Rescuing the economy in wake of Covid-19
We are a few months into one of the most dramatic economic calamities the world has witnessed, one that has not been seen since the Great Depression many decades ago.
The entire world is fighting a battle to keep people safe from a disease that, while many knew it would come eventually, we were all underprepared for.
A Herculean effort has been made in Bermuda and across every country, with Bermuda especially doing an excellent job at keeping the overall healthcare crisis at bay. When we compare the early forecasted numbers given of between 700 and 900 deaths at the hands of Covid-19, it speaks volumes when that number sits at only nine.
But our nation, still doing the best it can to stem the tide of Covid-19, is now steering down the barrel of economic hardship that is definitely unprecedented.
Bermuda has already been going through what can be described as economic recession for the past ten years. However, we can hope that our efforts seen tackling a potential health crisis may be duplicated, as we do our best to stem the economic damage.
We are looking at months of lost productivity, a tourism industry that may look at 2020 as a complete write-off, tens of thousands of people who are out of work and a government deficit that has grown at least 300 million in the past six months.
That deficit will likely crest at $3.5 billion or more by the end of this crisis. To put that in context, a country that reports to have 65,000 people would have to dig up $46,000 per person to pay down the debt we all now carry. The debt serving (interest) alone is going to be approaching $750,000 per day.
This, as described by successive governments and finance ministers, is unsustainable.
To our frontline workers, thank you
I do want to take a moment to thank the incredibly hard-working heroes on the front line — people in healthcare, fire, police, EMS and inside the Government doing everything they can to keep our country safe. Thank you.
A thank-you to international business
Let’s realise the tremendous effect of having the financial and reinsurance industry in Bermuda. Not only does the country have some of the highest-paid “working class” in the world — yes, that comes with a high cost of living, for sure — but it has industries that aren’t just a pillar of the economy. In these trying times, they have become the backbone of Bermuda’s economy.
Hundreds of thousands of dollars in donations have been made publicly and there are a further hundreds of thousands, if not millions, being donated privately behind the scenes. If you were looking for a definition of a “good corporate citizen”, you would not have to go very far. These are the types of companies and the quality of people we need to be attracting to Bermuda.
Encourage smart immigration to Bermuda
Economists have stated that there are many roads to improving an economy, but I think, No 1, we must discuss immigration, which means growing the economy and businesses in Bermuda.
Bermuda must become much more friendly to bring more people to the country and grow the size of the population to stem the tide of an increasingly older generation that has exited the workforce and is now collecting a pension that is likely under threat of insolvency.
We must increase the overall size of labour, which would have a direct effect on the amount of taxes raised and provide the stimulus to local businesses from small, medium to large whom our country so desperately depends on.
More people in Bermuda who have skill sets that are needed in a growing economy will not only improve the livelihood, job potential and opportunity for those who live here, but it would also greatly improve tax revenues. It would help every corner of the economy, from taxis, to Airbnbs, hotels — who would see increased traffic from people visiting the new labour force — bus drivers, retailers, supermarkets and restaurants.
To be clear, I don’t suggest mindless immigration. To go about this intelligently, we should be encouraging new businesses to move here, and in doing so make bringing the people to Bermuda as easy as possible. We should adopt strong economic policies to make companies’ decision to move to Bermuda simple, by reducing taxes and removing needless regulation that stifles their ability to function locally.
I have written before how difficult it is to get things done in Bermuda — we seem to have an ability to put roadblocks in our own way. Red tape both in government and in the private sector will make our recovery and growth more difficult.
Build a medical school
Perhaps more of a tangible asset to help our country, a medical school in Bermuda would be a great asset to many sectors of the island. We are one of the only “Caribbean” islands without one. Even before the Covid-19 crisis, there was already a nursing and doctor shortage.
Bermuda would be very well positioned to partner with a leading medical institution such as Johns Hopkins, Lahey or any number of other large medical or teaching universities to build a medical school.
Our medical community would benefit from having increased resources, investment into healthcare and attracting leaders in their field to live, work and teach in Bermuda.
We would see thousands of new people come to our shores for education and jobs. We could trial new medicines, create patents and spur a whole new set of industries around medical advances right here in Bermuda. Medical tourism would be a great addition to the Bermuda brand as well.
Reduce overall taxes while implementing a 1 per cent corporate tax
While it might be counterintuitive, I propose that in the long term reducing taxes in most areas will not only grow the economy — an obvious statement — but will also increase the revenue captured by the Government when looking over a ten-year cycle.
We have the research that shows increasing taxes reduced economic growth.
Logically, reducing taxes would encourage a growing economy and spending in our local businesses, renting of homes for workers and investment into new developments.
