I read with interest the letter to the Editor on January 22 from Eldon H. Trimingham and entitled "ACE could ante up". However, I believe Mr. Trimingham's argument and logic is flawed for the following reasons:

For many decades retail establishments in Bermuda had a healthy living. Tourism numbers were very decent, airfare prices in North America were regulated, and the prices of goods in Bermuda, particularly those goods purchased by our visitors, were very competitive compared to the domestic US prices. Much of this was due to the fact that the US Government charged hefty import tariffs on those European-made goods.

While the profits flowed for the retail establishments during these times, I don't ever recall other sectors of our business community crying out for them to pay more taxes. And for that reason, I believe it very unfair for Mr. Trimingham to now call for a greater shift of the tax burden onto the shoulders of the international business sector because they presently appear to be making profits.

As a side note, surely Mr. Trimingham is aware that Government presently receives 50 percent of its revenues both directly and indirectly from the International business sector, as revealed from research conducted by Dr. Brian Archer.

Much of Mr. Trimingham's argument centres on the import duty taxation structure that presently exists in Bermuda and how, in his opinion, this consumption based taxation structure is unfair to retail. The facts show that the UBP Government began many years ago to reduce Government's reliance on import duties over many budget periods, to the point now where Customs Duties account for less than 30 percent of Government's revenues versus over 60 percent many years ago. Whilst Mr. Trimingham may feel this type of tax structure is unfair to him and his retail business, most of the western world's governments are trying their best to move their tax systems more towards a consumption based system and less towards an income tax system. Taxing income or profits is a sure way to destroy an individual's and a business's work incentive. It also begs the question, do you give taxes back to those persons and businesses that now don't earn income or profits, having previously paid taxes? A messy situation indeed.

Mr. Trimingham will be well aware that the case for operating a business is the return on capital. His criticism of ACE and others in the insurance or international company sector is that their chief product is money, which is not affected by import duties. I contend, however, that their chief product is not money, but intellectual capital. That being the case, the competitive market for staff for International businesses has caused salary-related inflation, and their need for offices, computers, interior renovations etc. also helps to push up the cost that they must pay to get any work done. The financial sector does not therefore avoid paying these inflationary prices, especially when government raises payroll taxes and company fees.

When Government increases land taxes, these companies are stuck with the bill, because their leases require them to pay all government related land taxes. Mr. Trimingham's letter is very misleading in this area, and suggests that international companies don't pay their share of taxes - (I refer again to Professor Archer's research above). What Mr. Trimingham should be concerned about is the ability of any business to be viable if operating in Bermuda, and I believe it is the issue of the "cost of doing business in Bermuda - both financial and service related" that Mr. Duperreault was highlighting in his address to the Employers Council, and a point that the UBP has raised continually since 1998. This is where Mr. Trimingham ought to be directing the debate.

It has been my concern for a number of years now that the real issue is not how taxes are structured, but more the amount of money Government seems to need for its operations.

It begs the repeated question that we in the UBP ask, "Are we as taxpayers getting value from the amount of taxes that we presently pay?" Bermuda's current account expenditures (excluding capital works projects) has increased by over $100 million over the past three years and this spending has to be financed. What this has meant for many individuals and businesses is more taxes. Consequently, the cost of operating a business or household in Bermuda has steadily increased for everyone.

Some businesses are able to weather such increases, others can't, and I believe the Retail sector is one that has been punished the most from the amount of Government spending, and their failure to grow the economy by addressing Tourism's challenges. What the Government needs to do is reduce its spending and create more efficiencies in its operations so that we, the taxpaying public get better value for the money it spends.

As a bonus, a more efficient and streamlined Government would be able to reduce taxes - do you remember the PLP promise to "appoint a scissors man?" This could help the Tourism and Retail sectors survive operationally, as their day-to-day costs would be reduced.

Probably the most important survival issue for any business and especially for retail businesses is cash flow. The cash flow challenge is made even more acute because retail businesses must pay for their goods and the relevant customs duty up front before they sell the goods. They also must finance large inventory.

As a suggestion to Mr. Trimingham, I would recommend he and others in the tourist retail establishment lobby the present Government to push for a "Duty Free regime" which I understand is outlined in the Tax Review that has still not been released to the public. The PLP government promised this in their 1998 election platform, and I would have thought that Mr. Trimingham would be pursuing them to honour that promise rather than pointing a finger at the International Exempt Company sector whom as a group pay a larger percentage of payroll tax by taxpayer category and more per employee than any other sector in Bermuda.

As a parting comment, I would say that a government's responsibility is to ensure that there is an equitable tax structure in place that will allow both the employee and the employer to grow and prosper. Bermuda takes a very dangerous step if it begins to impose higher taxes on those persons or business entities that - at this point in time - seem to be making profits. Government should focus on ensuring it does not tax its people and businesses to the point where the cost of doing business looks better outside of Bermuda than in it.

Crossing that fine line will cause a rapid deterioration in business activity in general and thereby dissolve much of the opportunity available for our people.

With a new budget about to be released, we shall see what lies in store for the taxpayers of Bermuda and alas, those in businesses that are fast becoming marginal, such as the tourist related retail sector.

Alan Marshall is a United Bermuda Party MP for Smith's North