Paula Cox will present &lsquo;the most important Budget in any Bermudian&rsquo;s memory&rsquo; on Friday. <em>*File photo</em><br />
Paula Cox will present ‘the most important Budget in any Bermudian’s memory’ on Friday. *File photo

WEDNESDAY, FEB. 22: Friday’s Budget is the most important in any Bermudian’s memory.

Having followed and written about Government finances since January 2010, I feel confident in making some key predictions.


Land Tax for seniors

Currently, all Bermudian home owners 65 and over do not pay any Land Tax at all on their primary residence. That means that a very rich Bermudian living in his grand mansion, and who might ordinarily pay $12,000 a year in Land Tax receives the same benefit as a retired doorman, living in a much smaller house and who might ordinarily pay $250 a year in Land Tax. Right now, neither person pays Land Tax. Expect this to change. Expect a new style tax credit to emerge. With a tax credit system, the multi-millionaire will get a tax credit of perhaps $500 a year and, starting this year, will actually have to pay $11,500 in Land Tax. The retired doorman will get the same $500 tax credit and still not pay any Land Tax.

Result? Government will start collecting some additional revenue from Land Tax paid in by wealthy homeowners. A few middle-level homeowners may find themselves suddenly cash-strapped because they must now start paying Land Tax. Seniors in modest homes still won’t pay any Land Tax.

Free car licencing for seniors

 Right now, any Bermudian Senior can licence any car registered in his/her name without paying any TCD licencing fee. A senior saves $1,552 if licencing a big expensive ‘G’ class SUV, or $282 if licencing a small ‘A’ class car. Expect this to change to a TCD licence credit for Seniors. Expect the ‘licence credit’ to be around $300. This will mean that Seniors licencing an ‘A’ class will still get a freebie; but seniors licencing a ‘G’ class will pay the difference of around $1,250.

Result? Government will get a little bit of extra revenue as big-car Seniors re-licence their big cars. Small car seniors will still get ‘free’ licencing.

‘Baccy, beer, booze

People who drink and smoke — the legal and illegal stuff — tend to drink and smoke regardless. Raising taxes here will please the church people and all others with a puritanical streak. It will also raise additional revenue. The downside is that tourist boozers will see an already high-priced Swizzle go from $9.00 to $10.00 — then there’s that 15 per cent gratuity.

Result? Small increase in revenue. However, hoteliers and restaurateurs might discover that more tourists and customers seem to have suddenly gone teetotal or have cut back on general boozing.

Free Bermuda College tuition

Rolled back last year. 

Result? No change. ‘Free’ will not be coming back to the Bermuda College for a very long time.

Government revenue (Auditor’s figures)

In 2010/11, at $996.7m, Government revenue was $61.3m less than the $1,058m projected in the February 2010 Budget Statement. In the Pre-Budget Report of December 12, 2011, revenue for 2011/12 was reported coming in between $920m — $930m. This is less than the $940m projected in the February 2011 Budget Statement. Revenue for 2012/13 is likely to be projected to come in at something between $920m and $940m (my figures).

Result? Revenue about the same. Could even be less revenue available in this FY for re-spending on Government pay, Government services, and Government goods.

Government expenses (Auditor’s figures)

In 2010/11, total Government expenses are reported as $1,308.5m. This is $107.5m more than the planned Budget total of $1,201m. This 2010/11 total was also $311.8m more than total revenue ($996.7m). In 2011/12, total spending is not yet reported (expect to hear that on Friday), but it will likely be at least $1,200m, which is still about $270m more than anticipated revenue ($930m). Spending for 2012/13 is likely to be genuinely cut and may be projected to be around $1,100m — but this will still be somewhere between $160m — $180m more than 2012/13’s anticipated revenue (expected between $920 - $940m - my figures).

Result? Overspending will continue. More borrowing will be required. Debt Service Costs will continue rising.

Payroll Tax

In 2010/11, Payroll Tax provided 43% of total Government Revenue. Currently it is 5.25% deduction from employees and 8.75% payment from employers for a total tax bite of 14%. The 2010/11 move to a 16% total Payroll Tax bite and Tax Cap rise ($350k to $750k) did not work as hoped and planned. Overall, in 2010/11, after the Payroll Tax increase, only 50 percent ($61.3m) of the hoped-for $124m in overall extra revenue actually materialized. Many jobs disappeared because businesses closed or down-sized. In 2011/12, Payroll Tax was rolled back to 14%. In 2012/13, with Bermuda’s economy still declining and overall employment still shrinking, any increase in Payroll Tax rates will have the same overall impact and general consequence as in 2010/11. Still, there is no law that says that a Payroll Tax rise will not or cannot happen.

Result? It is unlikely that there will be a significant rise in the 5.25% and 8.75% Payroll Tax demands. Overall revenue from Payroll Tax will likely decline marginally.

Payroll Tax rollbacks for retailers and hotel workers

Probably remain in place. Wage-frozen hotel workers dealing with non-rising leisure visitor Air Arrivals; and cash-strapped retailers facing a shrinking customer base are not good sources of desperately needed Government Payroll Tax revenue. Additionally, re-imposing the Payroll Tax will act as a massive expense and cost increase in these two already hard-hit sectors and will directly threaten some of the 4,000 — mostly Bermudian held — retail jobs.

Result? Total Payroll Tax receipts will likely be marginally lower than last year. This creates a need to search elsewhere for hard-to-get cash.

