Payroll tax for lowest paid may fall as deficit projected to widen
A major shake-up of the payroll tax system which would make almost one in three workers exempt from the levy has been signalled by David Burt.
The Premier and finance minister also told MPs that the Budget deficit for the year was now projected to be $72 million, $2 million more than estimated in the February Budget.
Presenting the pre-Budget report to MPs today, the Premier said higher earners would fund the reform, with those earning more than $105,000 paying more taxes.
The proposed changes would mean the first $48,000 of earnings not being subject to payroll tax, a move Mr Burt said would result in 30 per cent of employees not paying the levy at all.
To fund the shake-up the next three tax bands would rise.
However, Mr Burt insisted that anyone earning less than $105,000 per year would pay less payroll tax compared with the previous year under the proposals.
The Pre-budget report also raises the likelihood that an income cap of $900,000 for payroll tax would also be increased to $1 million. But he ruled out eliminating the cap, saying it could lead to lower tax revenues as it would drive high earners off the island.
Mr Burt told the House of Assembly: “The pre-Budget report also proposed a reduction of employer payroll tax for small and medium-sized businesses with payrolls under $1 million; hotels, restaurants and retailer stores.
“Further, the pre-Budget report proposes the elimination of employer payroll tax for farmers, fishermen, educational, sport and science institutions, and small businesses with an annual payroll of less than $200,000.
“Government does not intend to continue with the extension of pandemic-related payroll tax concessions, which were put in place to assist businesses.”
But exempt undertakings might increase the employers’ share of the payroll tax to 10.75 per cent from 10.25 per cent, in what is believed to be the first time they have been treated distinctly from local businesses.
Mr Burt said an overhaul of the payroll tax system would be in line with recommendations from the Fiscal Responsibility Panel, a team of international expects whose annual report on Bermuda’s economic outlook was also also published by the Government today.
Mr Burt said the Budget deficit was expected to be $72 million, up from $70 million projected in February.
The revised government figures show that total revenue received is now expected to be $30 million higher than forecast to stand at $1.1 billion.
He said the increase more than offset the estimated $17.8 million loss in revenue from the aircraft register because of sanctions against Russia.
The Premier said that total current account spending for the 2022-2023 financial year was projected to be $956.8 million, an increase of $11.7 million.
Mr Burt said the increase was “primarily driven by the Government’s relief package and other additional spending items”.
Interest and guarantee-management costs are projected to be $138.3 million, $10.5 million more than initially budgeted. Capital spending has also increased by $12 million to $85 million.
Total spending is expected to be $1.18 billion, $32 million higher than projected.
Mr Burt said the revised budget deficit for 2022-23 was now projected to be $72 million, $2 million, or 2.9 per cent, more than estimated.
He said: “Net debt is now forecasted to be $115 million lower than originally estimated in the Budget statement projections.”
Mr Burt admitted to “a few missteps“ as he praised the Government’s economic polices.
He said: “Though the Opposition may focus on a few missteps - I remind the public that no government gets it 100 per cent right 100 per cent of the time - even Lionel Messi can miss a penalty every now and then.”
He said that Bermuda was vulnerable to impacts from the international economy.
Mr Burt said: “This vulnerability is compounded by Bermuda’s continuing budget deficits and high level of government net debt, standing at $3.1 billion.”
The Fiscal Responsibility Panel’s report stated: “The 2022 budget projections themselves are no longer realistic as spending plans and revenue estimates for this year are both now significantly higher than projected at the time of the Budget.
“Furthermore, the Budget assumed that spending would grow by only 1.5 per cent per annum in future years but in the panel’s view this was, and remains, extremely unlikely.
“Rather, based on spending pressures and recent experience, the panel’s own ‘likely scenario’ is for spending to grow 1 per cent more slowly than revenues.
“This would result in the Budget not being balanced until 2025-26 and a Budget surplus of about $25 million in 2026-27, well short of the $50 million target.“