Now is a good time to look ahead at key developments for our country’s finances, before Parliament reconvenes in September. These include the Tax Reform Commission’s report, the first payments of Corporate Income Tax (CIT), and pension reform.
Thanks to Opposition Parliamentary Questions, we know the Tax Reform Commission (TRC) report should have gone to Government by the end of July. The final public report should have been published August 22. We expect the TRC to make recommendations in at least the following areas.
Firstly, how might Bermuda change our tax system now that we have the CIT? What should happen with Customs duties, payroll tax, and land tax among other things? The tradeoff is that if locals pay less tax, Bermuda will become more dependent on, and beholden to the CIT payers, and will have to do a better job of keeping them happy in Bermuda. CIT payers are concerned about immigration, which Government cynically uses as a political tool. But CIT payers are also very concerned about cost of living, safety, and healthcare, the same issues that impact all of us in Bermuda. In all of these areas, Government’s track record is not good. The Government has not presented concrete and impactful plans to improve life in Bermuda, including growing the local economy.
Secondly, how can Government provide incentives for CIT payers (companies) to want to remain in Bermuda, now that they are paying tax? The technical word for this is QRTCs (qualified refundable tax credits) and might include things like credits for job creation and training, investment, and philanthropy. Bermuda’s challenge will be to walk the tightrope of meeting the OECD’s technical requirements, keeping companies happy, and still having CIT money left over to use.
Thirdly, what kinds of guardrails or framework should Bermuda put in place for handling the CIT money over the short, medium, and long term? CIT income can change year to year and is subject to tax refunds, as opposed to more stable taxes like payroll and Customs duty. We need careful rules to make sure we don’t plan on using more than we might get, and keep an appropriate safety cushion.
We also need to make sure we don’t squander the CIT money and make real progress on issues like our massive debt (over $3 billion) and poor infrastructure. On top of all of this the public, including CIT payers, wants real transparency and accountability on how these funds are managed. To date, Government has been unable or unwilling to answer questions about how it will allocate CIT money that comes in between regular spending and things like tax refund reserves. These questions need answers. The OBA would set a thoughtful balance between meeting urgent social needs and ensuring a strong financial foundation for our country’s future.
Speaking of questions and answers, the first CIT payments will be made by September 2. Government will then have no excuse to avoid saying how much tax was paid and by how many taxpayers. These are important questions for us to understand how the CIT will work for Bermuda.
The last thing to watch is pension reform. Government has promised to deliver reform of the public sector pension (PSSF – public service superannuation fund) by October 1 (see https://www.gov.bm/pssf). The OBA supports reforming these pensions so employees can count on them in the future. But as always the devil is in the details. Unsurprisingly, it seems like Government’s ‘consultation’ with employees, especially some unions, has been more of a one-way street. Some groups are left with unanswered questions or unsatisfactory answers.
For Social Insurance (CPF – contributory pension fund), which affects all Bermudians, the Government timelines are much murkier. For example, is there a role for CIT money to help fix up Social Insurance, perhaps on a one-time basis as part of a broader reform? Without reforms, Bermudians in the beginning or middle of their working life should not count on Social Insurance. The OBA will continue to push Government to get this reform moving.
As school starts up and we head back to Parliament, keep an eye out to see how the above develop. And know that the OBA will keep pushing on these issues for all Bermudians.
