Sweeping changes to payroll tax, with exempt companies incurring no extra tax liability, were promised in the Government’s blueprint for the 2023-24 fiscal year laid before the House of Assembly by David Burt, the Premier and finance minister.

The island’s tax brackets will get redrawn, with a new category bringing them from four to five.

Mr Burt told MPs he could have balanced the Budget in the present fiscal year, but insisted the island need to move forward on infrastructure and covering hospital finances.

An announcement is to come later this year on developing a “world-class” medical tourism facility on the island, the Premier said in the Budget.

Morgan’s Point will be reimagined as a housing development, not a hotel — and Mr Burt told MPs he was confident work would start in the second quarter of this year on the Fairmont Southampton resort with work finishing in 2024.

The sugar tax faces revisions so that it focuses solely on high-sugar drinks and other products deemed damaging to health.

Mr Burt also pledged to cut import duties on school uniforms, as well the aggregate used for concrete.

“Bermuda stands at more than the dawn of a new fiscal year,” Mr Burt told the House at the opening of the statement.

The strength of international business was a prominent theme, and Mr Burt said the Government had “never been more confident” in the promise of its digital asset industry.

He went on to highlight a projected slowing of economic growth globally in 2023, lower inflation and higher global interest rates.

Bermuda’s GDP — an indicator of the strength of the economy — was estimated to grow from 3.4 per cent to 3.9 per cent in 2022, he said, adding that for the second consecutive year the majority of new posts in international business were filled by Bermudians.

Mr Burt said the island’s overall rate of inflation remained comparatively low compared with other economies, but noted that food inflation stood at 10.4 per cent, adding that he believed it had “peaked”.

Mr Burt said jobs had increased last year by 402 posts, or a 1.3 per cent increase, even as jobs in public administration dropped, with new posts in international business up by 230.

Despite inflation, personal consumption and retail showed growth in 2022, and Mr Burt said many indicators were now nearing pre-pandemic levels.

He told legislators that international business showed its fastest year of growth in 15 years during 2021. The industry brought in more than $2 billion to the island’s economy, including $235 million in payroll tax.

In May 2022, Standard and Poor’s reaffirmed Bermuda’s credit rating. Similarly Moody’s endorsed the island’s handling of debt, the Premier said.

Mr Burt took several shots at the One Bermuda Alliance, saying he would “reaffirm the record of the Progressive Labour Party” in managing its “fiscal debacles”.

He pledged that the new Budget “will do more for public education” as well as supporting the advancement of workers’ rights, and said the island was still on track for a balanced budget in 2024-25.

Mr Burt told MPs an economic development strategy would be advanced “in the coming months” by Jason Hayward, the economy and labour minister, in addition to the island’s Economic Recovery Plan developed in 2022 with 31 initiatives laid out.

Mr Burt said delivering on those initiatives should lead to economic growth of between 1.3 and 1.5 per cent per year above baseline economic growth from 2023.

He conceded that there needed to be changes to succeed in bringing gaming to Bermuda, adding that “having the integrated resort model as the only available option for casino operation in Bermuda is a flaw in the inherited regime”.

He signalled legislative changes that would include a “revised definition” to the finance minister’s role.

Mr Burt said there would be an announcement coming in the third quarter of this year on creating “a world-class medical tourism facility” in Bermuda.

The Premier turned to the island’s push to become a leading jurisdiction in the digital assets sector.

“Bermuda’s only weakness in terms of attracting more companies, a limited banking market, will be addressed by the launch of Jewel Bank,” he said.

The island now has 16 licensed digital asset businesses with six issued in 2022.

He added: “Early indications are that 2023 will be a strong year of growth with more companies getting licences as Bermuda has become more attractive to those players seeking to differentiate themselves through strong regulatory oversight.”

Mr Burt also cited growth in the digital asset insurance business.

A revised banking model is needed for the island, he said, as some existing local banks “may be unable to service some Economic Recovery Plan initiatives” without threatening existing correspondent banking relationships.

