Anthony Richardson
Anthony Richardson

The SAGE Commission is legally mandated to focus on reduced government spending through savings and increased efficiency.

Based on their interim report and public comments, however, SAGE has realized that Bermuda’s cash challenges cannot be addressed solely through savings.

The required reduction of $332m to reach a balanced budget represents 6% of GDP and the reduction would have significant, negative implications for Bermuda’s economy. 

The impact would be magnified since an estimated $116m of the savings would have to come through public servant salary and related benefits reductions.

One necessary step for recovery is to focus on revenues.  My recommendation is RAGE – a Revenue And Government Earnings commission.  The mandate of the RAGE commission would be two-fold.  

Review and recommend viable medium and long term revenue opportunities to increase Bermuda’s GDP. 

Examine Bermuda’s existing tax model and recommend alternatives to maximize government earnings. The order and focus of the mandate is intentional. Bermuda must move away from the current mindset of existing economic activity and actively consider new revenue streams to ensure our longer term success.  The examination of the tax model is an important but a secondary consideration since it tends to focus on what is, as opposed to what could be with new revenue streams.

The choice of a chairperson will be critical.  I believe there is a good pool of potential candidates since several partners have recently retired from public accounting and law firms.  We have also seen several retirements from the insurance industry, local business sector and indeed the political arena.  Some may infer that I am biased based on my suggested pool of candidates and I plead guilty to the charge – integrity and public confidence in the individual will be critical.

Bermuda will need to try and attract certain labour intensive opportunities that are suitable for our labour pool in the first instance and a high volume of knowledge based opportunities in the longer term.

My rationale is that Bermuda geared itself to a high concentration of physical labour in the recent past, in response to the rapid influx of IB employees and related support services.  As a consequence several homes, apartments and commercial buildings were built or renovated.  Many of the buildings are now vacant due the recent reduction of Bermuda based employees which are often estimated to exceed 4,000. 

The vacancies result in less money being spent for rent, living and entertainment expenses.  The knock on effect is a reduction in general economic activity.  One clear example is the high level of defaulted mortgages reported by each of the banks and some of the local insurance companies.

In the longer term, Bermuda must attract more knowledge based revenue streams, to reflect the world’s reduced reliance on human labour in favour of technological efficiencies.

Examine Bermuda’s tax model

This is not a recommendation to introduce income tax to Bermuda! I am always amused when visitors and Bermudians comment that Bermuda does not have any taxes. The reality is that GDP of $5.5bn and annual Government revenues of $871m equates to an overall tax rate of approximately 15% ($871m / $5.5bn).  The majority is raised from payroll tax (37%) and Customs duty (20%).  Therefore 57% of annual revenue is based on labour and consumption.

Many will complain but the calculation shows that there is room to raise more taxes given Bermuda’s current GDP. How can the increase be achieved in an equitable manner, if only in the short term? As part of the process, the commission will have to consider the effectiveness of existing taxes and some of the recent concessions including payroll tax relief and death taxes.

The SAGE report is expected to be tabled in the House of Assembly in November. The next budget is due in February.  My estimation is that the clock is ticking toward 2017 before Bermuda will need to borrow more money.  

Why wait – consider a RAGE commission with urgency.  Otherwise RAGE may become more than an acronym.