I can’t say that the Government has ignored dropping payroll taxes; however, the tax rate for the 0 to $48,000 employee was the only category that went down.
Bermuda has a tax rate for the middle class — my definition of those earning between $48,000 and $96,000 a year — of more than 8.5 per cent, with the employer effectively paying an approximate 6 per cent rate on top of that amount, with some variation on the size of the total payroll. In practical terms, it is an average of 14 per cent payroll tax on the majority of Bermuda’s working population.
Bermuda’s citizens also pay 20 per cent to 30 per cent customs duties on incoming goods, which effectively creates a consumption tax. I can think of no better way to discourage things from simple home renovations to large construction projects when there is a such a large burden on goods in comparison to our neighbours in the United States, Canada or Britain.
I would also say that, long term, it could potentially damage other, unseen economic drivers. Would potential self-educators in computers, electronics, mechanics or engineers be able to buy items to tinker with when you pay a 30 per cent premium plus shipping to get these items on island?
The combination of both a payroll tax and customs tax, while generating a lion share of the government revenue, puts a wet blanket on the economy in desperate need of oxygen and fuel. I would expect strong local economic stimulus by reducing the tax and customs burden on the economy.
However, I am not ignorant to the need of the Government to at least keep revenues at their existing level.
As such, I propose a modest, 1 per cent corporate tax on companies that do not have a minimum of five staff in Bermuda.
This would encourage companies to either move staff here — the goal — or pay the 1 per cent corporate tax on their yearly earnings. I think the positive effect on our economy would be quite significant. The European Union and Britain, pushing through economic substance regulations, have already made this conversation easier to be had in all corners. Companies will need to prove they are actually operating in their chosen domiciles; encouraging them to move to Bermuda via a tax would be the next logical step.
Investment and citizenship
We should look at policies to bring the world’s wealthy to Bermuda — those who can be mobile, who create jobs and who are looking for the warm, business-friendly and inviting country we all know Bermuda could be.
A bold decision would be to let such people invest in citizenship. For example, if they contribute $1 million into the economy through a direct payment or starting a business here, they would be granted immediate permanent resident’s certificate status.
Nevis, St Kitts, Grenada, Moldova, Canada, the US, Malta, Britain and other nations give full citizenship for similar investment, which I am fully supportive of.
I realise that we have a political tightrope to walk, but the future of the country and economy is more important.
Removing barriers for new industries
Bermuda seems to be notoriously slow to adopt new ways of thinking. We have seen the resistance the Government has faced in trying to bring crypto and fintech companies to Bermuda. We are yet to see Uber and other ride-sharing services enter the country.
People tend to think that a protectionist policy helps the economy — or at least helps in their particular case — but it doesn’t. In fact, it reduces economic mobility and stifles innovation. It also reduces competition, reduces investment and lowers quality of services.
We all know the pain of paying a high price in Bermuda for something that would cost less and perhaps be of better quality elsewhere. Bermuda is a small economy cut off from an easy flow of goods, so we do expect to pay more, but that doesn’t mean the situation cannot be improved.
The paradigm of how things are done in Bermuda must change after Covid-19 and they must change to a very significant degree. No longer can we put politics over country and special interests over rebuilding the Bermuda economy.
We must make decisive and bold decisions to bring the country back to the economic prosperity it enjoyed for so long in the 1980s, 1990s and even 2000s. The reason why Bermuda is considered the gem of the “Caribbean” is the strong economy that we, and importantly our ancestors, have built over the past 30 years.
The time for action is coming very fast. When Covid-19 is behind us, we need to make sure the next disease we catch is not an economic one.
• Sources: https://www.gov.bm/calculating-payroll-tax-period-april-1-2020-march-31-2021 https://www.bbc.com/news/business-49958628 https://www.forbes.com/sites/williamdunkelberg/2018/03/23/why-deregulation-is-important/#4928b83b1c18 https://www.aamc.org/news-insights/economic-impact-medical-schools-and-teaching-hospitals https://www.aamc.org/news-insights/press-releases/new-findings-confirm-predictions-physician-shortage http://repositorio.cepal.org/bitstream/handle/11362/43311/S1701281_en.pdf?sequence=1&isAllowed=y www.taxpolicycenter.org%2Fbriefing-book%2Fhow-do-taxes-affect-economy-long-run https://www.forbes.com/sites/laurabegleybloom/2020/07/28/escape-america-countries-buy-citizenship-second-passport/#668ca5d77f74
• Gilbert A. Darrell is an entrepreneur, self-confessed IT geek, and the founder and chief executive of Horizon Communications, Wireless Telecom in the Caribbean and Bermuda
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