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Expanding the economy

Recently we’ve started thinking, as we are sure have many others, about what circumstances would be necessary for a recovery to finally take hold in Bermuda. Well ... first we have to come to terms with just what our current ugly truth is and its direction and all the negatives that go with it.The bad newsThis year Bermuda’s government will collect $885m or something close to it and borrow another $190m for a total of approximately $1,075m minus debt service costs of $115m which leaves $960m to spend. Our capital expenditures will actually decrease from two years ago from $580m to this year’s $398m. That’s $182m less floating around to stir employment and confidence in the economy. Confidence is intrinsically important right now. That’s the negative aspect of increasing interest payments and decreasing tax revenue.Bermuda’s per capita public debt is something north of $32,000 … over $30,000 for every man, woman and child residing here. If we take Greece on the other hand, it sits at $34.699, and Portugal, also in the news lately, comes in around $39,500. Of course those numbers aren’t current, they’re from, 2007 so I’m sure things look much bleaker there now. The problem is we now ‘live’ financially in the same kind of neighbourhood as countries we formerly looked down our fiscal noses at … and it’s happened incredibly fast.We keep talking about America being in recession too, well let’s look at America. It has actually been out of recession for about two years at now. They haven’t had a smooth recovery. It’s been ugly, it’s been slow and it’s been bumpy, ask President Obama, but they have had a more than two percent drop in their unemployment rate from above ten percent at its peak. They also just announced a 2.8 percent third quarter year over year increase in GDP growth.Canada on the other hand had a very shallow recession, two quarters basically, according to the Conference Board of Canada, partly because of its stricter banking/ mortgage regulations and conservative lending policies. They didn’t have a lot of that bad debt build up to deal with. So why do we find ourselves, Bermudian and expat alike, in this situation?Firstly, let’s be clear about one thing, what we are experiencing is not a recession, nor is it a down turn or an economic blip; it is, in fact, a depression and it has largely been self inflicted. What may have started as a mortgage/financial debacle in the US, which engulfed the world, rolled up on our shores and our economic policies were found wanting big time.We were not prepared. We made bad policy decisions and we drove away business when we should have been doing the opposite, all with the thought of transferring those well paying expat jobs to local Bermudians, only to learn the world is not that simple.I’m not saying the Government didn’t implement some good policies, but good inclusive social policies have to be paid for … in perpetuity … with money we get from business. It is great to implement programmes but if your economy goes bust from neglect it doesn’t matter how many nice bills you pass in the House of Assembly, you are not going to be able to pay for them.We are sorry to be blunt here, but Governments don’t create wealth, businesses and their employees do. Governments get to distribute it and hopefully manage it, period. The other part of our negative downward spiral is the quiet exit of capital, companies and high paid individuals due to Bermuda’s high cost of doing business. We are just too expensive.Two things businesses doesn’t like uncertainty and high cost. We need to be cost effective to win in the 21st Century as we are competing with Cayman and Guernsey, London and New York.SolutionsWe don’t have extra money to stimulate our economy but from my perspective we have to find it, we are on a slippery slope and it is one heading in a badly directed downward spiral. The only way to reverse the direction I believe is to have a large infusion of cash to kick start the economy. To facilitate this inflow of new capital changes must be made in immigration and investment policies.We need to create a critical economic mass that helps us to keep costs down and we also need policies and legislative direction that defines what can be done in a market economy that is competing with the rest of the world.We present the following that would give a comprehensive approach which would help to restore Bermuda’s economic activity and social and civil order that we have become so accustomed to.These recommendations will create jobs, provide rental income and income for Government to provide needed public services.Airportn Increase air traffic flow through our airport to retain US Pre-Customs clearancen We have to implement an “ease of entry” procedure for business and high net worth individuals as well as tourists to minimise time spent waiting to clear immigrationn Improve the private jet facilities and proceduresCity of HamiltonDevelopment of the Waterfront to include:n Casinon Restaurantsn Retail shopsn Marinan Convention/Entertainment Centern Parksn Waterfront Market4 Consider allowing retail shops managed, financed and owned by non-Bermudians4 Extend the city limitsn Within the new city limits allow international