The business world was spared big tax hikes as the Minister of Finance delivered his first Budget yesterday.
Curtis Dickinson said that the anticipated revenues for the next financial year were about $1.118 billion — $28.6 million or 2.6 per cent higher than the estimate for this year.
Mr Dickinson told MPs: “Honourable Members will note that this increase is less than the $50 million in revenue increases proposed in the Pre-Budget Report.”
He explained: “The Government has evaluated the risks facing the island, in particular the potential EU action to list Bermuda as a “noncooperative” tax jurisdiction ... Accordingly, the Government has decided that now is not the time to extract an additional $50 million from the economy in taxes.”
Craig Cannonier, the One Bermuda Alliance leader, said that Mr Dickinson had “failed to mention he was increasing taxes by $39 million anyway”.
He added: “The revenue estimate for 2019-20 is $39 million higher than the revised estimate for this fiscal year.
“There has been a total failure by the PLP to execute on any plan for economic recovery. The Government has zero ideas to stimulate the economy in order to create jobs.
“It sounded like a holding budget, trying to maintain the status quo while desperately hoping that something comes to their rescue.”
The Bermuda Chamber of Commerce welcomed the news that feared new taxes would not be imposed.
John Wight, president of the chamber, said: “Bermuda’s business community had concerns about potential punitive new taxes and increases to existing taxes that were being considered. Overall, this Budget has allayed those fears.”
Mr Dickinson said land taxes for owners of larger homes would be increased from April.
Owners of higher-rated properties — with ARVs from $44,001 to $120,000 or more — will be hit with increases of between 3 and 5 percentage points.
Homes in the mid range — those with an ARV of between $22,001 and $33,000 and $33,001 and $44,000 — will remain unchanged at a tax rate of 3.5 per cent and 6.5 per cent.
The base charge on all the higher ARV properties will also be $300.
There will also be tax reductions on homes with an annual rental value of up to $11,000 from 0.8 per cent to zero, but with a base charge of $300.
Owners of homes in the $11,001-22,000 bracket will also be zero rated, compared with a 1.8 per cent tax last year and will also have a base charge of $300.
The flat rate $300 proposal will lead to increased payments for those in the lowest-rated homes.
However, seniors will continue to get an exemption on homes with an ARV of $45,000 or less.
Mr Dickinson said that the Budget would also tackle “mortgage pressures for hardworking Bermudians”.
He explained that the Government, in partnership with private sector banks, will pilot a mortgage guarantee programme in return for a reduction in interest rates charged to mortgage holders.
He added that a government-backed mortgage lender will be created “to relieve pressure on public sector employees by providing them with reduced mortgage rates”.
Mr Dickinson said: “These two measures, combined with the elimination of taxes on mortgage refinancing, are projected to save $5,300 a year for the average family carrying a $500,000 mortgage.”
The tax rate on commercial properties will go up from 7 per cent to 9.5 per cent and the tax rate on tourist properties, which was hiked on a temporary basis from 7 to 12 per cent until June, will increase from 7 to 8 per cent.
The Budget also brought bad news for smokers and drinkers, with hikes in sin taxes.
Mr Dickinson told MPs: “The duty on cigarettes and tobacco and on beer, wines and spirits will be raised in April to achieve additional customs revenue of about $1.25 million to $2.5 million.”
He added that most payroll tax rates will remain unchanged.
But the struggling retail sector, as well as hotels and restaurants, are in for some tax breaks from April 1.
The statement said retail, which employs about 3,500 people, will get “targeted payroll tax relief to specific businesses by providing a concessionary employer payroll tax rate of 7 per cent for all retailers whose payroll is above $500,000 and whose primary sales are in fashion, shoes, jewellery and perfume”.
The statement added that customs duty relief will continue with a zero rate on imported capital goods “intended for the renovation and refurbishment of restaurants and hotels and many properties have benefited from these Acts over the years.”
But customs duty will go up “on a limited group of items” from 50 per cent to 75 per cent and the 75 per cent sugar tax will be extended to a wider range of goods.
Mr Dickinson said: “These adjustments will yield an additional $4 million to $5 million of customs duty.”
He said earlier: “Additionally, the Government will suspend the mandatory annual contribution to the Sinking Fund rather than borrow additional monies to make this annual contribution.”
Mr Dickinson added that the financial-services tax introduced by the previous government will be increased on banks and insurance premiums and that “the increased fee on insurance fees would be the obligation of the insurer”.
He said: “Following consultation, the Government will increase the tax on premiums by 1 per cent and increase the tax on bank assets from 0.005 per cent to 0.0075 per cent of its consolidated gross assets as at the end of a tax period.
“This will yield an additional $3.4 million in revenue.”
The tax on foreign currency purchases is also to go up, from one per cent to 1.25 per cent, which is expected to raise an additional $4.1 million.
Mr Dickinson added that the Government will also slap a fee on people who use credit cards to pay their taxes.
He said: “Over the years the Government has been incurring millions of dollars in credit card charges due to taxpayers using their credit cards to pay their taxes.
“Effective from April 2019, Government will start to recover these fees by way of a recharge fee for this convenience.”
Mr Dickinson told MPs Budget expenditure for the coming year, including current account and capital account outlays, but excluding debt service, will be $1.111 billion.
He said that debt service costs for the 2019-20 financial year were expected to be $116.5 million and were “interest expenses on debt only”.
Capital expenditure for the new financial year was estimated to be $64.7 million, $2.5 million higher than last year.
Mr Dickinson said the main major building items were upgrades to the Mid-Atlantic Wellness Institute, the island’s psychiatric hospital, as well as schools maintenance and road works.
He also announced that Government will relax ownership restrictions on condominiums in the North East Hamilton Empowerment Zone in an attempt to stimulate the economy.
Mr Dickinson said: “This is an important change as we must provide places for money earned in Bermuda to stay in Bermuda and circulate in our economy.
“The narrow relaxation of these restrictions will put more Bermudians to work on construction projects throughout the city and will create fixed assets that provide maintenance jobs.”
He added that the new developments and more residents would boost local businesses, as well as help attract young Bermudians overseas back to the country.
The finance minister added that the Government will suspend payments into the sinking fund — the fund into which money is set aside for paying down debt.
He said that the interest expense associated with borrowing to fund the mandatory sinking fund contributions would be greater than the investment return generated on those funds.
Mr Dickinson told MPs: “The beauty of true democracy is that beyond the numbers, graphs and charts lie real people.
“This economy does not permit us to do all that we want to do, but the balance of this Budget brings to the delivery of services, meeting external threats, investing in the education of our children and advancing a system of fairer taxation continues to build on the economic foundation set our since our 2017 electoral victory.”
• To read the Budget Statement, click on the PDF under “Related Media”