Time to embrace change
The article below is an edited excerpt from the report to shareholders in the Bermuda Press (Holdings) Ltd annual report for 2018, which was written by Stephen Thomson, who is the company's chairman. Bermuda Press (Holdings) is the parent company of The Royal Gazette.
It is said the best predictor of future behaviour is past behaviour. It is painfully obvious that the issues challenging Bermuda are ones that have continued to plague us for many years.
Unfortunately, Bermuda has adopted a culture of being slow to change, and the local economy is suffering as a result. For Bermuda to be successful in a global economy, it must be bold, nimble and embrace change.
For years, local politicians have repeated the narrative that “it is not our fault” and blamed the declining local economy on the 2007-08 global economic downturn. However, the global economy recovered and the local economy has continued to be stagnant as a result of domestic politics and policymaking.
Twelve months ago, the Government announced that it planned to address immigration reform and the 60:40 ownership rule for local companies. Twelve months later, nothing has changed.
For too long, Bermuda has embraced a culture of being slow to change and to adapt. Contrast that with our worldwide reputation in the 1970s and 1980s for being nimble and responsive to the legislative needs of international business.
The ensuing success of IB over the next two decades speaks for itself. Our politicians must be decisive and bold to survive in an increasingly competitive global marketplace.
Caustic partisan politics and race being leveraged for political gain have no place in a country of 60,000 people; they serve only to erode business confidence and have a negative impact on society.
On the rare occasions that we have witnessed bipartisan politics, the economic substance legislation, for example, the island united to accomplish what was required to ensure our future success.
Our political leaders need to spend less time focusing on blame and more time effecting positive change. You can't drive a car looking in the rear-view mirror.
For Bermuda to be successful in a global economy, it must be bold, nimble and embrace change.
Immigration and tourism
Immigration and employment issues are complex and emotive; mergers and acquisitions within the international business sectors, uncertainty for expatriate workers and their families, with no pathway to residency or status, and the cost of living are contributing to a decline in the resident population in Bermuda and, therefore, the number of jobs.
Increased population creates demand and demand creates jobs. It cannot be clearer.
Work-permit policy issues such as term limits, introduced by the Government in 2002, lengthy delays in processing work-permit applications, and a failure to provide a pathway to residency or citizenship are self-inflicted problems.
The 2018 Digest of Statistics, produced by the Government, reports that the number of private-sector work permits fell from 18,131 in 2007 to 9,634 in 2017, or by 46.9 per cent. During the same period, the number of jobs in the economy fell from 39,849 to 33,653, or by 15.5 per cent. In 2015, the Government abolished term limits as the number of occupied jobs fell to 33,319.
Unfortunately, 6,894 jobs (17.3 per cent) had already left the economy before corrective action was taken. The Government must be bold to reverse this trend. Two-and-a-half years ago, the Government introduced the Pathways to Status legislation, which was intended to stabilise and grow the resident population.
Unfortunately, public protests against the legislation shut down Parliament and, despite the formation of a bipartisan committee to review immigration policy, nothing has been tabled publicly.
With an ageing population and the high cost of living, our economy will continue to erode unless decisive action is taken to increase the resident population.
Our reliance on international business and the associated expatriate workforce means economic growth is dependent on immigration policy reform. Together, we must be welcoming and encourage business leaders to set up, expand and invest in Bermuda.
Looking beyond immigration based on work permits, Bermuda has an opportunity to encourage ageing baby boomers to winter on our shores. The baby boomer population within the US is retiring and countries such as Costa Rica, Panama, St Bart's, Barbados and Aruba have been welcoming growth from tourism immigration.
A recent article in The Wall Street Journal outlined that many older Americans are looking outside of the US for a warm, easily accessible and safe second home to winter in.
Bermuda fits this profile better than most locations as we have a temperate climate and low crime rate, as well as being easy to get to and English-speaking.
Historically, tourists who wanted to stay longer than 30 days had to apply to the Department of Immigration for permission, a lengthy and tedious process. This has been somewhat relaxed in recent years.
The introduction of a “Permanent Tourist” category would allow for long-term stays and the ability to purchase a home or condominium, without granting the ability to work. Bermuda wants tourists and we need to be welcoming of people by encouraging longer stays.
Commercial tourism is another opportunity that Bermuda could capitalise on. The Cayman Islands have instituted a very successful commercial tourism plan that is generating significant revenue for their government.
In fact, the Cayman Government recorded a surplus in full year 2018 and Cayman has zero land tax.
The Cayman tourism plan allows citizens of other countries to invest in Cayman by purchasing a house or condo, and in turn they are granted permission to reside in Cayman permanently.
Additionally, after five years, they are able to apply for a Cayman passport.
This model has been successful in Cayman and could be easily modified to suit Bermuda's needs.
The Bermuda Government has recently shown a greater willingness to think outside the box and it is incumbent on all Bermudians to assist by putting forward new ideas.
We must be bold, nimble and embrace change.
The tax system, based on the cost of labour and consumption, does not encourage economic growth, and increasing existing, or introducing new, taxes based on consumption will only cause the cost of living to increase.
The Government has continued to borrow to fund budget deficits despite reducing expenditures (excluding interest payments on debt) from $1.19 billion in 2012 to $1.01 billion in 2018, a 15 per cent reduction.
Interest payments on government debt have risen from $56 million in 2012 to $118 million in 2018, a 111 per cent increase.
The Sage Report noted several overarching themes, which are as relevant today as they were five years ago:
•• The Bermuda Government, including the legislature, is too big for the size of the country it serves. With too many ministries and departments, the organisation has become bloated. One in seven employees in Bermuda, which includes IB, works for the Government.
•• Some of the services provided by the Government could be delivered more efficiently and more cost-effectively by the private sector.
•• Inefficient use of the resources entrusted to the Government by the taxpayer should no longer be tolerated. The Government must increase revenue or reduce costs to balance the budget. Without a corresponding increase in the resident population, additional revenue can come only from increasing taxes.
Cost savings from reducing the number of employees within the Civil Service will likely only shift costs from payroll to financial aid, unless displaced workers can find employment in the private sector.
The present narrative is to increase revenue by introducing new taxes and that the effective tax rate compared to gross domestic product of approximately 17 per cent should (or could) be increased to 20 per cent. This represents a 17.6 per cent increase in the amount of tax that would be collected.
This addresses the Government's immediate budget-deficit issue; however, it will increase the cost of living and may make it too expensive for companies to do business in Bermuda.
We must position ourselves to be globally competitive, and increases in taxes will likely have a negative impact on the local economy. For Bermuda to be successful in the global economy, it must be bold, nimble and embrace change.
• Stephen Thomson is the chairman of Bermuda Press (Holdings) Ltd, parent company of The Royal Gazette, and president of Mailboxes Unlimited Ltd and the Just Shirts group of dry cleaners. He is also an “Entrepreneur in Residence” at Cornell University's School of Hotel Administration.
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