Experts say fiscal policy is on right track
The group of experts who advise the Bermuda Government on tackling its debt crisis believes the island is on the right track.
The three-man Fiscal Responsibility Panel was appointed in 2015 to assess the Government's efforts to balance the budget.
David Peretz, chairman of the FRP, told The Royal Gazette: “We are quite pleased with the direction of policy set out in this year's budget.”
The independent advisers did not want to make any further public comment ahead of the release of their second report on Bermuda's public finances, scheduled to be tabled in the House of Assembly in December.
Mr Peretz worked in a top post in the UK Treasury and as UK executive director of the International Monetary Fund and the World Bank. His two colleagues in the FRP are Jonathan Portes a former chief economist to No 10 Downing Street and Peter Heller who held senior management roles in a near 30-year career at the IMF.
Among the groups the trio met with last week were the Ministry of Finance, the Bermuda Monetary Authority, the Bermuda Chamber of Commerce, the Ministry of Health, the Pension Commission, trade unions and the Bermuda Tourism Authority.
The Bermuda Government is saddled with net debt expected to reach nearly $2.4 billion by the end of the fiscal year in March 2017. It has cut costs and increased taxes and aims to eliminate the annual budget deficit — which is estimated at $199 million this year — by 2018-19.
Last December, the FRP's first assessment recommended that the government should get “more aggressive” about tackling the deficit and pursue broad-based tax increases with the aim of increasing revenues to 19 per cent of GDP from the 16 per cent. This entailed lifting revenue by about $170 million over three years.
They recommended scrapping the cap on payroll taxes that allows high earners to be taxed only on their first $750,000 of income, as well as increases in land tax and the introduction of a tax on services.
The panel also highlighted Bermuda's “serious demographic challenge” of an ageing population, which required action including adjusting the terms of public pension and health insurance plans and raising the retirement age.
The panel suggested that more immigration of working-age people — and less emigration of young Bermudians — was needed to help the island to deal with the growing strain on public finances resulting from the larger population of retired people.
Bob Richards, the Minister of Finance, announced plans in last year's budget to bring in a 5 per cent tax on some services and projected a 22.5 per cent increase in government revenues over three years.
This marked a stark change in approach from the budget a year earlier, with more emphasis on raising extra revenue and less on cutting costs, as recommended by the FRP.
In the Speech from the Throne earlier this month, the Government spelled out plans to introduce a more progressive payroll tax regime, which will transfer some of the burden from low earners to higher earners.