He said the Government supported introducing narrow-purpose banks which could support gaming, as well as specialised international banking.

Mr Burt said the flagship Bermuda Digital Bank was “progressing” and would be delivered “in the near term”.

He said a mortgage guarantee programme will head into its second phase as of April 1 for qualifying public officers and will include dropping age restrictions for Bermudians applying for a new mortgage.

Mr Burt said the redevelopment of the Fairmont Southampton resort remained “eagerly awaited” and that confidence “remains high” for construction to start in the second quarter of this year.

The Premier said consideration of a revised Special Development Order had begun and added that there would be legislative amendments to strengthen the protections for the Government on its $75 million guarantee supporting the project.

The stalled Morgan’s Point project will see neither a hotel nor condominiums, but a residential development.

Part of the new concept for Morgan’s Point will come with an “amenities district” with “commercial retail, restaurant and services opportunities at ground level and, built on top of them, two floors consisting of 48 residential units”.

The apartments would be in the “affordable range” for the majority of Bermudians, he said.

The remade Morgan’s Point will come with a boardwalk and a potential farmer’s market and local food hall.

He said a management team and independent directors would steer the project.

Initial cost estimates for the first phase are $130 million, and Mr Burt said debt would be backed “either by security of the property or sovereign guarantee, thus minimising interest costs”.

He said it was too early to say definitively what impact the coming global minimum tax would have on Bermuda’s future tax collections.

But he said that residents and businesses could “likely expect further reductions to employer payroll taxes and customs duties” under the new regime.

He said the International Tax Working Group would make recommendations to the Government in July.

“After that, the Tax Reform Commission will be empanelled to look at the changes necessary to our existing system of domestic taxation to ensure that it is in line with the requirements of the global minimum tax,” he said.

Turning to growing the population, Mr Burt said the island needed to position itself as a “mid-shore jurisdiction” to make it more attractive to bring in more workers.

Mr Burt contrasted the Government’s plan for population growth to that under the OBA, saying the PLP had taken a consultative approach.

He told MPs the OBA “sprang changes on the electorate without consultation”.

Although he said quick action was needed, Mr Burt added: “I’m not going to pronounce what government policy will be regarding immigration because we are currently engaged in the vital process of consultation”.

Mr Burt said legislative amendments in this session would expand eligibility for approved residential schemes from Economic Empowerment Zones to all of Hamilton.

Turning to the Government’s fiscal performance, he said that in the present fiscal year the Budget deficit “narrowed significantly”. Total revenue for 2021-22 was $1.086 billion.

Mr Burt said the Government was projected to earn $1.1 billion in revenue for 2022-23, or 3.1 per cent above the original estimate.

Current account expenditures, excluding debt service and guarantee management, are now projected to be $965.7 million, 2.2 per cent more than the $945.1 million originally budgeted.

He ascribed that increase to an unbudgeted $15 million grant to the Bermuda Hospitals Board, an extra $10 million in expenses related to Covid-19 and the Government’s relief package.

He acknowledged that the hospital had to run on an overdraft and said the Cabinet had approved $15 million payment to BHB this year and would need to increase funding next year.

The Premier said the one-time hit linked to the Government’s recent debt refinancing. The latest interest and guarantee management costs are projected to be $143.4 million, 10.5 per cent over what was originally budgeted.

But he said it was expected drop to $130.4 million in the upcoming fiscal year.

The latest revised estimate of the overall deficit is $77.4 million, up 10.5 per cent than the original estimate.

For 2023-24, government revenues are projected to reach $1.16 billion, up 7.2 per cent or $77.7 million over original estimates for this fiscal year.

Total current account expenditure is forecast to increase by $27.5 million from the 2022-23 original budget estimate of $945.1 million, to $972.6 million.

Net debt at the end of this fiscal year will be $90.5 million lower than anticipated in last year’s Budget.

