Budget: help for low earners in tax shake-up
Lower-paid workers will get payroll tax cuts over two years, while big earners will be forced to dig deeper into their pockets.
Delivering a 2017-18 Budget yesterday aiming to spread the tax burden more fairly, finance minister Bob Richards also announced island financial sector firms such as banks, local insurance companies and money service businesses will be hit with a new financial services tax in April.
Meanwhile, tax breaks for hotels, retailers and restaurants will be withdrawn completely in the coming financial year.
The shake-up of the payroll tax system was welcomed as a “good start” by family charities, who have long called for more help for those suffering the most in tough economic times, and praised for its “progressivity” by business leaders.
The payroll tax cap will rise from $750,000 to $900,000, while Bermuda's biggest earners will see a payroll tax rate jump from 6 per cent to 11 per cent.
At the other end of the scale, those earning $48,000 or less will see their rate fall from 6 per cent to 4.25 per cent.
After presenting to the House of Assembly the One Bermuda Alliance's fifth Budget — and likely last before the next General Election — Mr Richards told the media: “Payroll tax reform will introduce the principle of fairness into our system of taxation; a system that has always been unfair to lower-income employees.
“These progressive reforms will require more from those who earn more, and less from those who earn less.”
Further tax reform includes:
• A new financial services tax for banks, insurance companies and money service businesses, bringing in $11.4 million per year
• Increase in taxes on alcohol, tobacco and fuel, generating an extra $10.3 million per year
• Fees for permit companies — those incorporated elsewhere but who do business from Bermuda — will jump from $1,995 to $25,000
• Increases in customs duty rates to generate another $19.5 million
Mr Richards said that it had been impossible to introduce the 5 per cent general services tax, mentioned in last year's Budget, because consultation had been delayed by payroll tax reform.
Incorporation fees and annual fees for exempted companies will not increase owing to the level of competition from other jurisdictions, he said, while land taxes are set to remain unchanged in the wake of last year's “difficult adjustment for the deterioration in annual rental values for Bermuda properties”.
The House heard that the budget for the next financial year would be $1.17 billion, including current account spending, capital spending, debt service and sinking fund contributions — $19 million lower than the present financial year.
The Ministry of Education and the Ministry of National Security will get increased budgets, by $2 million and nearly $3.8 million respectively, as they tackle school maintenance difficulties and boost policing levels.
However, the Ministry of Health and Seniors faces a cut of more than $23 million, largely because the Bermuda Hospitals Board has made itself more efficient, according to Mr Richards.
The finance minister said it was estimated that government revenue would be $1.04 billion in the 2017-18 financial year, with current account expenditure of $923.4 million, excluding debt and sinking fund payments.
He told the House that there would be a 1.6 per cent decrease on total expenditure of $19 million from last year's budgeted figure, with revenues forecast to rise by 4.6 per cent or $45.4 million.
The current account balance, before debt-service charges, is expected to be a surplus of $118.9 million, but after debt service and sinking fund contributions, that would equate to a deficit of $67.2 million.
Mr Richards said: “This represents a drop in the deficit of $44.9 million or 40 per cent.
“The overall deficit is budgeted to be $135 million, a drop of $64.6 million or 32.3 per cent when compared to the 2016-17 original estimates.”
He added: “While reducing government expenditure has been, and still remains, a focus of the Government, achieving sufficient savings in expenditure to balance the budget in the short term is becoming increasingly difficult considering Government's current structure.
“Therefore, Government must aggressively focus on increasing revenues through actions such as tax reform and limiting concessions.”