Burt predicts first Budget surplus in more than 20 years
The Government is on course to record its first Budget surplus in more than 20 years, the Premier told the House of Assembly yesterday.
Outlining the Budget for 2024-25, David Burt, who is also the Minister of Finance, said the Government should expect to receive at least $750 million a year, on average, from the new corporate income tax.
Mr Burt also told MPs that $40 million of unused borrowing would be used to fund new affordable homes and to freeze health insurance rates.
On projections for 2024-25, Mr Burt said: “It is my privilege to state to this Honourable House and the people of Bermuda that this Progressive Labour Party government has successfully balanced Bermuda’s Budget, with a projected surplus of $210,000.
“This budget surplus is only the second budgeted surplus in 35 years. The last time Bermuda achieved a balanced budget was in fiscal 2002-3, but today, 21 years after that was last achieved, through the turmoil of a great recession and after being battered by a once-in-a-century pandemic, we will return this country to a balanced budget.”
According to the Budget Statement, projected revenue for the fiscal year 2024-25 is expected to reach $1.23 billion, which is 6.6 per cent or $76.8 million above the original estimates for this fiscal year.
Current account expenditure is forecasted at $992 million, an increase of $19.4 million, or 2 per cent above the original estimates for this fiscal year.
The current account balance, excluding finance costs and capital expenditure, reflects whether the Government’s expected revenues will be sufficient to support its day-to-day operations.
Before debt service, it is expected to be $240.3 million, which is $57.4 million above the original estimates for this fiscal year.
The costs associated with servicing the debt and guarantee management are projected to be $127.7 million, $2.6 million or 2 per cent less than the original budget for this fiscal year.
The reduction in interest expense is mostly attributed to the repayment of $50 million of long-term debt last year.
Capital expenditure for 2024-25 is forecast to be $112.3 million, $16.3 million or 17 per cent more than the current year’s original estimate. This level of capital expenditure is the largest budgeted investment in capital since 2010.
The Premier said that in 2020, at the height of the Covid-19 pandemic, the Government borrowed funds to “ensure Bermudian families in need could keep their lights on and had food on their tables”.
He said that at the time the Government expected to accumulate $408 million in deficits “prior to reaching a balanced budget”.
“However, due to our sound financial management, combined with significant economic growth, we only accumulated $322 million of deficits over the last four years, leaving us with $89 million more in the bank than we expected a few years ago,” the Premier said.
He said the funds the Government borrowed in 2020 were sitting in an account earning interest. The law, the Premier said, required that it can be invested or used to fund future deficits only.
Mr Burt said the Government will amend the Government Loans Act “to enable the transfer of funds from the excess borrowing account if those funds would not be required to meet deficit spending”.
He said it was the Government’s intention to use $40 million of the funds — with $30 million to be transferred to the Mutual Reinsurance Fund and $10 million to pay for more affordable homes.
“The Government’s actuaries have advised the Ministry of Health that in order to keep up with health insurance claims, which continue to escalate due to our ageing population, the Government will need to increase its health insurance rates by $45 a month.
“This government cannot and will not allow that to happen. Therefore, we intend to transfer $30 million from the excess borrowing fund to the Mutual Reinsurance Fund to ensure that our health funds are able to pay claims without asking every resident in Bermuda to pay an extra $540 a year.”
Mr Burt added: “The Government will invest an additional $10 million into the Bermuda Housing Corporation to accelerate the provision of affordable housing and enable a significant expansion of the private sector rental programme.”
Last year, the Government passed the corporate income tax legislation, which will introduce a 15 per cent tax on the profits of multinational enterprises with more than €750 million (about $808 million) of revenue annually.
In the Budget Statement, Mr Burt said: “The estimates of CIT revenue that have come to the Ministry of Finance and that have been shared with the Tax Reform Commission are that the Government should expect to receive, on average, at least $750 million in additional revenue each year and that initial payments on account from the CIT could commence by July 2025.”
The Premier added: “Even if the Government were only to receive half of the estimated cash inflows that our advisers have stated could come to the Government in the next two fiscal years, $187.5 million in 2025-26, $375 million in 2026-27, there will be significant additional funds.
“It is important that we adopt a conservative mindset towards additional revenues as there are many uncertainties, especially with the package of qualified refundable tax credits that will be recommended by the Tax Reform Commission and the Government’s stated view that companies ‘in scope’ of the global minimum tax will not be liable for employer payroll taxes.
“Notwithstanding, there are urgent needs in our community: the need for tax relief for workers and businesses, the need for investment in our infrastructure, the need for relief from high electricity and food prices, and, most importantly, the cost of healthcare.”
On health, Mr Burt stated: “If the $187.5 million of CIT revenue is available in fiscal year 2025-26, it is this government’s view that we must take care of the most pressing issue that affects the most people, and that is the cost of living.
“The Government is committed to implementing universal healthcare, and it will be important to seed a new health insurance fund with an injection of capital. This will benefit all residents and businesses in Bermuda, as reduced health insurance costs make Bermuda’s economy more competitive.”
Mr Burt also said that “there will be the opportunity to reduce or eliminate customs duty on fuel imports, which could save the average household up to $300 a year”.
Mr Burt added: “With expectations of at least $375 million in additional revenue in fiscal year 2026-27, there will be the ability to provide more relief ... one of the challenges in operating a business in Bermuda is employer payroll tax, which is a tax on employment.
“By 2026-27 there will be the capacity to lower employer payroll taxes to reduce this burden on employers, which can only assist in bringing down the cost of doing business while boosting economic growth.”
The Government’s pension fund is hugely underfunded and Mr Burt said the CIT revenue could support “topping up” of the Contributory Pension Fund “to minimise the increases required on businesses and residents to make the fund whole”.
On managing the island’s debt, the Premier said: “Although the next tranche of debt does not mature until 2027, the Government will collaborate with its advisers to, as appropriate — and subject to the recommendations of the Tax Reform Commission — channel excess cashflows to the early repayment of debt.
“It is the intention of the Government to bring legislation to the House in next year’s Budget session to enshrine the recommendations of the Tax Reform Commission. This will ensure the excess funds received from the global minimum tax are invested and preserved for future years, with the necessary protections so that they can benefit all Bermudians.”
• For the full Budget Statement and a Bermuda Budget snapshot by Deloitte, see Related Media
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