While they support the Government’s decision to fork out $125.2 million in unbudgeted funds to protect those most vulnerable as a result of the global COVID-19 pandemic, Opposition Leader Cole Simons warned there will be more job losses before it’s over.
After reviewing the Government’s 2021/2022 Pre-Budget Report, ultimately he said the writing is on the wall.
In anticipation of a “bleak” future, Mr Simons, who is also the Shadow Minister of Finance said: “We cannot escape our current reality.”
Overall, he said the Government’s report “tells Bermuda a graphic story of their direction and priorities”.
“Unfortunately, the picture they paint is a bleak one for Bermuda,” he added.
“On the matter of COVID-19, the Opposition recognizes that the pandemic has had a cataclysmic impact on Bermuda’s culture and economy. We recognize that a balance must be struck between mitigating the health risk that this pandemic brings and supporting those most impacted.
“We acknowledge that the economic impact of the public health measures needed to suppress the virus caused severe reductions in our economy. We support the government’s unbudgeted spend of $125.2 million dollars, as a safety net to support Bermuda’s most vulnerable through unemployment benefits, financial assistance, and the aid given to our small businesses through the BEDC Business Sustainability & Continuity Funding Program. This also includes related measures to keep Bermuda safe and secure through the purchase of Personal Protective Equipment, COVID-19 testing, Regimental support, maintenance of the quarantine facilities, enhanced cleaning contracts, Quango Assistance, and the Airport Revenue Guarantee.
“Regarding the management of the pandemic and the personal responsibility we all share, the OBA strongly believes that if we have a healthy population, we can get back to having a healthy economy,” he added.
“However, we also acknowledge that we cannot escape our current reality. The fact still remains that Bermuda’s economy will continue to contract, given that our 2020 Gross Domestic Product is projected to fall between 7-9 percent according to the Pre-Budget Report.
What does this mean for Bermuda?
- More job losses for Bermudians, especially small businesses which play a vital role in Bermuda’s economic engine
- The Retail Sector: Businesses such as beauty salons, fitness-related facilities and businesses within the hospitality sector will continue to bear the brunt of job losses. Apparel stores, motor vehicle stores and service stations will also continue to decline. These businesses face the threat of closing because of the added COVID restrictions placed on them. They will likely not be able to pay their overhead costs, rents, and other expenses due to the dramatic decline in revenues
- Low wage earners who clean, prepare, and serve food within the private, and public sectors are also significantly impacted. They will experience the most job redundancies and will be hit with increasing unemployment. For those who are able to retain their jobs, they likely have not had a wage increase for years or are faced with reduced working hours
- Tourism was catastrophically affected by COVID-19. Our Cruise Ship industry has all but vanished with the related revenues down approximately 90% for 2020
- The Construction Industry will continue to suffer, as Bermuda’s construction projects fell by 41.3% for the first six months of the fiscal year 2020/21, and there is no relief on the horizon. Note, the Progressive Labor Government has no major developments in the pipeline to boost this industry
- The National Debt: Bermuda’s debt continues to rise unabatedly. As I mentioned earlier this year, Bermuda can expect that our national debt will hover around $4 Billion dollars during the next fiscal year. The Minister of Finance is rightfully concerned, and so are we. He indicated that the Government’s Budget deficit is expected to be an “unsustainable” $295 million for the current financial year after the Covid-19 pandemic with slashed revenues, and soaring expenditures. If we continue on this glide path, we will see another increase in Bermuda’s debt ceiling
- Revenues: From our perspective, nothing substantive was introduced to mitigate the decline of revenues. The PLP government state that they are examining the normal biennial government fee increases, and the new Travel Authorization Fee
- Job Creation: On the matter of job creation, nothing significant was presented to stimulate job creation. i.e.: There are no opportunities in the agricultural and fishing industries to support food security, neither are there any opportunities mentioned to support our minibuses, which could resolve some of the constraints that continuously plague our public transportation
- Capital Spending: We have not seen any budget indicators for capital spending to support school repairs, reconstruction, reorganization in the coming year. Neither are there any indicators that will support resilience for climate change, and no support for renewable energy initiatives which will contribute to the reduction of Bermuda’s cost of living and provide a boost to employment
- There are also no capital support indicators or concessions to help improve our tourism product and domestic tourism
- Further, there was no mention whatsoever of how the government is going to address our airlift challenges
- Accounts Receivables: Furthermore, the Pre-Budget Report has not touched the Government’s multi-million-dollar accounts receivable portfolio across all Government ministries. They have presented no management or any recovery strategies
- Guarantee Portfolio: The Government has not addressed how they are managing the Bermuda Government’s guarantee portfolio which by the way is not charged against Bermuda’s debt ceiling. This portfolio is valued at approximately $550 Million dollars, which includes $29.3 Million dollars for BHC; $71.8 Million dollars for Wedco; $278 Million dollars for Bermuda Hospital Board; $165 Million dollars for Morgan’s Point; $10Million dollars for Bermuda Tourism Authority; and $25 Million dollars for Hotel Bermuda Holdings
Bermuda’s Current Tax Structure:
The Fiscal Responsibility Panel (‘FRP’) said in their 2020 report that “An adverse but far from inconceivable” scenario would see Government debt on an unsustainable trajectory, leading to a credit rating downgrade and higher interest rates on new debt, the risk of “large emergency tax increase and spending cuts”, and the possibility of capital flight and a foreign exchange crisis.
