An increase in taxes is far more likely to be in our future than meaningful cuts to government expenditures, with the exception of government’s intention to trim expenses by identifying more efficient ways of delivering on its obligations.

The island’s Fiscal Responsibility Panel wrote in a report released in November: “The scope for further incremental expenditure reductions has largely been exhausted, and indeed there are significant pressures for increases in some areas, particularly related to social spending... this means that the burden of deficit reduction in the immediate future must largely fall on the revenue side.”

In other words, new and increased taxes.

The Tax Reform Commission (TRC) was tasked by Government to recommend measures that would increase public sector revenue yield from 17 per cent of GDP to a minimum of 20 to 22 per cent of GDP. The TRC has recommended a range of new taxes — commercial residential rental tax, general services tax, withholding tax on managed services, withholding tax on dividends and interest — plus reforms to a variety of existing taxes including payroll, owner-manager declared dividend, customs duty, excise, land, financial services, foreign currency purchase, as well as international company fees and immigration fees.

“Many of the measures would move Bermuda’s tax system towards a more normal combination of conventional income and sales taxes,” the panel wrote. “We recommend that the Government adopt and implement the package, or something like it, as quickly as feasible. The broad thrust of the report, and in particular its ambition and the sense of urgency it conveys on the need for step change in revenue raising, are wholly welcome and have our full endorsement.”

Some reforms are expected to be announced in the February 22 Budget, while others may be pushed back as far as 2021.

In the 2018-19 Budget, Government vowed to give the Office of the Tax Commissioner the staff it needs to collect taxes that are due. Wrote the Fiscal Responsibility Panel: “Previously unpaid stamp duties of almost $3 million have been collected, and an additional $4.7 million in uncollected stamp duties have been identified.” The addition of five new temporary staff for a one-year period has added to the TCO’s capabilities, according to the Pre-Budget Report.

“The reality on the ground is that you can’t create new taxes and cut spending in days,” says Craig Simmons, senior economics lecturer at Bermuda College, and a member of the TRC. “But every day’s delay creates deficit and debt.

“Broadening the tax base and increasing tax rates is the way to go. If taxes are progressive in nature, the so-called ‘man in the street’ won’t feel it like the ‘man in Fairylands’. That seems to be the intention. Government has to create a progressive tax structure if they’re not going to adversely affect the ‘man in the street’.

“The big target is the ratio of debt to tax revenue, which is currently $2.5 billion to $1 billion, or 250 per cent. The target there is 80 per cent,” Mr Simmons said.

“We haven’t passed the point of no return yet. The great thing is that the indicators are already starting to decline. We are heading toward our targets. Until recently, the indicators were getting bigger — but now, they’re getting smaller. At least we are heading in the right direction.”