Opinion: “How Do We Fall For This Stuff?”

February 10, 2015

[Opinion column written by Romeo Ruddock]

If there’s any lesson to learn from the labour dispute so far is that people only see what they want to see? Have we honestly been tricked into going after government workers? Is that who we’re attacking now? Is that who we’re blaming for the debt that Bermuda is in?

Are we over the whole “everyone has to do their part” shared sacrifice approach and have moved on to “workers are the real problem”? How do we fall for this stuff – read the hateful and racist comments online, it’s amazing!

Are you so gullible that you can be convinced that it’s “government workers” who are the problem?

Businesses are sitting on hundreds of millions in profit. But the person that teaches your children, puts out fires, and takes away your trash, are the ones who are financially penalized and expected to shoulder the burden. Is this who we’ve decided to go after? The government workers?

Based on the comments online it is safe to assume that Bermuda residents are NOT familiar with the Exempted Undertakings Tax Protection Act, 1966.

Bermuda does not tax profits, dividends, or wealth. Accordingly, it does not have capital gains tax, wealth tax, gift tax, or inheritance tax. The government actually guarantees tax exemption, which is available to most enterprises incorporating in Bermuda.

Under the Exempted Undertakings Tax Protection Act, 1966, an exempted company or exempted partnership may apply for a guarantee from the Bermuda government that, should the government impose any tax on profits, or capital gains, this tax would not be levied on the exempted company until 31 March, 2035.

Listen, I’m no economist. I’m not going to try and pretend like I have all the answers to balancing a budget. However, if all options are on the table then corporate tax, capital gains tax, wealth tax, gift tax, or inheritance tax should be on the table. It’s a shame because they’ve convinced some of us to turn on our own.

- Romeo Ruddock

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Comments (33)

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  1. Justin says:

    Yes, gov’t workers are the problem because that’s where more than half of the budget is spent. You guys get paid too much for what you do and there are too many of you!

    • stunned,,, says:

      @ Justin – plain and simple.

    • outkasted says:

      Wait first the World financial collapse is PLP’s fault, now the Civil Service is now at fault? You are sir are an..

      • serengeti says:

        The ‘world financial collapse’ was over and done with in 15 months or less in most countries. In Bermuda it has been 7+ years. To the extent we suffered more than everyone else, it was our fault, i.e. the government’s fault. The PLP.

  2. Kim Smith says:

    With the Exempted Undertakings Tax Protection we have an international business sector which has served Bermuda very well over the past years, contributing a lot to the country (despite there being no tax on their profits) in the form of jobs, rentals of houses, business travellers, etc etc. Without the Exempted Undertakings Tax Protection we would have no international business sector and therefore none of the benefits of their presence.

  3. Family Man says:

    Clearly economics isn’t your strong suit. Economics and how Bermuda’s economy works should be taught in high school. If you start to tax income or capital gains on IB they will simply leave. There are many jurisdictions to choose from.

    Think of Bermuda like running a small business. If Bermuda is providing a service but suddenly 20% of the customers leave or start doing their own servicing in-house, I can’t raise the fees on the remaining 80% of my customers to keep paying my staff at the rates they were getting when I had a full business. At some point I have to reduce staff. Either by cutting everyone’s cost by 20% or letting go 20% of my staff.

    Bermuda NEVER earned the level of tax revenue to support the current civil service. Even in the good times. Spending has to be reduced.

    With postal services down 50% or 60% over the last decade, staff levels are actually up. What do they do all day?? We simply can’t afford to keep paying taxes to support inefficiency like this.

  4. what... says:

    Romeo, You are correct, there are businesses in Bermuda that make considerable “profits” and fall under the Exempted Undertakings Tax Protection Act, 1966. However, if it were not for this protection these companied would NOT be in Bermuda, they would NOT employ Bermudians, they would NOT donate millions to Bermuda charities. They would NOT pay Land, Payroll, and Customs Taxes.

    The problem here is that the Public Service is too large and inefficient. We the people of Bermuda cannot affort to support it!! Attacking the people that are actually keeping our economy alive is NOT the way to fix the problem….

  5. flikel says:

    “corporate tax, capital gains tax, wealth tax, gift tax, or inheritance tax should be on the table”

    Friend, if Bermuda was to implement this….say goodbye to the IB sector. You think things are bad now….they will get far, far worse.

    “Is that who we’re blaming for the debt that Bermuda is in?