They also indicated that given the ﬁscal position, and the limited progress of the Government acting on their earlier recommendations, they are concerned that Bermuda will have little ﬁscal or macroeconomic policy space to address any crystallization of these risks. Over the longer term, their key concern is still domestic, ie: the island’s shrinking workforce and ageing population. This challenge will put ever-increasing pressure on both taxes and spending. The issue is not about whether action is needed, or even what actions are needed – there is a high degree of consensus, as expressed in both their reports and those of other independent bodies and indeed within Government – but when and how. Immigration reform, tax reforms and tax increases, and changes to the structure of healthcare and pensions are all necessary.
For the average Bermudian this means that the availability of loans could be compromised, and the cost of mortgages and loans in Bermuda will increase.
Revised Tax Structure:
The FRP regard 2019 as a year of missed opportunity, not just because of the further delay in meeting the target for budget balance, but because of the absence of signiﬁcant tax reform along the lines of that proposed by the Tax Reform Commission or this Panel, as well as the de facto easing of the government’s ﬁscal targets facilitated, by the suspension of contributions to the Sinking Fund.
The FRP recommends that the country should brace itself for a revised tax structure. The Panel feels that the current structure is unsustainable in addressing Bermuda’s economy. In real terms, this means more taxes for the people of Bermuda given that they believe that reasonable tax revenue, as a percentage of GDP, should be around 19/20%. This is an increase of approximately $190 Million dollars over 3 years.
In addition, it should be noted that with the imminent embodiment of the Tax Reform Committee, a more fair and equitable tax structure is being examined, which will result in an increase in all our personal tax liabilities.
Response from the International Business (‘IB’) Sector
Recognizing that tax reform is normally unpalatable, I have been advised that recent discussions were held with the heads of the IB sector, all of who indicate that they would be receptive to tax reform with the following caveats: a) if the tax increases are used to reduce the national deficit; b) if the Government is disciplined, and drive down costs; c) if Government expenditures are well managed and well-controlled; and d) if they are not the only sector who will be required to pay increased taxes.
In closing, we believe that this chapter of Bermuda’s economic development is going to be a very challenging and difficult one for all of us and that we must brace ourselves for a rough ride. With this in mind, here is a list of initiatives that the OBA would immediately implement to change the trajectory of the 2021-22 Budget
- Develop a glide path to balance its budget within three years and reduce the reoccurring current account deficit
- Reduce the size of the government through offering early retirement and through attrition, as the human resource cost is approximately 40 plus percent of the current account expenditures
- Apply more diligence and provide better management to recover the millions of dollars owed to the Government in accounts receivables
- Expand Bermuda’s workforce by relaxing immigration policies so that it is easier for job creators, executives, entrepreneurs, and high net worth individuals to migrate to Bermuda and thereby create jobs
- Provide added resources to the Bermuda College and the Workforce Development team, to train and retool our students and employees for any newly created jobs in the private and public sector
- “Provide resources to the agricultural and the fisheries industries to entice job creation and help food security; and
- In accordance with the reports and recommendations produced by the Fiscal Responsibility Panel and the Tax Reform Commission, and with feedback from the public, the One Bermuda Alliance would examine, define, and implement the most equitable, fair, efficient and transparent tax system, to serve the needs and people of Bermuda today and into the future, and not a structure which was crafted to serve the needs of Bermuda’s past and its legacy