Dear Sir,

At the risk of beating a dead horse, let’s talk about government fiscal responsibility. Again. In 2015, under the One Bermuda Alliance, a Fiscal Responsibility Panel was established and hired as independent advisers to the Government. Made up of several international experts in public-policy finance, its function would be to produce annual assessments on the Government’s fiscal performance.

The purpose of this review committee would be to increase transparency and international credibility by reviewing, monitoring, assessing and publicly reporting on the fiscal progress of the Government, thereby providing an independent, external report of its actual fiscal conduct against the established fiscal rules. The FRP report is produced on an annual basis, the most recent one released just this month.

Our public fiscal landscape has been precarious since 2005 when our debt began rising uncontrollably, with little or no plans for repayment, until 2015 when the FRP was hired by the OBA government and began advising on fiscal management and debt reduction. While there were inroads made on reducing the deficit, the OBA’s significant debt load (approximately $2.4 billion) was carried forward to the incoming Progressive Labour Party government in 2017.

After six years of this government and its subsequent borrowing, we are still waiting for a dedicated, long-term plan to reduce our $3.2 billion debt — $7 billion-plus inclusive of unfunded liabilities — and the Auditor-General is getting very little co-operation from the finance minister in this regard.

This week, the Government announced the Corporate Income Tax Bill, as a result of the global corporate minimum tax initiative that has been proposed by the Organisation for Economic Co-operation and Development. In an effort to discourage profit shifting, the agreement sets out a global minimum tax of 15 per cent affecting certain multinational entities with high threshold revenues (above €750 million) and which are located in low-tax jurisdictions. Bermuda, along with many other jurisdictions, is charting new territory in the world of international tax rules affecting these companies.

While the collection of a 15 per cent corporate tax may sound like quite the windfall in new revenues for government coffers, many companies that fall into this tax bracket will have fluctuating results and, by extension, sometimes revenues will fall below the taxable threshold, and therefore no tax will be paid to the Government for a particular year. Also, owing to the complex nature of qualified refundable tax credits — which Bermuda’s tax regime will entertain — there may be times even when the Government will be required to provide tax refunds to some companies.

In response to this legislation, the OBA promised to bring an amendment to the Corporate Income Tax Bill to ensure that resulting revenue is properly deployed to address Bermuda’s crippling national debt and crumbling infrastructure.

Its position: “The One Bermuda Alliance believes that while there can be benefits to Bermuda from the CIT, there are also many risks. One important risk is that the Government will not handle any possible large revenue from the CIT with the appropriate fiscal responsibility and prudence.”

This amendment announcement was met with a dismissive reaction from the Government, which accused the Opposition of last-minute “political point scoring”. It claimed that this action could jeopardise the countless hours of work that the International Tax Working Group and the Ministry of Finance have invested. It cried foul on the Opposition’s suggestion to ring-fence some revenues for debt reduction/capital projects, even when this month’s FRP report gives similar recommendations as follows:

1, Bermuda should make an early and binding commitment to use a substantial proportion of the net revenues from introducing a CIT for companies coming within the scope of the global minimum tax to reduce Bermuda’s net debt, eventually converting it to a net-asset position

2, Some revenues should be held in a “stabilisation fund”; this would help insure against the risk of having to borrow at high interest rates on the open market if volatility was such that revenues fell below base budget needs in any year

3, A mechanism should be established to ensure that decisions on the allocation of the CIT revenues are taken transparently on the basis of independent expert advice and scrutiny, and do not jeopardise macroeconomic stability

4, We recommend that the above recommendations are enshrined in legislation on a fiscal framework

Last Friday, I was halfway through writing this letter when the House was in session. The CIT Bill was to be debated and the OBA’s amendment Bill would also be introduced, so I took (a lot of) time to listen to that part of the House of Assembly session. I was encouraged to hear the Government’s mention of introducing future fiscal “guardrails” with regard to this initial CIT Bill. We were told that this legislation — with reference to the global minimum tax — is a foundation Bill from which we will build on, and that all consultation with industry and other tax experts has brought us to this introductory tax Bill. We heard from various government ministers, who, unsurprisingly, did not disappoint us with their sniping and condescending remarks directed at the Opposition and their “three musketeers” team, whose concern expressed regarding this historic tax matter was swiftly dismissed as “arrogance”.

Well, I, too, am “concerned” — pardon my arrogance and my ignorance — and so I am researching as much as I can on the issue. I just read an article by Bloomberg Tax regarding the present rush by certain jurisdictions to lure companies ahead of the deadline for this global tax levy. Bermuda’s draft CIT legislation was mentioned in the article, highlighting where we are now, introducing the 15 per cent statutory tax rate along with an attractive incentive — to the affected corporate taxpayers — of a qualified refundable tax credit programme. The article noted that the very nature of a refundable tax credit — money refunded to a company from the Government — makes such an incentive a “higher fiscal risk” for smaller jurisdictions.

A senior official from the tax office of a European investment hub said refundable tax credits are keenly desired by many taxpayers, but there is much complexity in the administration of such regimes. He said the design of such incentives into any tax regime has to be approached carefully, as changes in corporate behaviours could leave certain jurisdictions with payable obligations, even if the targeted companies’ tax revenue collection diminishes. The rules are complex and will require substantial new forms of financial data that many tax departments will not have access to within their organisation. So, by now, it should be obvious to everyone that the administration of this new, complex, historic tax regime will require a management body with skill sets similar to that of the United States Internal Revenue Service.

The Premier himself emphasised the importance of having a team in place, consisting of persons with broad expertise, all of whom must be highly skilled in tax/financial management. Anyone who takes the time to read the draft CIT Bill, will agree that it is essential that this management body must have the best talent we can “buy” because the meandering rabbit hole of the international tax world is bottomless. With that in mind, if you review our Auditor-General’s annual reports on the record of the Government's management of the public purse over the past 30 years — without the complexity of such a global tax initiative — we all have reason to be very concerned.

Now back to the House of Assembly session.

Just when my tolerance for acrimonious, political word salad was registering close to zero, there was a voice in the wilderness — like a breath of fresh air — and our former finance minister, now backbencher, Curtis Dickinson, stood up and spoke calmly and respectfully about this Bill. A Bill that he supports but agrees is just a framework upon which we will build, and there will be/must be addition of future fiscal “guardrails” (amendments) which are planned in 2024 and even beyond in order to navigate and successfully manage Bermuda’s new tax regime.

It was his view that this was the beginning of a complex, legislative journey for the Government and a bipartisan approach was essential to achieving the best outcome. By the end of the parliamentary session, the CIT Bill was approved and Dennis Lister, the Speaker of the House, ruled that the OBA’s proposed amendment was in breach of House rules and therefore could not be presented.

I have followed the FRP’s work since its 2015 formation and, yes, I would have thought that some of its expert fiscal advice would be contained within the structure of this initial tax Bill — particularly the recommendation concerning the deployment of some of the CIT tax revenues towards debt reduction and capital spending. But everything has to have a beginning and we have to start somewhere, which is what our government has just done. What is blatantly obvious, however, is that the Premier and his cohorts —save few exceptions — continue to enjoy the practice of berating anyone with questions or alternative opinions, including the very people they serve and, in this particular instance, accusing the Opposition of scoring political points for daring to suggest a debt-reduction plan that has been recommended by the very expert consultant that it, the Government, employs.

If this administration’s objective is to divide the people, well in that regard it is most certainly excelling.

Merry Christmas.

BEVERLEY CONNELL

Pembroke