Bermuda Premier David Burt is planning to reform the country’s tax system in time for the 2022/23 budget year.
In an interview with the Royal Gazette, following the first 100 days since his re-election in October 2020, Burt said Bermuda’s wealth generation was tied to an unfair system of taxation.
He noted that the existing system taxes labour, through a payroll tax, but no other sources of income, which Burt described as fundamentally unfair.
The premier questioned why workers with multiple jobs must pay tax, while property owners, who collect income from several properties, do not.
He added it also made “no sense” for business owners with multiple times the take-home pay of workers to pay the same amount in social insurance.
These challenges had already been outlined by the Fiscal Responsibility Panel, set up by the previous One Bermuda Alliance administration to advise Parliament, the finance minister and the Financial Policy Council.
Pointing to racial and income inequality in Bermuda, the premier said, economic growth can no longer only benefit those who have always benefitted from the economy.
One area that government controls directly is procurement, where changes in policy aim to ensure that more government contracts are given to small businesses, women- and black-owned companies and the disabled, Burt said. “[T]hat is the way you make sure that you build a more fair and equitable society.”
To balance the jurisdiction’s fiscal position, which has suffered budget deficits and a high and growing government debt burden, Bermuda’s government has ruled out new taxes in the short term.
Burt said it would be unrealistic for the jurisdiction’s Tax Reform Commission to come up with recommendations that can form the basis for a consensus between international business, as well as the labour and political communities, for the new budget year. However, he said, he expects fundamental changes for the following budget year.
Instead, Burt emphasised economic growth as “key”, rather than a cycle of cutting which would lead “to a cycle of economic decline”.
This contrasts with the recommendations made by Fiscal Responsibility Panel in its pre-pandemic 2019 report.
The panel said meeting the country’s fiscal targets, in terms of budget surpluses and a debt-to-revenue ratio of 80%, will require significant revenue increases.
“In the absence of a larger labour force it will be difficult for Bermuda to grow its way out of these problems,” it noted.
The panel recommended Bermuda should significantly raise tax revenues as a share of GDP in line with similar economies. This could include a move from a payroll tax to a progressive income tax, as well as the taxation of capital income in addition to labour income.
“We also think it necessary to increase revenues from multinational companies registered in Bermuda, whether by increasing registration fees or, over the medium to longer term, the introduction of a corporate income tax, which would also make a major contribution to improving Bermuda’s position in international negotiations on tax harmonisation issues,” the panel wrote in its December 2019 report.
Burt said a separate article in the Royal Gazette, which stated Bermuda’s government was planning to tax rental income beginning with the 2022/23 budget year, was inaccurate.
“For the avoidance of doubt, there have been no discussions regarding the imposition of a tax related to rental income, let alone any decisions made in that effect,” he said in a statement published on Facebook.