The future of work in Bermuda - part three
In part one we briefly went through the theory and history of innovation on employment. We covered two aspects that affect Bermuda: the pace of change and the occupational risk mix. In part two we reviewed some implications for Bermuda, including inequality and worker opportunities. Today we will discuss some potential policy options.
“If you want to have good ideas, you must have many ideas” —Linus Pauling
Almost all aspects of work will likely be affected as we move closer to artificial intelligence. With the threat of computerisation, automation and growing inequality, policymakers will need to mull over some options. Generally, policies will need to focus on reducing the cost of labour and/or make it easier to find jobs.
It's important that we don't focus exclusively on redistribution of income, but rather use incentives to funnel money into public or private investments that boost growth in an inclusive manner. This risk for Bermuda's workers is secular stagnation driven by a decline in the overall demand for labour. We have to embrace technology while making intelligent investments to create growth.
What follows is a short bullet form list of some items to consider. These are not intended to be prescriptive in nature but offer points for further thought and discussion. The suggestions are not official recommendations by myself; nor do they necessarily reflect my personal economic beliefs; however I offer them to spur constructive discussion and debate with the hope that solid solutions can be found for the future success of the island.
Policies to address inequality
“The worst form of inequality is to try to make unequal things equal” — Aristotle
Inequality of wealth, per se, is not what is bad, but inequality of opportunity is. With that being said there are some policies that may assist those worse off or offer increased opportunity on inclusivity.
Progressive property taxes
Thomas Piketty, in his book Capital in the 21st Century, suggested a global wealth tax. This is practically impossible as capital taxes tend to be easy to evade, difficult to design and costly to enforce or administer. Property, however, cannot move and may be less cumbersome to tax. One way to tax capital effectively in Bermuda is to adopt a progressive property tax that considers the number of properties owned by an individual or entity rather than the value of individual properties. In this case all additional properties owned in excess of your primary residence would be taxed at escalating rates. I will use a simple example: let's say an individual/trust owns five properties. The first would confer property taxes at the standard rate. The second could be taxed at 5 per cent above the standard rate, the third 10 per cent, the fourth 15 per cent and the fifth 20 per cent. The rates I am quoting are illustrative but the concept of progressive taxation should be clear.
Personally I am not a stout supporter of redistributive policies but this one seems to be the most realistic to administer and hardest to evade. In the US there is a tax incentive that allows tax payers to reduce their taxable income by deducting mortgage interest only on their primary residence. Most experts believe that this is an effective way to promote home ownership. In Bermuda a lower property tax rate on a primary residence (similar to what seniors currently receive) would achieve the same goal. The lower tax on primary residences would be offset by higher taxes on additional real estate owned. Ultimately this would make home ownership more attractive than the rental market.
Low income payroll tax exemption
As discussed above, when the cost of labour exceeds that of capital, substitution naturally ensues. Enacting minimum wages only exasperates this and may increase the cost of labour. If we are to support local jobs and even encourage more employment, we need to lower the cost of labour. It's simple economics 101: something that costs less can be purchased more.
With rising healthcare costs, the burden on employers is increasing and the marginal cost of labour is also rising. This is almost assuredly costing jobs. Significantly lowering what is referred to as the “tax-wedge” can help boost take home pay (without changing the cost of labour) and raise employment (as marginal costs fall). In fact it's very likely that both will result.
To extend an advantage to hiring labour we could exempt employees from payroll tax on the first $35,000 in salary. This exemption would apply across the board. Knowing the government is not likely to enact this if it causes a reduction in tax revenues, the difference could be made up for in a slightly higher and/or progressive overall payroll tax rate or additional property taxes collected as noted above.
Policies to address worker opportunities
There are two major reasons that frustrate job growth when it relates to technological advancement. Educational and/or training gaps and impediments for new technology entrepreneurs. Here are a few that may assist in opening opportunities.
Establishing a preferential tax and regulatory framework for new business
• Newly launched businesses in “designated new technology” industries would be exempt from all taxes for five years. This favourable tax regime would help cultivate new business formation, survival, and growth by allowing these businesses to retain and reinvest what they earn, preserving critical cash flow needed for those early years.