    No one is blaming government workers. The reality is that our private sector is shrinking and can no longer afford to pay for the government that we have. All efforts have been made to protect government jobs, while the private sector continues to shed jobs. So the sacrifice has not been equally’shared’ as the burden has been disproportionately placed on the private sector workers.

  6. Toodle-oo says:

    Well , you did admit to being no economist . Your suggestion that we ought to look at having corporate tax, capital gains tax, wealth tax, gift tax, or inheritance tax without understanding the effect that they will have are proof of that.

    And if I’m not mistaken we already do have inheritance tax.

    Furthermore , no-one is ‘attacking ‘ government workers as such. The public simply recognizes that the government is operating at a huge deficit and it’s over 2.5b in debt.
    When private companies are in a similar situation they must cut back to survive.
    Well , government is now that ‘private company’ and must do what it must do.

    If , as an example , Brown and Company was in financial distress would you expect Boyle’s to lay off staff and make cutbacks on their behalf ?

  7. OMG says:

    Romeo Ruddock, sorry man, thanks for expressing your thoughts but you really don’t understand these issues. The Bermuda government is broke and is operating at a huge loss with huge debts to pay. There aint no money in the till dude. The Bda Govt is not like a company with loads of profits in the bank. However, the Bda govt can’t print U$ money like the US govt (they are also broke btw)can. As such, it needs to cut costs and this will include govt workers (salaries are the biggest costs of any business) especially if furlough days for all are no longer acceptable to the union. Bermuda does have some of the taxes you believe we do not have e.g. death duty, payroll tax (yes, this is income tax brother just with a different name..) Careful what you wish for in asking for more taxes… If you think making it in Bda is no longer easy, try living in the UK or US where it’s a whole lot tougher my brother.

  8. BETTTYTRUMP says:

    Excellent article, some very valid points.

    Look forward to reading more.

  9. inna says:

    Sir, the reason why the “workers” have enjoyed the lifestyle that they have is directly tied to Exempt companies not having to pay taxes. Funnily enough, this is also the reason why all of Bermuda enjoys the high standard of living that we do. Go compare us to any other nation similar in size, and we will be the stand out winners, everytime.

    The world is now a global marketplace, and has been for the past few years. It doesnt take weeks to get messages or do business across thousands of miles of oceans, it now takes seconds. Companies have choosen, and still do choose, to set up their corporate enterprise in BDA because of a few reasons, the main as a result of the low-tax benefits! Start to change their reasoning to come here, and im pretty sure they wont!

    And to answer the question you asked multiple times, no, i do not think anyone is blaming the countrys staggering $2.5bn debt on the govt workers. I think most of us know where that blame squarely lies. However, when you have an overstaffed and underworked group of people running a “company”, some of the fat needs to be trimmed. Go ask an executive in any IB company here; they will tell you this trimming started years ago. Now its the public sectors turn. And that is the plain and simple truth!

  10. Joonya says:

    So you want to kill and entire industry just to ensure government workers get what they want… and you wonder why people are angry online..
    You are right you are no economist, nor do you understand global competition and sustaining a competitive edge.
    You are in effect promoting the attitude of “if we cant get what we want, nodoby gets anything.”
    Then you wonder why some people get labelled as “entitled”..
    SMFH

  11. clearasmud says:

    You have made a valid point and the attack continues with Sir John Swan and Mr Burchall suggesting that higher paid civil servants can afford cuts based only on their income with no regard for their expenses. No one NOT EVEN Mr Swan can determine what an individual can afford without considering their financial obligations! It is common for people who earn more to aspire to more and they are more likely to have mortages and children in university etc. so lets move away from these blanket assumptions that they can afford greater cuts that anyone else.

  12. JD says:

    I don’t think any right thinking person can blame government workers for our current predicament. They’re just trying to earn a living and provide for their family, like everyone in the private sector.

    I think you can squarely put the blame on the former government that grew the civil service out of all reasonable proportion to the economic capacity or need of this small island. They are the ones that are trying to convince you that there is a public vs private sector conflict or a struggle for workers’ rights, all to hide their past mistakes. Don’t fall for it. The private sector needs the public sector and vice versa, but they have to exist in a delicate balance. Grow one to the detriment of the other and the whole system collapses.

    The idea that new taxes on the private sector should be considered to pay for a public sector we can’t currently afford or need is ridiculous. Make no mistake if you introduce any of the taxes you mention above the International Business sector which currently makes over 80% of our economy will be reduced significantly. It would be a complete disaster. We know this because the former government tried it(an increase in payroll tax) and the fallout was so bad that they reversed their decision.

