Premier and Minister of Finance Paula Cox. *File photo by Kageaki Smith
Premier and Minister of Finance Paula Cox. *File photo by Kageaki Smith

FRIDAY, SEPTEMBER 30: Shopping overseas will be more expensive after Premier Paula Cox unveiled a rescue package for the local retail sector today.

The Premier took the unusual step this morning of introducing an emergency increase in customs duty in a bid to protect jobs in local shops.

She also wiped out payroll tax for store-owners and their workers until March next year.

The duty rate has been raised from 25 percent to 35 percent and the duty free allowance of $100 for returning residents will be restricted to one person per household for the next six months.

In simple terms — a couple returning from a $1,000 shopping trip in NewYork will now pay $315 duty instead of $200.

Ms Cox said the aim was to ‘discourage personal spending abroad’ and divert shoppers to Bermuda stores.

The announcement — which gives shop owners the same tax break as the hotel and restaurant sector — follows 39 consecutive months of declining sales in Bermuda’s stores.

Ms Cox said: “The payroll tax relief is intended to provide cost reduction to businesses in the retail sector so that doors may be kept open and staff may be retained.

“It will also provide workers in the sector with additional spending power.

“The measures related to residents returning from overseas business and vacation trips are to help steer expenditure into the local retail sector.

“These measures are aimed at helping to boost sales and keep approximately 4,000 Bermudians employed in local stores.”

Ms Cox said the emergency action could not wait until the next budget.

She accepted it would mean a shortfall in revenue of up to $5million from her February budget estimate. But she insisted priorities had changed.

“The budget goal at the beginning of the 2011-2012 financial year was to focus on deficit reduction. This stance was based on the assumption that we would see a slow but sustained improvement in economic conditions globally and also in Bermuda.

“However so far, a sustained recovery has not materialized. Quite to the contrary, there is some risk of a double-dip recession given the continuing turmoil in global markets.

“In these circumstances, leaders must act in the best interests of their countries.

“We must act to preserve the basic well being and welfare of our people.

“People who are hurting as a result of these very difficult economic conditions must be helped.

“The proposed measures highlighted above will help our people and our businesses.

“Therefore they justify the temporary revenue shortfall. Deficit reduction is a medium to long-term strategy.

“Employment that is related to family income is an immediate problem that must be addressed now.”

She also hinted that some form of value added tax may be in the pipeline saying Government was considering an alternative to charging retailers up-front on luxury items that often stay on the shelves for more than a year.

Other measures announced this morning include a ‘guarantee’ to WEDCO to enable it to proceed with a low-cost housing project in the west end.

Families who risk eviction after falling behind on rent or mortgage payments will be able to apply to dip into their private pensions.


Statement by the Hon Premier and Minister of Finance

Hon. Paula A Cox, JP, MP

30th September 2011

Premier institutes relief measures for retail sector

 

The negative impact of the recession which followed the global financial and economic crisis that began in 2008 continues to hinder business growth and development in Bermuda. With little prospect now of an uptick in local economic conditions it is important that remedial actions be taken now.

These negative effects are also evident in our major trading and commercial partners, especially in the United States. As a testimony to how serious the economic problems are and how sluggish the recovery is, growth projections for advanced economies have been revised downwards from 2.2 percent to 1.6 percent for 2011. Depending on how serious confidence effects are, growth for developed countries in 2012 could range between 1.2 and 2.2 percent. These countries are Bermuda's main trading partners. 

As a result, business activity in Bermuda has been slow to recover. In fact, in many instances scaling back by some businesses and the associated redundancies are taking a debilitating toll on many Bermudian families. This is a serious matter that requires an immediate response.

Therefore, in taking note of this continuing economic malaise and the possible social consequences, Government will immediately institute several temporary emergency measures to assist businesses that have a pressing need for financial relief. The retail sector has been particularly hard hit by the continuous decline in sales volume over the last several years. Discussions with industry leaders have been bleak but sobering.