• Regulation should be limited to the most essential product safety, environmental, and worker protection regulations.
• To avoid abuse of the “designated new technology” designation policymakers should ensure the business is one that is within the scope of new era technologies, as discussed previously. The listing of such would need to be detailed and companies would need to be disallowed from simply renaming or reconstituting every five years.
Enhance the quality, technical capacity and flexibility of Bermuda's workforce
• Although education alone is not likely to solve all problems of inequality and opportunity it remains a critical factor. Students who complete an undergraduate or postgraduate degree in science, technology, engineering, or mathematics should be provided a $50,000 federal tax credit that can be deducted from taxable income up to $10,000 per year over the initial five years of their postgraduate employment.
• The Department of Education, in partnership with Bermuda's business groups, should launch an ongoing dialogue between business and education leaders to regularly examine kindergarten through grade 12 to ensure that the nation's education system serves the broader educational needs of students, as well as the skill requirements of twenty-first century businesses. A major focus of the dialogue should be to facilitate business community input into curricula determinations, aptitude standards, and work-study programmes, as well as to increase opportunities for active business professionals and other practitioners to participate in and outside the classroom as instructors, assistants, advisers, and mentors. We need to ensure education matches employment.
• Core skills such as reading, writing, math and science should be augmented by personal motivation, creative problem-solving, communication, and collaboration skills. These should be mandatory aspects for any curriculum.
Amend immigration laws to attract and retain the world's best talent
• The Global Entrepreneur Permit is a good start but it could be amended. Entrepreneurs meeting regular permit requirements who want to start a business in Bermuda and who have secured initial funding could be granted a special permit. Foreign-born entrepreneurs would be admitted on a temporary two-year basis. If by the end of that two-year period their business has been successfully launched, is producing verifiable revenue, and has produced jobs for at least two non-family members, the temporary visa would be extended by an additional three years. If the new business continues to be successful and produce verifiable revenue, and has created jobs for at least five non-family members by the end of the five-year period, the foreign-born entrepreneur would be granted permanent residency.
Enhance access to capital for new businesses
• The formation and commitment of angel or venture capital should be incentivised by enacting a tax voucher (ie balance could be used to offset any form of government tax paid) for those who invest in start-ups equal to a set percentage of the investment.
• The government should look into using pension assets to fund new businesses and/or acquire foreign business to be moved to Bermuda. Chile and other countries fund entrepreneurs. These programmes must be thoroughly vetted in order to protect the pension assets.
Reduce regulatory burden and complexity
• Proposed regulations determined to have economic costs, or costs to new and small businesses, that exceed identifiable benefits should be summarily rejected by Parliament. The government should require a third-party analysis of the economic costs and benefits of all proposed new regulations.
• Government should expedite reforms suggested by the Sage commission in regards to simplification, streamlining, consolidation, and elimination of selected existing regulations and/or government departments. A “Bureaucracy Buster Brigade” could be formed to lead the charge for pro-business regulation.
Advance scientific and commercial innovation
• The Government should consider developing a programme to offer funding for research and development in STEM or BRAIN industries to attract these industries and companies.
• KEMH could add educational programmes using the excess space that is no longer used in the old hospital.
Promote economic growth by reducing fiscal and economic uncertainty
• The budget deficits and national debt in Bermuda threatens the future of the nation. High levels of government debt tend to impede countries' economic growth, weaken their ability to respond to unexpected challenges, and leave them more vulnerable to financial crisis. This undermines business confidence and potential foreign investment.
Measured reductions in government spending can promote economic growth because expectations on the part of businesses of lower future debt and taxes, and therefore higher incomes, encourages private spending and investment. Therefore, a gradual process of significant long-term deficit and debt reduction should be enacted with an emphasis on spending reduction and not escalating taxes.
This is far from an all-inclusive listing of ideas. I hope, however, it gives the community leaders, politicians and the business community something to debate and discuss. The future of work in Bermuda depends on it.
Nathan Kowalski CPA, CA, CFA, CIM is the chief financial officer of Anchor Investment Management Ltd and can be reached at firstname.lastname@example.org