Economists, perhaps conscious of the difficulties of accurate economic forecasting, are reluctant to engage in hyperbole. Even if the sky was falling, they would find a way to explain why it might not happen, or why it might actually be a good thing.

That’s what made the contents of this year’s Fiscal Responsibility Panel report so terrifying.

In its report on the Bermuda Government’s finances, even its less pessimistic projections were panic-inducing. As for its deliberately “pessimistic” scenario, it foresaw Bermuda plunging into the kinds of emergency austerity measures usually reserved for economic basket cases. And it said it could happen in just three years time without urgent action.

Under the pessimistic scenario, which assumed Bermuda would do very little to alter its present fiscal policies, it predicted Bermuda would adding a further $500 million in debt in the next three financial years and would be then faced with the prospect of having to renegotiate $800 million of old loans, plus whatever new borrowing was needed.

It is true that Curtis Dickinson, the finance minister, successfully raised new debt and renegotiated old borrowing at very advantageous rates last August. But the FRP rightly suggests that because of the increase in Bermuda’s debt, it would likely have to pay more to roll over the debt and borrow more.

The panel said: “Since the debt would be on a clearly unsustainable trajectory, it would be inevitable that Bermuda’s credit rating would at some point be downgraded and interest rates on new debt would be higher, probably by a substantial amount.

“In practice, the Government would be forced to impose large emergency tax increases and spending cuts, perhaps accompanied by capital flight and a consequent foreign exchange crisis.”

The panel added, in a phrase that fell somewhere between understatement and redundancy: “This scenario is clearly unacceptable.”

Worse, even if some of the FRP’s less pessimistic modelling came true, and even if the economy improved faster than expected, Bermuda would still be at great risk:

“… Even in the base-case scenario … Bermuda is gambling that international financial markets remain willing to lend freely at low interest rates; in a pessimistic scenario, it is heading for a fiscal cliff.”

Even if things turned out to be better than that, “this does not significantly alter the medium-term picture, in particular the need to refinance a large amount of debt by early 2023 at the latest. Our view, therefore, is that a failure to take early action involves an unacceptable level of risk.”

Thus the FRP does call for urgent action, beginning with the recently reinstituted Tax Reform Commission taking steps that would balance the budget by the 2023-24 financial year and return $50 million surpluses for the subsequent three years.

Unappetisingly, it called for new taxes on dividends and interest receipts, a rental tax on landlords of large properties and multiple units, an increase in the already high sugar tax, and a carbon tax.

In the medium term, it called for “a more comprehensive progressive tax on all forms of personal income”. The panel also pushed back against reductions in payroll tax for low income earners which both political parties have backed; it said any such changes needed to be part of a comprehensive reform based on sustainable increases in tax revenues and the “proper taxation of income from capital assets alongside labour income”, which is a long way of calling for income tax, traditionally a political third rail in Bermuda.

It went on to propose what dropping another untouchable, and one which would shake the foundations of Bermuda’s international business; namely some form of corporate income tax “at a modest rate”.

From the end of the Second World War until about 2008, Bermuda built an economic miracle based around a number of ideas.

First, it had a growing tourism industry which fuelled the economy and from which modest amounts of tax revenue were drawn from modest arrival and room taxes, along with a much larger amount of revenue from the hidden tax of Customs duties.

Second, international business, especially from the 1980s on, grew rapidly, creating high-paying jobs. Revenue was drawn from modest company fees and relatively modest payroll taxes, which were capped for high earners. The attractions for this sector included a co-operative approach to regulation and a low-tax philosophy along with the commitment not to impose a corporate income tax. The latter guarantee remains; its current expiry date is 2034. It has always been extended.

Because the Bermuda economy enjoyed full employment through almost all of this period, parts of the social welfare network could be supported by the private sector. Young workers’ mandatory health insurance premiums subsidised older people’s claims, while pensions and the like could be funded by a workforce that was vastly larger than the number of senior citizens.

The long and seemingly inexorable decline of tourism began to break this model, while careless policies, on immigration and other matters, made Bermuda less welcoming to international business. At the same time, a globalising world made it possible for international companies to employ people in cheaper jurisdictions at the same time that an ageing population shifted the burden of supporting the unhealthy and the ageing on to a proportionately smaller group of people.

Finally, from the early 1990s on, but accelerating from 1998 when the Progressive Labour Party first came to power, the size of government kept growing, and so did the debt.

From no debt at all in 1991, the debt grew to $163 million in 1998. By 2008, it was $345 million. Just four years later, as the Great Recession continued, it was $1.35 billion and by 2018 it was $2.56 billion. Now it will be more than $3 billion, a mind-boggling rise.

As Mr Dickinson noted, some 73 per cent of government expenditures are personnel costs, grants and contributions — much of which goes to employment costs for quangos such as the Bermuda Hospitals Board — and debt service, leaving very little to cut.

In 2000, there were 4,736 government employees, about the same there had been ten years earlier. By 2008 there were 5,569 — a 17.5 per cent rise. By 2018 this had been whittled down to 4,764 but in this financial year it was projected to creep back up to 5,076, although the Covid-19 hiring freeze will have put paid to some of those jobs.

Thus, a combination of declining revenues from Bermuda’s main foreign-exchange earners, an economy that was stagnant for a decade before Covid-19 sent it into free fall and a public sector that was not reduced in any real way even as debt soared — outside of a short period under the One Bermuda Alliance — has brought Bermuda to this point.

The FRP’s job is to find a way to balance the books, and its members have chosen the most obvious one – raising taxes and introducing a tax regime that looks more like most Western nations.

In fairness, it has also looked for ways to encourage economic growth, especially through relaxed immigration requirements, across-the-board expenditure cuts by the Government and increased diversification.

But, barring a miraculous recovery, the FRP’s focus is on a revolutionary change in tax policy. This is in line with the Government’s own beliefs. While the Premier has been at pains to deny that any decisions have been made, the Government has been dropping heavy hints about capital-gains taxes, rental-income taxes and other taxes that place a higher proportion of tax on the wealthier people in the community.

Few would deny that the Covid-19 crisis has laid bare the inequities in this society, nor that the Black community is disproportionately poorer than the White community — and most would agree that this is neither desirable nor sustainable.

But, as ever, the problem lies in how to get there. Bermuda’s success, even if it has been unevenly shared, created a middle class and provided opportunities to the vast majority of the population. That success was based on the idea of low taxes, co-operative regulation and tightly controlled public costs.

The Bermuda model may be broken. But even with a broken model, repairs do not entail throwing out all of the parts and starting again. There is a massive risk, which the FRP concedes, of the cure being worse than the disease and that dramatic tax hikes would lead to capital flight.

Mr Dickinson will be more than aware of how nervous — and mobile — capital can be. He will need to take care that the baby is not thrown out with the bathwater.