Finance Minister: 'No New Taxes to be Imposed During Next Fiscal Year' & 60 40 Rule to be Reversed

Finance Minister Curtis Dickinson delivered a Budget Statement with no new taxes to be imposed during the next fiscal year on Friday.

The Minister also told MPs that the decades-old 60 40 rule will be reversed, which will allow up to 60 percent foreign ownership of locally based businesses, in a bid to boost foreign investment in Bermuda.

But he said the requirement for boards of directors to be at least 60 percent Bermudian will remain.

Legislation to mandate the change will be tabled in the House of Assembly in the 2020-21 financial year.

The Minister also stated that “a series of selective tax cuts” will be introduced to reduce payroll taxes for people earning less than $96,000 a year — and bring the tax rate in the band up to $48,000 “to its lowest level ever” — from 4 percent to 2 percent.

“The objective of this initiative is to put money into the pockets of the approximately 75 percent of the employees in Bermuda.

“The cost of this tax relief will be partially offset by modest increases in the employee portion of the payroll tax for those earning more than $96,000,” said the Minister.

On the plan announced in last year’s Budget to set up a pilot mortgage-guarantee programme with banks in the private sector, he said progress had been “slow”.

But he said a Bermuda bank will provide a 15-month deal to deliver lower finance costs for people looking for mortgages of $750,000 or less.

And he said a Union Deposit Company, which would offer mortgages, was also under consideration, with $250,000 set aside for the creation of a business plan.

The Minister also stated that start-ups and co-ops to supply groceries at a lower cost in partnership with Financial Assistance was also being considered.

Overall, he said the gross public debt is expected to be more than $2.71 billion on March 31, the end of the 2019-20 financial year.

Total debt, net of the sinking fund, will be more than $2.67 billion — only $72.4 million below the debt ceiling.

The Minister also revealed that the total Budget for the next year will be just over $1.14 billion — a $30.9 million, or 2.8 percent, increase over the original estimates for the last financial year.

“Revenues are forecast to rise by a modest 0.3 per cent, or $3.7 million, and the current account balance, before interest on debt and capital expenditure, is budgeted to be a surplus of $186.6 million,” he said.

After interest, the current account balance was expected to produce a surplus of $65.2 million, a “slight decrease” in the $6.9 million compared with the previous Budget.

That translates into a budget deficit of $19.8 million.

Government revenues in the new financial year are expected to be just over $1.12 billion, representing a “modest” increase of $3.7 million, or 0.3 percent, higher than the original estimates for last year.

“The most significant increases will be in relation to taxes on cruise ship passengers and uplifts to immigration fees,” said Mr Dickinson.

“Other than these adjustments, there are no new or increased taxes contained in the Budget for the upcoming year.

“Rather, we will be providing payroll-tax relief to workers and to small and medium-sized businesses.

“We will also extend payroll-tax relief to employers with payrolls of $500,000 and above for the creation of new jobs in Bermuda.”

On that note he said the total impact of the payroll-tax cuts for employees and the small to medium-sized business sector was expected to be about $6.4 million.

For employees who earn between $48,001 and $96,000 a year, the rate will be increased from 6.5 percent to 8.5 percent – but the reduction on the first $48,000 will mean an overall cut in taxes paid.

Those earning between $96,001 to $235,000 will pay 1.25 percentage points more, an increase from 7.75 percent to 9 percent.

The biggest earners — those who take home more than $235,000 a year — will see their rate increase from 8.75 percent to 9.5 percent.

The changes are expected to cut the Government’s take from payroll tax by about $3.8 million.

Payroll-tax relief will also be extended to employers with payrolls of $500,000 or more for two years in an attempt to stimulate job growth.

Employers with wage bills of $200,000 to $350,000 will pay a 3.5 percent tax rate — a 50 percent reduction.

Firms with a payroll of $350,000 to $500,000 will pay the tax at a rate of 6.5 percent.

As for Budget cuts, the Minister confirmed that the Bermuda Police Service saw the biggest cut, to the tune of $4 million from its previous $65.8 million budget, which represents a 6 percent reduction.

This after the Ministry of National Security started a drive to “better align funding with strategic and operational priorities”.

“This has been achieved by reallocating funds from the Bermuda Police Service, while still fully maintaining frontline police levels and capabilities at current levels,” said the Minister, who also noted a $1 million saving from lower costs for public-safety radios.

Plans are also underway to “restructure” the Bermuda Tourism Authority to “focus more directly on its sales and marketing role” to devise and introduce a new slate of events that brings visitors to Bermuda that reflects the island’s claim to be a luxury destination.

For Bermuda’s struggling retail sector, the Government plans to expand the zero rate of customs duty to cover more imported hardware for the renovation and refurbishment of stores.

And the customs duty deferral process will be made more “user-friendly”.

“This will assist retailers with their cash flow, as customs duty will not be paid up front, but rather after they have sold at least a portion of their goods.

“Appropriate checks and balances will be put in place to mitigate the risk of non-payment of deferred duty.”

The controversial sugar tax raised an extra $4.7 million in revenue as of the end of 2019.

“Although monies were earmarked for programmes to assist with healthy choices, the needs and demands for additional funding in the areas of mental health, public education and additional support services for young Bermudians who have aged out of the Department of Child and Family Services are considered higher priorities for the Government,” said Mr Dickinson.

Extra cash from the sugar tax has been allocated to the Ministry of Health to pioneer a drive to to add nutritional information to restaurant menus.

No word yet on other plans to better educate the public on healthy food choices.

The Minister also stated: “This government will not add to the cost of government services for the people of Bermuda. So, for the first time in 24 years,

“I am happy to let the people of Bermuda know that the Government will not be asking you to pay more to license your car.

“Immigration fees, however, will go up by 5 percent, although international company fees will not increase, in order to maintain the island’s competitiveness,” he added.

Operating expenditure is expected to be $935.6 million in the new financial year, representing an increase of $5.7 million, or 0.6 percent, over the previous year’s estimate.

Capital expenditure is expected to be $85 million in 2020-21, up $20.3 million from the estimate for the last financial year.

The most significant item was the $3.2 million cost of the renovation of Sessions House and the relocation of the courts.

Other major building upgrades are expected to cost $3.1 million, while $3 million will be spent on upgrading schools.

Roadworks over the year are expected to cost $2.8 million.

On that note, the Minister said: “While most of the planned investment is related to construction projects, there is a capital acquisition provision of $24.9 million, which includes IT developments across government ($9.1 million), new public buses ($4.1 million), and ferries ($2 million) and other vehicles to support public-service delivery.”