Current account expenditure for 2023-24 is estimated at $972.6 million, up 2.9 per cent over last year’s original estimate.

Mr Burt said this year’s spending would carry over into the next fiscal year, noting that a string of government services had been underfunded.

Mr Burt pledged infrastructure investments to come and said projected capital expenditure for 2023-24 was $96 million — 31 per cent more than the 2022-23 original estimate and the “highest budgeted capital spending in 13 years”.

Delayed projects on infrastructure will move ahead in 2023-24, with the Premier saying waiting longer risked “catastrophic” failures. He said the floating dock for Hamilton ferry terminal was “one strong hurricane away” from failure.

The Premier listed projects from a new community health clinic in Somerset to new public works equipment; upgraded facilities for public officers at the Government Quarry, the DPT Depot and Marine and Ports; replacing ageing vehicles and equipment for police, the fire service and Corrections, and upgrades to the courts and government IT.

There will be more funding given to repave roads.

Turning to changes in payroll tax, Mr Burt said no business in Bermuda would pay more in payroll taxes in this Budget than last year.

He said anyone making $132,000 or less annually would end up paying less in payroll taxes next year — representing 86 per cent of Bermuda’s workforce.

Payroll tax in Bermuda is “regrettably complex”, Mr Burt said.

It cannot be simplified this year, he added, but the Government will introduce a fifth “marginal tax bracket”.

“Whereas previously there were four different tax bands, there will now be five,” he said.

Payroll tax revenue estimated for 2023-24 is $504.5 million.

The Government will exempt employers from paying payroll tax on the salaries paid to their employees while on maternity and paternity leave.

Customs duty exemption will expand to investments in plant and equipment to the personal care and personal fitness sectors.

Imported school uniforms will be exempted from customs duty.

The “sugar tax” faces revisions, he said, and will focus on “sodas and drinks with significant amounts of added sugar, candy made primarily from sugar, and chocolate”.

Lower-sugar products will get a lower duty rate.

Imported aggregate, which is needed for concrete, will get a pass on duty fees.

Mr Burt unveiled a 5 per cent hike in fees on stamp duty, trademark fees, fines, solid waste dumping fees, immigration fees excluding passport fees, planning fees and seaborne shipping fees to yield an extra $3.3 million.

The top two bands of land tax will also rise by 5 per cent, affecting 4 per cent of the island’s top properties, bringing in $2.4 million.

The Registrar of Companies will introduce a new corporate regulatory fee, expected to be $150 annually for local companies and $500 for others, expected to bring in approximately $6 million.

A fee to register properties as holiday rentals, based on ARV, will bring in $500,000.

He said the Public Access to Information regime had proved expensive to implement, and a nominal fee will be brought in for requests outside those of private individuals.

A new scale of court fees is to bring in $750,000 more to the Government.

Mr Burt said that the Budget could have been balanced during this year, but doing so would have been “economically unwise”.

Debt reduction will start this year when the Government repays a $50 million bond from the balance in the Sinking Fund, which will see interest payments decline by $2.4 million next fiscal year.

The Premier said the Office of the Tax Commissioner would get tougher on non-compliance with “a target of recovering $7.5 million of past due taxes during this fiscal year”.

Short-term tax concession given as relief during the pandemic will not be extended.

Mr Burt said the number of government employees had fallen by December 2022 to 4,483, down 3.8 per cent. He said pay scales would be reviewed to help the Government to attract new talent.

On pensions, he told the House that Bermuda needed to move to individual social insurance contributions based on a percentage of income, not a fixed amount.

Retirement age and benefits are also under review.

“The proposed changes, coupled with the significant work being done to build the working population, will be critical for ensuring that Bermuda stems the tide of continually increasing deficits in the funds which are so critical for future retirees,” he said.

Mr Burt closed by telling MPs the new Budget was consistent with the “mantra of hope” throughout the PLP’s history as a party and in Government.

Download PDF File

budget statement.pdf

• To read the Budget statement in full, click on the PDF under “Related Media”.