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OBA: Government ‘rolling the dice’ on corporate tax

The Shadow Minister of Finance, Douglas De Couto (File photograph)

The Premier’s approach that a corporate income tax will “come in and save the day” is a roll of the dice, according to the Shadow Minister of Finance.

In his Budget Statement, David Burt said it was estimated that the CIT, a 15 per cent tax on the profits of multinational enterprises with more than €750 million (about $808 million) of revenue annually, could generate $750 million in new government income.

However, Douglas De Couto said that based on research by the One Bermuda Alliance and feedback, there was wide scope around the figure.

“The Premier doesn’t talk about that range,” the OBA senator said after the party’s leader, Jarion Richardson, delivered the Budget Reply on Friday.

“There are also a lot of variables that are hard to quantify.

“How many businesses will stay in Bermuda? How many businesses will come? Will we be able to deliver to the businesses the kinds of tax credits that they want so they don't just say, ‘let me pack it in and go back to Zurich if I’m going to be paying this tax anyway’?”

Dr De Couto added: “You have to kind of plan prudently. It’s not prudent to plan on too much upside.

“The OBA’s stated position is that we would like to focus on paying down the debt because currently we pay over $100 million of interest and that number’s only going to go up.

“The Premier is rolling the dice that the corporate income tax will come in and save the day.

“Our view is that it might not. It’s very complicated in how it’s going to evolve.”

OBA Budget Reply: the numbers

According to the OBA’s Reply to the Budget, Bermuda’s national debt — not including pension shortfalls — is about $51,700 for every man, woman, and child.

Jarion Richardson, the Leader of the Opposition, said that compared with $32,700 for The Bahamas, $6,331 for the Cayman Islands, $3,300 for the British Virgin Islands and “essentially nil” for the Turks & Caicos Islands.

“Put another way, we have almost 60 per cent more debt per person than the next highest, being The Bahamas,” he added.

That national debt of $51,700 a person is more than 82 per cent of the median gross income for Bermudians, almost as much as many Bermudians’ annual pay, according to the OBA.

Bermuda’s debt service costs, meaning the interest payments paid to lenders on borrowed money, are 10.4 per cent of revenue.

Mr Richardson said: “This is exceeded only by The Bahamas at 18.5 per cent.

“For Cayman and BVI those numbers are 1.7 per cent and 1.8 per cent.

“For Turks and Caicos, essentially nil — at one basis point, or 0.01 per cent of government revenue.

“These are not happy comparisons.”

On the cost and size of government, the Opposition leader said Bermuda was budgeting for 5,085 employees, or 8 per cent of the population.

“This is an increase from last year’s budgeted number of 5,055 employees,” he added.

“It’s a bit confusing why the Minister of Finance continues to budget for an ever-increasing headcount, while at the same time bragging about the Government’s inability to fill all those positions.

“It also raises the question: what are those funds not paid to staff, as the positions are not filled, being used for?”

Mr Richardson said that in The Bahamas, government employees were 6.2 per cent of the population; 6.4 per cent for BVI; 5.5 per cent for the Cayman Islands; and 5.4 per cent for Turks and Caicos.

He added: “So we have 25 per cent more government staff per population than the next highest country.”

The OBA said that Bermuda government personnel, including consultants, consumed 47 per cent of government revenue.

The figure compared to 42 per cent for the BVI, 40 per cent for the Cayman Islands, 36 per cent for Turks and Caicos and 28.1 per cent for The Bahamas. Bermuda is 13 per cent more costly than the next highest country, said Mr Richardson.

“On total government current expenditure, we spend $15,586 [per] person,” he said. This compares to $15,209 in Cayman; $8,486 in BVI; $7,515 in Turks and Caicos; and $6,898 in The Bahamas.

“With the exception of Cayman, we come out around double the other islands.”

The Budget reply said the OBA would make debt reduction a priority and seek to make government more efficient.

“I think the first thing to acknowledge here is it’s a really tough pickle,” added Dr De Couto. “Unlike the Government, we’re not going to come out and say magic’s going to happen.

“Our problem is pretty pressing. The way of getting more income is to boost business and the economy on the island, attract investors, make sure local businesses or people are motivated and able to start up local businesses and get more tourism visitors.

“Of course we have to reduce some of our expenses.

“If you have people retiring from government, we would work with them. We don’t want to make new jobs. We certainly wouldn’t budget for new jobs.”

He added that as efficiencies were made, such as a centralised government payment service, there would be other tasks that existing employees could work on.

Mr Richardson’s Budget reply said the OBA would “create a plan to reduce the cost of energy”.

Asked to give more detail, Dr De Couto said it was difficult “because we don’t have access to all the information”.

However, he added: “One thing we know is that tenants, renters, don’t really have access to solar because of how you have to invest to put it on a house, the licensing and things like that.

“Solar has a high fixed cost, right? You have to get an architect, you have to get Belco to come and do a new meter. You have to go to planning.

“How can we cut all that red tape to say, ‘listen, if you have solar installers, they come up with a solution, then maybe they can sell you something that you just plug into your house that you’re allowed to use and then you, as a renter, can take with you’.

“We have a lot of people in the solar industry in Bermuda. So we would want to work with them and see what other ideas they have.

“They might have ideas and say, ‘look, I took this to government and nobody listened’.”

• To see the Reply to the Budget, see Related Media.

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Published February 26, 2024 at 8:00 am (Updated February 26, 2024 at 7:35 am)

OBA: Government ‘rolling the dice’ on corporate tax

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