The biggest threats to Bermuda are an ageing population combined with a decline in the workforce, the Government warned last night.

A pre-Budget report said that the crisis had also led to underfunded public sector pension funds and an escalation in healthcare costs.

The report added: “This remains a certainty, not just a risk, which will result in serious medium and longer-term pressures on public spending and challenges to growth.

“It will also make it more difficult to deal with a large debt overhang.”

The report highlighted that Bermuda’s national debt had increased by $2.1 billion since 2009, and would hit about $2.64 billion by the end of this financial year, only $107 million below the statutory debt ceiling of $2.75 billion.

The report said: “While demographic trends are, by their nature, slow-moving and may not be immediately visible to the public, this is perhaps the single most serious long-term issue Bermuda faces and one that now needs to be addressed with some urgency.”

It added that the debt-service cost was $116.5 million, equivalent to 10.4 cents of every dollar collected by the Government.

The report added: “The increase in borrowing in this fiscal year runs counter to the plan that was outlined in the Budget statement of 2019, which stated that the Government had no plans to incur any additional long-term borrowings in this financial year.”

The document said the Government was forced to borrow in 2019 $182.4 million to “make good on its guarantee” to lenders on the stalled Caroline Bay resort, which started construction under the previous, One Bermuda Alliance government.

The report added that the Government was aware of the “taxation sensitivities” of the public about the “weight of the existing tax burden and their willingness to absorb further tax rate increases” and the effect of more increases on Bermuda’s “competitiveness as a jurisdiction”.

But it said: “However, despite this background, it is important that Government still seeks to enhance revenue from policies that generate economic growth.”

The report said that measures under consideration for the 2020/21 Budget Government included ways to “aggressively maximise” the collection of overdue taxes, as well as

increases in international company fees and immigration fees.

There will be an increase from $22 to $25 in the tax on cruise ship passengers over the age of 2.

Government added it had also considered a reduction in the lowest rate of payroll tax, with adjustments to the higher bands to “maintain revenue neutrality”.

The report highlighted that the last Government service fees review was in 2018, when fees increased “generally by 5 per cent” and another was under consideration.

The report said that Bermuda’s economy in 2018 had a “marginal” increase of 0.1 per cent, based on constant market prices.

It added: “This result was below the Ministry of Finance’s expectations of an increase in GDP of 0.5 per cent to 1 per cent for 2018.

“The largest value increases in real terms were recorded in the construction and international business activity centres.

“In contrast, the wholesale and retail trade sector recorded the largest decline in value.”

The document added that, based on Department of Statistics figures, gross domestic product grew by an average of 3.5 per cent “in real terms in the first two quarters of 2019”, attributed to a lively construction sector, including the new airport and the new Belco power plant.

The Ministry of Finance said it anticipated that GDP would “moderate” and that the economy would have grown at a rate of between 1 and 2 per cent for 2019.

The 2019 midyear economic review section of the paper said that the number of international businesses registered in Bermuda had dropped by 1.2 per cent to 12,015 compared to 12,156 the previous year.

A total of 476 new international companies and partnerships were registered in Bermuda during the first nine months of 2019, a decrease of 113 companies compared to the 589 registrations over the same period of 2018.

The report added: “Total value of the new construction projects started for the first six months of this year fell by 19.3 per cent from $62.1 million to $50.1 million.

“This decrease was due largely to Government funded projects which began in the first half of 2018 not being duplicated to the same extent in 2019.”

Retail sales for the first nine months of 2019 dropped by $17.5 million to $836.7 million, a two per cent fall.

The banking sector’s total assets fell by $0.1 billion, 0.5 per cent, at the end of March last year.

The report said: “The reduction was driven by a decrease in investments which fell by 4.3 per cent or $0.4 billion over the past year.

“Loans and advances fell marginally by 1.2 per cent over the first quarter of 2019 while customer deposits contracted by 1.6 per cent or $0.3 billion for the same time period.”

However, the document said: “Throughout the economic swings, the Government continues to make a concerted effort to stimulate domestic spending and foreign investment in Bermuda through targeted investment strategies and diversification of business development initiatives.

“This should lead to higher employment numbers providing sustained economic growth in most sectors.”

The report said: “The Government invites and welcomes feedback on this document.

“In addition to electronic communication, the Government will hold public meetings in February 2020 to discuss the principles laid out in this document and to solicit public feedback.

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