    You note you are not an economist, and that comes across pretty clearly in this piece. So explain to me why we should take advice from you on the economy.

    Also in future it is best not to make sweeping comments about what Bermuda residents are and are not familiar with.

  13. Innit says:

    Say goodbye to IB and the high standard of living in Bermuda!

    The only reason they are here is for the tax advantages, take it away and they will not think twice about leaving.

    • Rhonda says:

      Do Bermudian really enjoy a high standard or living… or just a high cost of living…. Wasn’t it the OBA government that said we don’t need a quality of life study in Bermuda……. I wonder why..what will it reveal…. that most Bermudian live in poverty…

  14. stunned,,, says:

    …i just hit the ‘ignore’ button.

  15. Starting Point says:

    Its a shame that the writer ruined the idea of opening up the debate about taxation with an obvious race baiting statement. Criticism of a government worker (even if we use your misguided stereotyping that all government workers are black) is not racist.

    you could have simply put, read the negative comments online.

    Now the reader is left debating your actual intention of writing the piece, which is unfortunate as taxation is probably a worthwhile conversation that many of us non-economsts would be interested in hearing opinions on…

  16. Bermudian Momma says:

    Well said! I agree with you 100%.

  17. Loquatz says:

    A sudden change in the tax regime would shut down Bermuda’s economy overnight.

  18. BETTTY TRUMP says:

    A great summary. I look forward to reading more from you !!

  19. Ann says:

    Thank you Mr. Ruddock for your critical and logical thinking. I don’t understand why more people don’t understand the concepts you outlined in your piece.

    • LiarLiar says:

      What you, and the author, don’t seem to understand is that the only reason why IB is here is due to our tax laws. Take them away and say goodbye to our one actual economic pillar and the numerous benefits they provide.

      For instance they currently provide roughly 85% of our foreign exchange earnings. And since we import each and everything and our debt is denominated in US$ it would be absolutely disastrous for Bermuda and everyone who resides here.

      They also provide jobs and opportunities for numerous Bermudians as well as granting millions of dollars in scholarships to locals. The economic impact that have in terms of tax revenue and general economic activity cannot be underestimated or understated.

      There is a reason why Ms. Paula Cox extended the tax exemption agreement until 2035 while she was still in office.

      So take away the reason for these companies being here and things will get much much worse.

    • Maybe says:

      Maybe they don’t understand Mr. Ruddock’s concepts because he’s wrong?

      First, ask yourself why international business is here. The simple answer – tax (more accurately the lack thereof). Change that and those companies will leave (and take all their jobs with them). Just look at what happened when payroll tax was increased. Tax receipts dropped and jobs started leaving the island. But that’s only 80% of the economy so guess it doesn’t matter?

      As for blaming government workers, it’s not the fault of the individual employees. It is the fault of government for having a civil service that is so large that it eats up over half of total tax revenue. [As an aside, that madcap growth occurred under the PLP. But it's the OBA that's stuck with the mess.] That leads to a massive deficit every year which means that we can’t begin paying off government’s debt without borrowing more (think of it as using your Mastercard to pay your Visa bill and vice versa). So the government is really between the proverbial rock and hard place. The only way that they can make a significant dent in their expenditures is to cut the cost of the civil service. Furlough days were a relatively painless way of making a start without cutting staff.

  20. Economist says:

    Yes, some people were making it personal in the online comments, on both sides.

    But the fact is, we cannot afford the civil service as is. It doesn’t matter who’s fault it is, it’s just a fact.

    You obviously are not an economist because you think that IB is sitting on hundreds of millions of profit. Have you not noticed all of the mergers happening? Do you realize that a merger implies future redundancies? There will not be shared sacrifice; some will keep their jobs, some will not. Is that what the government workers want, to roll the dice? I think that they would rather take a small cut and a guaranteed job. I know I would.

  21. Jon says:

    It’s a little terrifying that he doesn’t seem to see any flaw in this line of pseudo-reasoning.
    To punish businesses would be precisely “turning on our own” as you call it.

  22. aceboy says:

    The PLP went on a job giveaway binge and hired all their friends and family….into jobs that cost each and every one of us in terms of salary and benefits….and the seeming inability to get rid of any who are unproductive.

    That’s the problem.

  23. Coffee says:

    Take them to task !