Perhaps the most significant takeaway from the Budget Statement was the claim that Bermuda is on “a clear path to eliminate net debt within a decade”.

Armed with a first influx of corporate income tax revenues that far exceed expectations, the Government declared its intention to pay off $605 million — nearly one fifth of the total debt — when it becomes due next January.

This marks a change of fiscal direction for a government that has added $810 million to its debt since 2017. While paying down next year’s obligation represents a flying start, how achievable is the ten-year timeline to wipe out the $3.2 billion owed?

Two factors will be core to the chances of success: fiscal discipline and consistently strong CIT revenues.

In his Budget Statement, David Burt, the Premier and Minister of Finance, laid out a framework institutionalising two fiscal rules aimed at establishing the necessary discipline.

“First, a rule for disciplined annual operations,” Mr Burt said. “In plain terms, our day-to-day budget must remain in balance or surplus, excluding net corporate income tax revenues, capital spending and interest costs.

“This rule ensures that the ongoing cost of running government is sustainable and not dependent on corporate income tax revenue or borrowing.

“Second, a rule for responsible use of corporate income tax revenues. Over a rolling three-year period, at least 70 per cent of net corporate income tax revenues will be dedicated to paying debt interest, reducing net debt and building net financial assets.

“This rule ensures that a substantial majority of these new revenues are used to strengthen the country’s balance sheet and improve Bermuda’s resilience for the future.”

Mr Burt also noted that “what matters most is not only that these rules exist, but that the Government lives within them”. The medium-term term expenditure framework, which maps out the next three fiscal years, complies with these conditions, Mr Burt added.

To this end, the Government plans to establish a Stabilisation Fund, used to provide a financial cushion during times of stress. An annual contribution of $100 million from CIT revenues into this fund will start in 2027-28.

Additionally, the Government will dedicate $200 million per year to the Sinking Fund, which will be for debt management and repayments. Both these funds and contribution levels are in line with Tax Reform Commission recommendations.

Mr Burt said the Government will re-impanel the Debt Management Committee to guide the debt reduction process.

By 2028-29, Bermuda’s net debt to gross domestic product ratio is projected to be 19 per cent — much healthier than the 50 per cent level that the Fiscal Responsibility Panel has called for — while annual interest payments will fall to $102 million, about $22.5 million less than they are today.

While fiscal discipline is within government control, the level of future CIT revenues is not. CIT is off to a strong start, pouring more than $1 billion into government coffers in collected and protected revenues in the space of its first two years.

However, the profits of the re/insurers who make the bulk of CIT contributions are highly unpredictable. A softening reinsurance market could put downward pressure on earnings, as could catastrophes that trigger large claims, or financial downturns that impact investment portfolios.

Indeed, Mr Burt conceded that this year might represent the peak of CIT revenues, at least in the midterm.

Also key is whether the CIT tax base remains in Bermuda, as these businesses weigh up the costs and benefits of being based on the island with a higher expense base.

Lowering the cost of doing business to offset CIT outgoings are key to Bermuda’s competitiveness as a business domicile. The Budget’s reduction in exempt company employer payroll taxes — from 10.25 per cent to 9.75 per cent — was a step towards achieving this.

However, it fell short of the recommendations of the TRC, which had proposed a 7 per cent cap on the employer’s share of payroll taxes, with a view to lowering the cap to 5 per cent in future years, if fiscal and economic conditions allowed.

For large local employers within scope of the CIT, the difference between the TRC proposal and the Budget reality represents a significant difference to their bottom lines.