Leadership needs to take the blinkers off so we can save ourselves
Bermuda’s economy relies on a very clearly defined tax base, which highlights both the strengths and weaknesses we face in today’s global economy.
Our economy operates in a very connected and complex, global economic environment, which affords us great benefits but also highlights those areas where we are vulnerable to forces beyond our control.
The last Budget revealed that government revenue continues to rely heavily on payroll tax (42 per cent) and company fees (6 per cent) for its annual income. This coupled with the higher land taxes levied on commercial space in Hamilton shows that international business is the No 1 sector of the economy, bankrolling the economy and the Government.
The foundation of the environment where big business can thrive in the world economy has been nurtured and developed over many decades in Bermuda. Other sectors of our economy such as tourism have faltered owing to factors outside our control, so the fragility of relying on one golden goose is there for all to see.
Today we see that government borrowing has become an essential part of strategy to maintain its day-to-day operations. This in itself is a cause for concern given that in our not-too-distant past, Bermuda was debt-free. But of greater concern is that this borrowing now means Bermuda must rely on outside agencies for our economic wellbeing.
Rating agencies decide on the financial viability of this government to repay its debts, and those ratings have been under strain for some time. We must continuously earn their confidence in both word and deed, as well as the actual institutions that play a role in either placing our debt instruments or purchasing them.
In the coming two years, there is almost $1 billon of debt that will have to be refinanced. This will be no small undertaking, and we may even have to borrow additional money given the level of deficit-spending announced in the present budget. At a minimum, the present environment of quickly rising interest rates will increase the costs to maintain the existing debt level, which will put further pressure on garnering more revenues from additional taxes.
Other outside agencies such as the G20 drive to a more standardised taxation across the globe and the relationship with the EU after Brexit shows we need leaders with an understanding of international finance and politics to successfully navigate the challenges facing Bermuda.
We are very lucky in Bermuda that we have a very lucrative sector in our economy that helps us to maintain our livelihood. But it is also fragile and the consequences of not keeping our government finances or international relationships in good order are very grave.
I have previously stated that we in Bermuda need to save ourselves, and that means taking a good hard look at what we have now and not allowing it to be threatened by shortsightedness or an entire lack of vision.
What matters is strong leadership to balance the financial needs of the country with revenues able to support it in the long term.
• Sir John Swan, a National Hero, was the Premier of Bermuda from 1982 to 1995