Will Burt’s budget hit a sweet spot or could it prove to be a taxing time for the Premier?
The Budget tomorrow could prove to be another taxing time for David Burt, but in a very different way than last year’s extraordinary financial statement.
The delivery of that set-piece annual fiscal package only proved extraordinary because the Premier had only 11 days to put the finishing touches to it after Curtis Dickinson’s shock resignation as finance minister.
Nearly all the work had been completed by the time Mr Burt took over the reins of the finance department after Mr Dickinson’s departure.
This time around, Mr Burt is facing a concerted international business pushback on signposted moves to raise payroll tax for high earners so that the levy can be wiped out for those making less than $48,000 a year.
The Government floated the radical shake-up in December’s pre-Budget review and consultations on the matter ended in January with the financial sector expressing unusually strong public concern about the measures, stating they could hinder economic recovery and drive foreign investment away.
The Pre-Budget Report proposals would see people earning more than $235,000 a year face a payroll levy rise from 9.5 per cent to 13 per cent.
There would be an increase in the taxable cap on individual incomes from $900,000 to $1 million; a hike in the employer’s portion of tax paid by international companies from 10.5 per cent to 10.75 per cent; and a tax on dividends paid by local companies.
Under the revamp, the payroll tax would drop from 1.5 per cent to zero on the first $48,000 for all employees.
This would remove 30 per cent of the workforce from being liable for any payroll tax at all.
John Huff, chief executive of the Association of Bermuda Insurers and Reinsurers, said businesses wanted to see a “responsible” Budget.
In a pointed intervention, Mr Huff said: “These revenue proposals are potentially detrimental for Bermuda’s economic recovery and sustainable growth – they could deter international companies from continuing to invest in Bermuda and retaining employees on island.”
Other well-placed business sources demanded a “pause” to any such reforms, insisting they would cause companies to relocate workers elsewhere.
The Government promised to cut payroll taxes for the less well off in last year’s Budget and also reduce vehicle licensing fees by 10 per cent for all private cars, which happened.
Mr Burt also stated last February that a “significant amount of reductions in services” would be needed to be meet the planned $945 million of public expenditure for the 2022-23 fiscal year.
However, this seemed to mainly affect the area of what is rather brutally dubbed “natural wastage” with a hiring freeze.
Last year’s Budget was good on talking up the tourism industry, but perhaps bad on providing much actual detail about how to get it firing again.
Also, the Government’s highly controversial deal with Gencom, the would-be developer of the $376 million revamp of the Fairmont Southampton hotel complex – the very reason Mr Dickinson stormed out of Cabinet – was not mentioned at all.
Mr Burt said 12 months ago that the Government wanted to “restore hope” to the people of Bermuda, but there was little on tackling the cost of living crisis although he did announce a $15 million relief package in July.
But this proved to be poorly executed as ministers were repeatedly forced to apologise for delays in the promised help with food prices, education costs and a one-off payroll tax rebate coming through. A promise to give away LED light bulbs has still not been finalised.
Sugar tax could prove to be one sweet spot for consumers this year after Mr Burt stated in October that amendments were in the pipeline for the levy.
Mr Burt also insisted that the Government would meet its aim of achieving a $50 million budget surplus by the fiscal year 2026-27.
However, a report released in December by the Fiscal Responsibility Panel of independent international economists dismissed this notion.
It 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.“
The highly respected panel also warned against the Government giving financial guarantees to private firms, such as the ones for the proposed Fairmont Southampton overhaul, because such initiatives pose a “significant risk” and should virtually never be undertaken.
This year will be Mr Burt’s first wholly self-crafted Budget since he last held the dual roles of Premier and finance minister in 2018.
Last year, he proudly stated: “There are no tax increases in this Budget.”
We will soon know if he can repeat that assertion this time around.
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