David Burt told a business audience yesterday that he would consult widely and move slowly on reforming the 60:40 rule.
In his maiden Budget statement last Friday, the Premier and finance minister announced his intention to ease restrictions to allow foreigners to own up to 60 per cent of a domestic business, lifting the 40 per cent restriction in place now.
In yesterday’s Budget Breakfast event at the Hamilton Princess, presented by PwC Bermuda and the Bermuda Chamber of Commerce and attended by some 350 people, Mr Burt said he did not intend to simply “unleash” the change with the risk of triggering unintended consequences.
“We recognise that 60:40 is a very complex issue and this does not mean we’ll just throw it out,” Mr Burt said. “We will take a slow pace to allow for a decent consultation period.”
He conceded that he would likely face opposition from political colleagues who may not see the change as being conducive to putting Bermudians first.
Among business people, he said those with entrenched interests could feel threatened by the change, as well as businesses struggling to survive who the impact of greater competition.
But Mr Burt highlighted the fact that about $3 billion of the money earned in Bermuda over the last ten years had left the island and the change would help to keep some of that money on island by offering opportunities for foreign residents to be majority stakeholders in local businesses.
John Wight, president of the Chamber of Commerce, sitting alongside Mr Burt on a discussion panel, said he thought the Premier had done “an excellent job” with the Budget, considering economic and fiscal conditions, as well as in terms of fairness and collaboration.
“We were really impressed that the Pre-Budget Report was disseminated in good time for others to express views,” Mr Wight said. “It was obvious that the Government listened, because there were several things in the Pre-Budget Report that did not make it into the Budget.”
Mr Wight praised the decision to not go ahead with payroll tax increases for the highest earners that were planned for the coming year by the previous One Bermuda Alliance government and added that the decreases for lower earners were appropriate.
“Bermuda is an expensive place to do business,” Mr Wight said. “Previous governments have raised payroll tax and customs, but if you’re serious about promoting investment in Bermuda, you can’t keep raising these taxes.”
The payroll tax base will be broadened by Mr Burt’s plan to scrap notional salaries, which has allowed some partners in owner-managed businesses, such as law and accountancy firms, to pay tax on a portion of the income they derive from their employment.
Mr Wight backed the proposal. “We know there has been abuse of the system,” he said. “It angers people who pay tax on all their income. That loophole has now been taken away.”
Mr Burt said there would be consultation on notional salaries and he expected plenty of feedback.
The Chamber of Commerce president also supported Mr Burt’s plans for the 60:40 rule, saying that what may have worked well many years ago will not necessarily work in 2018. Bermudians with promising business ideas would have more access to capital as a result, Mr Wight said.
“The reality is that we have to increase the size of the economic pie and the 60:40 rule makes it more difficult to do that,” he added.
Mr Wight, however, said that a budget was only as good as the accuracy of its projections, and questioned Mr Burt’s expectations of a 4.6 per cent increase in government revenues in the year after the economic stimulus of the America’s Cup. He added that an expectation of rising interest rates was not reflected in the debt servicing estimates.
Arthur Wightman, territory leader of PwC Bermuda, congratulated Mr Burt on “a Budget for all”, which “recognises the challenges but at the same time points to the possibilities of a bright and more equitable future”.
“Our encouragement is that society at large puts its shoulder behind realising that future,” Mr Wightman added. “The journey is too perilous and the ramification of failure too severe to do anything else.”
Robert Stubbs, an economist and former head of research at the Bank of Bermuda, said there was a fundamental misunderstanding of the nature of the Bermuda economy’s problems.
Between 2008 and 2016, the Government added $2.1 billion to its debt, he said, while the private sector earned and saved about $19.2 billion — including everything from international reinsurance company earnings to household savings.
“There’s a lot of income and savings made in Bermuda, but one of our major problems is that much of this money is leaving the island,” Mr Stubbs said.
Large pension fund portfolios were being invested entirely overseas, for example.
Taxation was focused too much on labour and consumption and not enough on capital, he added, and a “rebalancing” of tax policy was needed.
“The corporate sector is not paying nearly their fair share of taxation — and tax on finance is way too low,” Mr Stubbs added.
Mr Wight welcomed the notion of growing the population, saying that Bermuda had net debt of nearly $2.5 billion and unfunded pension liabilities of around $1.5 billion — and unless it had a greater number of people paying into the system, the island could not realistically hope to pay down these debts.
Mr Burt responded: “This is not a discussion about more people, this is about the need to create more jobs. As soon as you start talking about bringing in more people, it raises people’s ire.
“We should be talking about how we create more jobs — that’s where the conversation needs to go. If you put 2,000 people on Front Street right now, where are they going to work?
“We support the creation of these jobs which will allow more Bermudians to be employed and more Bermudians overseas to be employed here again, and for others to have jobs too.”
Scott Pearman, chief operating officer of the Bermuda Hospitals Board, welcomed the restoration of the $25 million annual subsidy for the hospital to fund hospital services for seniors and the indigent.
However, he added that the a combination of the demographics and lifestyle-related diseases would put ever greater strain on healthcare resources.
About 13 per cent of the population had diabetes, Mr Pearman said.
“This has a real impact,” he added. “The BHB has 165 patients on dialysis — for a population of our size, we should have about 65.”
The ageing population added to the strain, he said, with 38 per cent of all the BHB’s cases being people over 65. The hospital would need another 75 acute care beds in the coming years, he said. “That’s something the community cannot afford.”
People taking better care of themselves was essential for the future of healthcare services, he added.