, abolishing the tax will likely benefit high-income people more than low-income people.”
Mr Simmons said that Bermudians of all stripes have “lined up at the CIT trough which explains why there are 11 priorities.
“The windfall coming from CIT has distracted us from the broader issue of tax reform.
“What simple, efficient, equitable and fair taxes can raise enough revenue to cover the Government’s current and capital spending needs as well as repay our $3.2 billion debt?
“By one estimate, the Government will need to raise $1.8 billion (20 per cent of GDP) annually.
“I love that the tax reform commissioners have given the public a sound platform from which to discuss arguably the most important macroeconomic topic of our generation.”
Mercedes Pringle-DeSilva, the executive director for Age Concern, said the proposal for senior healthcare support was a “directionally” good step, with measures to reduce the burden for seniors to receive FutureCare.
The recommended programme would provide for a base level of benefits for seniors who are below the prescribed household income threshold.
“We continue to encounter seniors who cannot pay this premium at all because it is simply out of reach, or who end up undernourished because they are forced to choose healthcare premiums over food and other essentials,” Ms Pringle-DeSilva said.
“This recommendation would directly ease that impossible trade-off.
“Are the tax reform recommendations enough to significantly impact on the lives of seniors? It’s certainly a start.”
Ms Pringle-DeSilva said more could still be done, suggesting that individual benefits should be more flexible to prevent “cliff edge” situations where seniors lose all support for being just over the income threshold.
She said other measures listed in the recommendations would also likely benefit seniors, noting that payroll relief for employers would help to keep older workers in the workforce.
The Government should also plan for the future, she said, establishing a reserve to protect seniors from loosing support should revenues fall, and put in place supports to help sustain caregivers.
“We are hopeful that the work on universal health coverage, which aims to ensure that all residents can access essential health services without experiencing financial hardship, will contribute to long-term system sustainability and significant relief for older adults upon its delivery.
“Looking ahead, corporate income tax offers another opportunity to strengthen our social and economic fabric. We look forward to partnering with all stakeholders on this journey.”
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