Therefore, with effect from October 1, 2011, the following measures will be instituted:

Payroll tax will be set at a zero rate for the retail sector for a six month period ending on 31st March 2012

Travelers’ allowances for returning residents will be restricted to one person per household for a six month period ending on 31st March 2012

The duty on accompanied goods declared by returning residents will be increased from 25% to 35%

The payroll tax relief is intended to provide cost reduction to businesses in the retail sector so that doors may be kept open and staff may be retained. It will also provide workers in the sector with additional spending power.

The measures related to residents returning from overseas business and vacation trips are to help steer expenditure into the local retail sector. These measures are aimed at helping to boost sales and keep approximately 4,000 Bermudians employed in local stores.

In addition, Government will consider if there is another means of collecting duty on luxury items that sometimes can sit in inventory for a year or longer before being sold. Collecting duty up front on such items presents a cash flow challenge that is often solved by financing arrangements that have a carrying cost.

The fiscal implications are that these actions will reduce the inflow of Government revenue, but the pressure on Bermuda’s economy, and especially the pain being experienced by many Bermudians will be eased somewhat. The projected deficit at the end of this fiscal year, as a result of the net revenue shortfall is estimated to widen by a sum of $3-5 million.

The decision was not easy but it was necessary in order to help vulnerable business sectors and people in these challenging economic and financial conditions. Government has provided already similar concessions to the hotel and restaurant sectors.

The budget goal at the beginning of the 2011-2012 financial year was to focus on deficit reduction. This stance was based on the assumption that we would see a slow but sustained improvement in economic conditions globally and also in Bermuda.

However so far, a sustained recovery has not materialized. Quite to the contrary, there is some risk of a double-dip recession given the continuing turmoil in global markets.

In these circumstances, leaders must act in the best interests of their countries. We must act to preserve the basic well being and welfare of our people. People who are hurting as a result of these very difficult economic conditions must be helped.

The proposed measures highlighted above will help our people and our businesses. Therefore they justify the temporary revenue shortfall. Deficit reduction is a medium to long term strategy. Employment that is related to family income is an immediate problem that must be addressed now.

In addition to the above measures, Government will provide a guarantee to the West End Development Corporation so that it may proceed with the low cost housing project at Ireland Island. This project will provide at different times in excess of 100 jobs.

With respect to redundancies in other sectors, the Department of Labour and Training will offer retraining programmes for persons seeking to acquire skills for available jobs.

In addition, families who have fallen seriously behind in rent or mortgage payments and are at risk of being evicted or losing their home may apply to the Pension Commission for access to a portion of their private pensions.

Finally and fundamentally, Government is committed to helping people and business sectors in difficult financial circumstances through this recession. It will not last forever.

Government’s strategy is one that embraces Repair, Reform, Rebalance and Rebuild.

Repair what needs to be done now to sustain businesses and help people's pockets with short term temporary relief is good.

This speaks to relieving business balance sheet pressures, the lack of consumer demand which is causing businesses to have lower yields based on lower demand and low spending and to make people redundant.

So one has to apply the tools at one’s disposal. The above actions will inject more money into consumers’ pocket books and they will also encourage people to spend locally. By restricting the duty free allowance to only one person per family as opposed to two or more, and increasing the duty rate from 25 percent to 35 percent, this will discourage personal spending abroad.

These measures also operates as levers to help preserve jobs. – all of us working together as one team will get us back on our feet.

When a family loses a job - it hurts us all and it means less activity in the economy. We have to seek to change that. It is about the here and now.

Although most economists will tell you these problems will resolve themselves over the long run. Right now you and I cannot live in the long run. For us, these problems are very real today.

Reform is also speaking to the future – the temporary measures will provide time for businesses to consider innovative and new ways of developing and growing their market base.

Rebalance is getting fundamental economic relationships back in synch as we move towards recovery. It also speaks to opportunities for diversification by moving to green technologies.

Rebuild – providing businesses and people with opportunities to build a new platform for moving forward fiercely with confidence.

The path is clear. The time is now. We must act.

We have to act now and see results.

That is the aim of the temporary rescue measures announced today.