Stark warning on our soaring debt

National debt could balloon to $2.5 billion — nearly twice its current level — an economist warned yesterday.

A medium-term plan to cut the debt should be a priority in next week’s Budget, says Craig Simmons.

He was among a small handful of key observers we spoke to yesterday about what they want to see in the Finance Minister’s plan.

There is consensus that creating jobs and boosting the economy is the priority — but some divergence on how to get there.

Chamber of Commerce chief Ronnie Viera said an extension to the payroll tax break for restaurants and retailers was desperately needed to keep the two sectors afloat.

And he welcomed any initiatives to boost the international business sector — which could contribute huge amounts to the economy in terms of spending power and rental income.

He added: “We understand that the Government has a tough job of trying to strike a balance between the need to increase revenue in the form of taxes and to provide incentives to stimulate economic activity.

“However, our members are still suffering the effects of the economic downturn therefore we hope that any tax changes will not materially increase the financial burden on businesses.

“Certainly our restaurant and retail members are looking forward to a further extension of the payroll tax relief beyond April 2013, as this alone has kept some of them in operation. 

“Additionally, we welcome any new incentives which result in new international businesses setting up in Bermuda as this will bring new people living, working and spending money on the island.”

Craig Simmons warns that debt is likely to continue to increase in the short term – perhaps to as high as $2.5 billion [The debt current stands at $1.4b]: “A medium term plan makes a clear delineation between short term debt and longer term debt. In the short term debt is likely to rise.

“Given that reality, it would be fiscally responsible to have an exit plan considering that debt will rise.”

Mr Simmons added that trying to deal with major debt through an annual Budget process was “irresponsible” and that a longer-term plan was needed.

He added: “Government bond holders and tax payers – starting from around 2016 – need to see how Government is going to reduce the debt.

“It shouldn’t be the number one priority over the next one to two years, but it will be say three years from now.”

Mr Simmons added that he would like to see the annual Budget introduce a “working class payroll tax cut” for those earning between $50,000 and $75,000.

He said: “Only employers benefit from payroll tax breaks at the moment – although they are creating the jobs.”

Mr Simmons added: “There is not a lot of wriggle room for the Minister of Finance between this Budget and the next.

“For the future, there might be a move from duties to a Value Added Tax and there may be a requirement for a Corporation Tax – but those would be part of a medium term plan.”

Social activist Michelle St Jane – who earlier this week said Bermuda had been traditionally run more as a business enterprise than a country, which had led to major social problems, including a high prison population – said families, education and social policy should be priorities for the Budget.

Ms St Jane added that international businesses set up in Bermuda should have to sign up to a “good corporate citizenship” clause.

Ms St Jane said: “We don’t tax companies – without the impact of good corporate citizenship, I’m not sure they would be minded to be so generous as they have been in the past.”

She added that 34 companies had donated around $75 million for good causes between 2007-10 – but that more accountability on what it was used for was needed.

Ms St Jane said: “We have had a huge amount to date, but I don’t see it solving anything. We’ve built bigger and better structures, but we need more than that.”

She added that the unemployed, those on Financial Assistance and parolled prisoners should be given assessments at Bermuda College and enrolled in classes.

Ms St Jane said: “We should also have a satellite college in Westgate and other institutions, even if it’s online. That will help people become better citizens – especially as many of them will be chained to the rock because they have been criminalized and the chances of getting a waiver is minimal.”

She added that a decision not to renew the contract with the Transitional Living Centre (TLC) should also be reversed.

The centre housed up to 15 prisoners and prepared them for re-entry into society outside prison as they held down jobs, paid a form of rent and did their own cooking and cleaning. Staff also offered counselling to help them readjust to life outside prison.