Bermuda could be in line for a new professional services tax, the island’s Fiscal Responsibility Panel said yesterday.

The annual report from the three-strong panel of experts predicted that the new tax could come in the next financial year.

The report said: “We understand that for the next fiscal year the new government may proceed with part of the planned further payroll tax reform and the introduction of new taxes on some professional services...”

The news came in the panel’s third annual assessment of the island’s economic state and warned that Bermuda’s high debt levels mean the island is at risk from outside threats.

The panel said Bermuda’s economy faced danger from external events, but was “poorly equipped” to deal with them because of its deficit and other problems.

The report added: “We have pointed out a number of specific risks and uncertainties that could adversely impact the economy. In some cases, the result could be a severe financial crisis which would affect the wellbeing of all Bermudians.

“We have reassessed these risks in this report. But while some of the risks we identified last year have diminished, and some can, and are, being mitigated by determined government actions, others remain or have increased, and new ones will emerge.”

The report warned: “The high level of government debt and other contingent public financial liabilities leaves the island poorly equipped to deal with the potentially severe financial and economic impact if any one was to materialise.

“Moreover, given likely future expenditure needs arising from an ageing population, the Government can ill-afford to continue spending such a high proportion of its budget on debt service, which is currently the largest single category of government expenditure.

“For all these reasons deficit and debt reduction should remain a high priority.

“We therefore welcome the new government’s commitment to achieve budget balance by 2019 and to continue progress thereafter in reducing the volume of government debt accumulated in recent years so as to achieve the longer-term targets of reducing debt and debt service respectively to 80 per cent and 10 per cent of revenues.”

The report by financial experts David Peretz, Peter Heller and Jonathan Portes, is the first since July’s General Election victory for the Progressive Labour Party.

The panel said: “In our previous reports we have highlighted Bermuda’s vulnerability to external events, as a small open economy competing in a global marketplace.

“Progress, however, has been mixed. In 2016-17 the fiscal deficit came out slightly lower than projected in the 2016 budget, with spending significantly below plans. The most recent fiscal plans for 2017-18 and beyond are those set out by the previous minister in his 2017 budget.

“Relative to the plans set out in the 2016 budget, these represent a significant degree of slippage, with a slowing of deficit reduction in 2017-18 and the target date for achieving budget balance pushed back from 2018-19 to 2019-20.

The report added: “Looking forward, it is our understanding that the new government’s present intention is to permit a larger deficit in 2018-19 than foreseen in the 2017 budget, albeit a deficit less than the contribution to the sinking fund thereby avoiding any increase in net debt, while sticking to the target of budget balance the following year.

“This further slippage for 2018-19 coming on top of the slippage in the 2017 budget is unwelcome — such slippage can easily become a bad habit.”

The panel said last year that the One Bermuda Alliance government’s aim to increase tax revenue by 2.5 per cent to 3 per cent of gross domestic product to reach its financial targets was “appropriate” — but that it would not be easy.

The latest report added: “This is even more true today.

“On expenditure the challenge will be to contain the total within the current allocation, absorbing the costs of new initiatives and the recently agreed increase in wages and salaries through increased efficiency. We welcome the Government’s intention to pursue increased efficiency with more determination than hitherto.”

The report said the tax position was “more complex and the task more difficult”.

It added: “The former government introduced a reform of the payroll tax giving it a degree of progressivity, which we welcome, and new taxes on banking and insurance.

“The intention was to meet the revenue targets for 2018-19 largely through a second stage of the payroll tax reform and the introduction of a new general services tax.

“We understand that for the next fiscal year, the new government may proceed with part of the planned further payroll tax reform and the introduction of new taxes on some professional services but intends to leave a decision on whether or not to introduce a full GST until it has the report of the new Tax Reform Commission, which will not be before the summer of 2018.”

The panel said: “We are disappointed that, despite our clear recommendation last year that the Office of the Tax Commissioner should be provided with additional resources, a number of posts remain unfilled because of a failure to streamline the necessary government recruitment approval processes.

“This needs to be addressed as a matter of urgency. Additional resources for tax collection and enforcement should pay for themselves many times over in additional revenue.

“Looking farther forward, with the growing needs of an ageing population, we believe that over the longer term the revenue share will have to rise from its current level of around 17 per cent GDP to a level nearer the 22-23 per cent share seen in comparable small island economies.

“This will be necessary both to ensure a stable and robust fiscal position and to accommodate future expenditure pressures. The work of the Tax Reform Commission is thus critically important.”

The report added: “Both the public-sector pension schemes and the contributory pension fund remain substantially underfunded. It will be important to address this over time with a range of measures that should certainly include, as in other countries, a rise in the retirement age — a measure that also has the merit of increasing the working-age population.”

UPDATE: this article has been amended to remove comments attributed to Jamahl Simmons that were in response to questions at the EY Global Forum that were related to general services tax and not business services tax