Budget Synopsis

Budget Synopsis

Overview

The 2022/2023 Budget Statement (“Budget”) was presented by Premier and Minister of Finance, David Burt, (the “Premier”) in the House of Assembly on Friday, 25 February 2022. The Budget does not set out any major changes to the system of taxation or the Government’s planned expenditure. However, the Budget does set out, in no uncertain terms, the fragility of Bermuda’s financial position, as well as the threats to its recovery (i.e. Bermuda’s current financial situation and level of unemployment, the impending global minimum tax regime, the shuttering of Bermuda’s tourism industry, the mounting debt, and probably the largest threat, the ever-declining population). The budget does point out that international business continues to grow at a steady rate and that there was a rise in company registrations, an increase in the number of jobs created by international business, and that the number of planning applications for construction increased significantly.

Points of interest

Please see a brief synopsis of the nine points of interest for individuals and entities as well as
setting out various legislation to track as the year progresses.

Individuals	Entities
1) If the Government manages to keep the projected deficit below the estimate, 50% of the savings shall be utilized to reduce taxes on fuel imports	1) Extended payroll tax relief for hotels, restaurants, bars and nightclubs for a further 6 months
2) Vehicle licensing fees will be reduced for all private cars by 10%	2) The new hire relief will be extended for a further two years until 2024 (for all companies with annual payroll of more than $500k)
3) A reduction of payroll taxes for those earning less than $96,000	3) Clarification of legislation to exempt certain charities from land taxes
4) No increase in payroll tax for those earning more than $96,000	4) Removal of land taxes from registered care homes
5) There will be no tax increases in the Budget	5) Period of concessions for hotel developers to be increased
6) Voluntary pension withdrawal of up to $6,000 to be extended for another year	6) There will be no tax increases in the Budget
7) End of the Travel Authorisation form on 31st March 2023	7) No increase in fees for companies
8) Unemployment Benefit to be extended until 31st August 2022	8) BMA will issue its first new banking licence in 21 years
9) No pay increases in Budget for Public sector workers until 2024/2025	9) Government is implementing a plan to make digital banking in Bermuda a reality

Legislation Watch

The following section will briefly set out the proposed legislation to track as the year progresses:

1. Hotel Developers: Legislation to increase concessions for hotel developers. It appears that Government has taken stock of the current climate and has found that its tax concessions or hotels are not competitive and require amendment in order to entice hotel developers;
2. Charities: Legislation to exempt certain charities (those earning a majority of funds from donations) from land taxes. Amendments to the Land Valuation and Tax Act (“LVTA” should be forthcoming to give effect to this amendment;
3. Care Homes: Legislation to remove land taxes for registered care homes. This will also be achieved by amending the LVTA;
4. Banks and Consumers: An amendment to the banking legislation is expected to provide for:
   
   1. greater protection of consumers with regard to (i) eviction from premises where payment plans can be arranged and (ii) unfair loan agreements; and
   2. conduct rules (which may include fee limits for banking services)

The above-proposed amendments will be a welcome relief to consumers and certain businesses.
It will be interesting to see what shape the amendments to the banking legislation takes (i.e. how
onerous the amendments will be on existing banks), especially in light of the fact that there are
four banks (soon to be five) that are already competing for a relatively small number of consumers.

Regulation

A new Tax Reform Commission (the “Commission”) to be created by the end of April 2022. The
Commission will be tasked with revamping the Bermudian local system of taxation to create a
more progressive system, which will align with the proposed requirements arising from the new
OECD global tax agreements.

Budget Breakfast Briefing

The budget discussion made for an interesting watch, with many topics discussed, the most
noteworthy of all being the decrease in the population of, and in the number of work permit holders
in, Bermuda and the possible damage to the retail sector.Blog Post – Budget Statement (220301).docx
The Premier was previously quoted as saying: “Population growth is not simply an option for
Bermuda but is necessary for survival.”

Arthur Wightman of PwC Bermuda restated some relevant statistics during the budget discussion:

• According to the Department of Statistics, in 2008 there were 40,213 filled jobs and the 2021 estimate is 31,250. That represents a reduction of just under 9,000 jobs in 13 years, or an average of 700 filled jobs per annum.
• According to the Department of Immigration, total work permits fell from 14,129 in 2012 to 6,140 in 2020, a drop of approximately 8,000 total work permits, or 1,000 per year.

He further indicated that, in order to get back to the 2008 levels, the work force needs to be
increased by a third and that a significant influx of Bermudians and foreigners alike are required
in order to achieve this. A hundred jobs here and there will not be sufficient to stop the decline.

A sector of the Bermuda economy under the spot light was the retail industry. Delight Morris of
the Orange Bay Company provided a first-hand account of what the retail industry went through
during the COVID-19 pandemic and its effects on the retail industry. She also provided important
statistics:

• The retail industry employs approximately 3,900 persons who may join the large amount of unemployed persons if the retail industry does not survive.
• A survey by the Chamber of Commerce indicated that 140 business closed in Hamilton (45 closed permanently and 95 closed temporarily).
• The November 2021 Retail Sales Publication noted that retail sales volumes were down 8.6% year over year.

She went on to state that retail is a numbers game and agreed with the Premier’s statement that
population growth is a necessity for survival and that, if the economic pie does not expand, then
local businesses will be fighting over the same 60,000 customers and there will be very little
collective growth.

Conclusion

The Budget is balanced, modest and hopeful and seems to set realistic and attainable goals.
However, Bermuda has many significant challenges ahead and it will require hard work, focus,
and a clear plan to achieve it.