OBA defends 'compassionate' low pay tax break policy

WEDNESDAY, OCTOBER 19: A working class payroll tax break is not about stimulating the economy, but driven by compassion for the least well off, OBA shadow Finance Minister Bob Richards said yesterday.

And he dismissed claims that a proposal to exempt firms that add new staff from paying their chunk of the payroll tax bill would not boost Government income — because people in new jobs would spend more.

Mr Richards said a payroll tax exemption for people on less than $50,000 a year was “more about providing relief for people in the community who are hurting the most.”

He added: “Since much of Government revenues are earned from what people buy, so Government revenues will rise — not initially from payroll taxes — but from increased spending on goods and services.”

Mr Richards was speaking after critics said that while OBA pre-election promises might create more jobs they would lead to around $30m a year in extra debt and the need for increased borrowing.

He said that economists’ suggestions that policymakers should “commit either to stimulus or austerity” were too simplistic.

Mr Richards added: “This is not an all or nothing situation — you can have both stimulus and austerity policies operating side by side.

Money flow

“The only stimulus to the Bermuda economy that will have long-lasting effect are steps that increase the flow of foreign exchange to the island.

“Therefore, our plans regarding suspension of term limits for two years, making immigration more welcoming and user-friendly, and cutting out the double vetting of company incorporations are all meant to be low cost stimulus measures.

“Indeed, these are very powerful stimulus measures because they strike at the very core of the reasons given by international business people when they explain why they are taking their business elsewhere.”

Mr Richards added that getting public spending under control was a key measure in saving cash and reducing debt.

He said that an increase in the number of Government ministries and failures to observe proper accounting procedures for Government contracts were major costs to the public purse.

Mr Richards added: “We can save a lot money by fixing these problems.

“As for fixing public debt, it’s clear that debt is rising as our tax base shrinks. The OBA is committed to reducing public debt, but this reduction will only come with economic growth and increased foreign exchange earnings.”

He stressed that balancing Bermuda’s books could not be achieved by increasing efficiency.

Mr Richards said: “You can view public debt as foreign exchange that Government has spent in advance of it being earned.

“The only way we will be able to reduce that debt is to increase foreign exchange earnings and channelling those increases towards debt reduction.”

Mr Richards warned: “Without that happening, public debt will not be reduced. This is the proper context in which to view the reduction of public debt.”