Customs Duty

In 2010/11, Customs Duty provided 20 percent of all Government revenue. Currently it averages an across-the-board 22.25 percent. Expect this to rise to an across-the-board 25 percent.  This won’t produce much in the way of extra or additional revenue because the total volume of goods now being imported, and therefore available for taxing, is declining.  In fact, with a declining resident population, a Customs Duty increase may not produce any additional revenue at all.

Result? Costs to consumers will rise. Retail will flounder further. No significant increase in government revenue.


A small and somewhat hidden charge on everything that is imported. Much the same as Customs Duty and is paid on the same ‘bill of entry’. More nuisance than tax. In 2010/11, after it had been put up from 1.11% to the current 1.25%, Wharfage brought in $1.64m. Expect this to sneak up to 1.5% or even 2%. If increased to 1.5%, it might bring in an extra $600,000. At 2% it might bring in an extra $1.0m.

Result? As with Customs Duty, costs to consumers will rise but there will not be any significant increase in overall government revenue.

Government licences and fees

Several years ago, many Government and licence fees were put into an automatic raise category meaning that biennially, they can go up by a previously set percentage — between 3% and 5%. This may happen across the spectrum of car licencing, Planning fees, Work Permit fees, etc...  Three to five million more in revenue?

Result? Costs to consumers and taxpayers will rise marginally and there will be a small increase in Government revenue.

Foreign currency purchase tax

Originally 0.25% then 0.50%. Moved to 1.0% in 2010/11. With foreign exchange earnings flat-lining, or even declining, this is not a good source of increased revenue. Raised too high, it can cause currency hoarding and a flight from the use of BD dollars; helping to create an undesirable problem.  Last year the increased FCPT brought in $24.7m; but this was 15 percent less than the hoped-for $29m. Interestingly, doubling the FCPT in 2010/11 did not double the income from FCPT. Income only went up 80 percent.

Result? FCPT increase? Unlikely. But there is no law that prevents it. Additional revenue? Unlikely.

National debt ceiling

Continued overspending forces continued borrowing. The Debt Ceiling is currently $1.25bn. The Minister for Finance will have to ask Parliament to approve a rise in the Debt ceiling. Expect the Minister to ask for permission to raise that ceiling to at least $1.5bn, or go even higher to $1.75bn. I do not think that there will be a request to go to $2.0bn in one move. However, given Government’s revenue realities and spending patterns, a $2.0bn ceiling request would be entirely reasonable. As at 30th September 2011, net Debt stood at $1,201,981,762. Only another $48,018,238 can be borrowed without going through the ceiling.

Result? Expect a rise in the debt ceiling. If notice is not given in Friday’s Budget debate, keep your eyes and ears open and wait. An increase is inevitable. It must happen before Santa Claus comes.

Debt Service costs [interest plus Sinking Fund contribution]

In 2010/11, Debt Service Cost was $84.9m for servicing Debt that was $1.002bn(net) at 31st March 2011. In just five months, by 30th September 2011, Debt had climbed another $200m to reach $1.202bn(net). In 2011/12 Debt Service Costs rose to $100.2m in order to service the $1.202bn(net) reported and confirmed in the audited Statements released on 17th February 2012. Expect Debt Service Cost to reach and exceed $115m in 2012/13. Net Debt might rise to $1.7bn in 2012/13.

Result? Debt Service Costs [Interest + Sinking Fund] will rise. DSC may exceed $115m by December. Look for and find this DSC number.

Government personnel costs

In 2010/11, personnel costs were $599.7m and about 60 percent of revenue of $996.7m. For 2011/12, personnel costs are unlikely to be substantially different, but revenue is lower. So for 2011/12, personnel costs were likely still around $599m and about 64 percent of the $930m of estimated revenue [Ministerial Statement of 12 Dec 11]. In 2011/12, the combination of personnel costs of $599m and Debt Service Costs of $100m are 75 percent of estimated revenue of $930m. For 2012/13, even if personnel costs are cut by $64m and revenue comes in at about $930m (or less), then in 2012/13, the combination of personnel costs ($535m?) and increased Debt Service Cost ($115m?) will still eat up 70 percent of estimated revenue of $930m.

Result? More and even deeper personnel cost cuts lie immediately ahead. As long as borrowing continues, Debt Service Costs will continue rising. Rising Debt Service Costs push against non-rising revenue. This double push squeezes personnel costs. Personnel costs must, therefore, be cut; or Government must stop delivering services, which then leads to a reduced need for personnel — a perfectly circular problem.

Post Office

Snail mail Post Offices are supposed to either break even or turn a small profit. In all developed Western economies, modern technology has turned all Post Offices into major money-losers. The Bermuda PO now handles about 25 percent of the mail volume that it was handling in 2000. In 2011, the PO still employed around 220 people, about the same as in 2000. Between April 1997 and April 2011 losses by the Bermuda PO add up to $59m. In 2010/11, the PO was budgeted to lose $7.8m but the PO actually lost $9.5m. By arithmetic definition, these large PO losses are paid for by borrowing foreign exchange funds and increasing Public Debt.

Result? Government is still reluctant to undertake the action already taken by all other governments in all other developed western economies. Expect these high PO losses to continue.


On Friday, once the Minister for Finance has finished speaking and resumed her seat, look for these sixteen core items. The Budget’s ‘beef’ is there, not in the words.