companies, “key employees”, PRC Holders and employees of high net worth individuals to purchase high rise condos. Most foreigners are used to living in a city environment and this would keep the outlaying country areas available to Bermudians and their families.Domestic BusinessRemove the 60/40 rule on commercial activity but retain real estate.Economic Empowerment Zones (EEZ)Look at making the following economic zones:n Dockyard including Ireland Islandn Southsiden All of extended Hamiltonn Extend the provisions in the newly created EEZ’s to include lower costs, taxes and rentsEnvironmentn Give tax incentives to people who import and utilise environmentally friendly products/servicesFinancial Services4 Initiate legislative reform to encourage trust companies, non-retail banking and fund management to establish hereHigh Net Worth Individuals4 Provide permanent residency and/or domicile status4 Allow private possessions and assets to be imported without duty4 Reduce property purchase tax to half its current assessment4 Allow for approval in principle to bring “key” employees, both professional and domestic, with themInfrastructure Projects4 Infrastructure projects such as Waterfront, Airport and any other revenue generating project could be allowed to be privatised (majority ownership by non-Bermudians) which must be listed on the Bermuda Stock Exchange (BSX) or should be private/public structures4 Projects that are without revenue should be developed in a private/public partnership in concert with a revenue generating project — eg the causeway in conjunction with the airportInternational Business4 Make it easier, more efficient and welcoming to do business in Bermuda. Bermuda has to realise the competitive environment is different and cannot do business on its own terms — we have to adjust to our customer’s needs and wants4 Any public utilities or broad service organisations that impact on the general Bermuda public which are exempt from 60/40 should be listed on the BSXProperty Ownership4 Lift ownership restrictions on PRC holders to allow for the purchase of one property4 Change condo ownership policy to allow for Bermudians to sell to non-Bermudians where property is above a set ARVRestrict land ownership of companies after 60/40 removal to:n Major Government Infrastructural Projects:n 100 percent foreign ownership of the facility with long term leasehold on the land. Company must be listed on the BSXn Major Service/Utility Companies: Foreign ownership of real estate for the purpose of operation and management of the business. Company must be listed on the BSXn Commercial/Retail Business: Foreign management with Bermudian’s retaining real estateStatus/Residencyn Grant Bermudian status to a limited number who have acquired PRC status and whose continued presence would enhance the employment opportunities and skills of BermudiansTourismn Develop a plan that helps to define Bermuda as a destination which would include development of the waterfront and other amenities that would cause people to come to Bermuda.n Encourage development of accommodation of hotels, timeshares, condos and fractional ownership propertiesn Incentives to encourage both destination and accommodation development are:4 Free payroll tax4 Import duty relief4 Free licensing feesTaxes4 Decrease taxes on fractional, residential and condo ownership4 Payroll taxes should be reduced to zero for at least three years for employers paying full-time Bermudian employees and self-employed individuals (e.g. Taxi drivers) receiving less than $50,000 per annumOffer a two year payroll tax holiday for:4 new international or local business which hires Bermudian employees4 new Bermudian employees hired by existing businesses4 Remove tax on boats and increase mooring fees to encourage Bermuda to become an international boating centreTelecommunicationsBermuda should free up and upgrade the telecommunications market to:n Minimise cost as a result of competitionn Allow for the use of cost saving technologiesn Attract a new industry to Bermuda — Intellectual CapitalismWork Permits4 Allow companies during the incorporation process to apply to immigration for approval in principle of “key” employees and both processes should be executed in a prescribed time period4 If someone is “key” and is moving to Bermuda consider granting their corporate and/or domestic employee a permit in concert with the “key” employee4 Remove term limits on work permitsGrowing the economy will make a huge difference between a 2.5 percent deficit or 2.5 percent growth. A 2.5 percent deficit would mean Government’s revenue would be $22m less but 2.5 percent growth would mean $42m extra.Growth creates jobs, the ability to pay down private and public debt, rental income and more importantly restores public confidence that has been recently shattered.It is not about what we are going to do, it is about how we are going to do it and with whom.We would like to thank Andre Labonte for his significant contribution to this article.This continues to be a collective effort by all Bermudians and we need your support, comments and ideas. For further information or to express your comments e-mail Suzie Arruda at economy@challengerbanks.bm or visit us on FACEBOOK — Regeneration of Bermuda’s Economy.