Column: “Looking Under The Hood” At Budget

February 21, 2016

[Written by Larry Burchall]

Inside the full set of papers and stuff that accompanies every annual Budget, there are always some little gems, that can hit hard and unexpectedly. Here are a few.

Tax increases – Customs Duty

The Minister has decreed that Customs Duty and Payroll Tax will increase. Customs Duty revenue is expected to rise by about 11%.

Customs Duty in 2015/16 is estimated to have brought in $194.0 million. It is expected, in 2016/17, that there will be an overall 11% increase taking revenue from Customs Duty up to $209.5 million. Of that $15.5 million overall increase, all of which is expected to come in from increases in Excise taxes on petrol [gasoline], fuel [Belco], tobacco, alcohol.

Tax increases – Payroll Tax

Overall rate is currently 14.5% with the employee having 5.5% taken from his/her pay; and up to 9.0% paid in by the employer.

The new rate will be 15.5% – which is an overall increase of 6.5%. The new deduction for employees goes from 5.5% to 6.0% [for an overall increase of 9.1% per cent]; and the employer’s portion goes from 9.0% up to 10.0% [for an overall increase of 11.1%].

This Payroll Tax increase is supposed to bring in an additional $36.7 million in 2016/17.

The Payroll Tax concessions for hotels, retail, and restaurants will remain, for now. No change there.

Fees for International Companies

Projected that an additional $5.2m will come in from a combination of an increase in licence fees and a step-up in activity as more companies register here.

Stamp Duties

The Minister projects an increase around $2.7 million, coming from Stamp Duty increases and a hoped-for increase in activity.

Revenue overall

The Minister projects 2016/17 revenue of $996.9 million. That’s an increase of $61.5 million on the anticipated [final figures are not yet known] 2015/16 actual revenue of $935.4 million. That may sound like a large and healthy increase and it is. It’s a 6.6% year-on-year increase. That’s good.

Now the “rubber meets the road”. That $996.9 million for 2016/17 is just a tad above the $990.8 million of actual revenue in 2010/11. That was six years ago!

The $935.4 million estimated to have been earned in 2015/16 is just over the $914.2 million earned in 2011/12. That’s good.

Now look under the hood!

NANCI = Non Negotiable Costs = Debt Service Costs = Interest + Sinking Fund

Look ‘under the hood’ and compare these two equations. You’ll see the stark 2016 reality.

Comparing Spending Power Over The Years Bermuda Feb 20 2016

So though it may look like we’ve gotten ahead in 2016/17; the numbers scream out that five years on, we are around $100 million worse off! And costs and prices have gone up and up since 2010/11! Yikes!! So we are not ahead. We’re catching up in slow motion.

It’s Nanci! Always that bloody spider! Forever gobbling up the moolah. And, by the way, in 2016, Nanci will be gobbling up over half-a-million dollars a day! [$187,375,000 divided by 365 = $513,356 a day!]

A tid-bit from the 2015 National Economic Report.

The National Economic Report of Bermuda for 2015 [PDF] reports that in 2015:

Jobs occupied by Bermudians were the only status category to exhibit a decline in employment in 2015. Bermudian jobs declined by 320 posts or 1.3%. The figure fell from 23,833 in 2014 to 23,513 in 2015.”…. “Non-Bermudian positions grew by a total of 18 posts or 0.3%.

That is not good news. In fact it is bad news. But it does illustrate, and illustrate perfectly, the uniqueness and complexity of our little understood ‘Business Park’ economy. I’ve been writing about that since 2009, and I totally expected that job losses tid-bit. It’s how our economy works.

Finally and by the way, in 2016/17, needing more millions, Bermuda will be going back to foreign lenders for $150 million. But we knew that, didn’t we? In 2016/17, Gross Public Debt will top out at $2,444 million which is just $56 million shy of the $2,500 Debt Ceiling.

Look at the numbers. Always look at the numbers. Numbers never lie, but numbers can be concealed and down-played by thousands of words of well-written prose.

Look at the numbers. More to come? Yes, but that’s it for now….

- Larry Burchall

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Comments (19)

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  1. Serious Though says:

    understood sir

    • Really Really BETTTY says:

      Looks like we must find a way to feed Nanci faster…..now

      Nanci is critical for Bermuda future…

  2. Ringmaster says:

    As ever, Larry points out what is happening in the larger picture. Just as well Larry stopped there, because when you look at the big picture the numbers will, and should, alarm everyone. The Government Pension scheme is grossly underfunded, aided by the PLP stopping payments some years to make their budget look better. With more money needed to feed Nanci, and revenues fairly static with less working population, the underfunding will become a massive problem. My guess is that the Government Pensions will have to be cut within 5 years. An immediate solution is to stop the guaranteed benefits especially as they now cannot be guaranteed in the near and far future and increase contributions from the Civil Service. I don’t believe there is a longer term solution. The overemployment in Government and subsequent strain on pensions will come home as sure as chickens come home to roost.

    • Grizz says:

      @ringmaster You can’t be serious! How can you even suggest something that will affect so many people’s golden years?! Smh. Seniors are suffering now and your solution, just let em keep suffering! How would you feel if someone suggested you give up something you worked for?

      • Curious says:

        Well we can always go bankrupt.
        That would not only rob our seniors of their golden years but also our children and grandchildren of their future as well

      • blankman says:

        Grizz, While I agree with your sentiment the question remains “Where will the money come from”? If you saw last weeks article that discussed the topic, while the official debt is something north of $2 billion, when you add in pension funding shortfalls the real number is more like $7 billion. How can someplace as small as Bermuda come up with that much money?

  3. We the People (1st!!) says:

    Wow! Thanks for breaking this down.

    There are some difficult decisions that have to be made when it comes to the budget and cutting spending. Four years into an OBA government, truth be told, it seems like this government is unwilling to make these tough decisions. They need to cut spending, and we all know the one area they can cut that can have an impact.

    It would be interesting to see the total amount of money the government spends on America’s Cup. To date, I read somewhere the spending is $14 million. Then, how much we take in from the event.

    It would be interesting to also get the numbers in perspective to the airport. How much airport revenue would we be losing/giving away to the Candian company? How does this impact the government revenue? How does the government plan to make up for this loss? How much will we need to borrow as a result of losing this revenue?

    Lastly, while the government seems to be solely focused on all affairs ‘international or foreign’ they need to start on focusing getting Bermudians back to work. At last check, the Bermudian unemployment is more than 2,300 people, which doesn’t include the number of people that have stopped looking. Getting more Bermudians back to work equals more people paying/contributing to government revenue.

    As a person who doesn’t pledge allegiance to any political party, I guess I have the freedom to say the following. In the four years of an OBA government, I fail to recall anything of significance they have done for Bermudians.

    OBA hands are not clean. They have doubled our debt in four years. Double! When will this government take responsibility/ownership for some of this debt, and when are they going to seriously tackle it?

    • mixitup says:

      And you wonder why this page is so quiet? This dismal performance cannot be argued, so they pretend they don’t see this post… the OBA is a weak govt that will soon crumble.

    • Ringmaster says:

      @We the People. Same camp as you, but OBA has doubled the debt? Rubbish. They should have taken the unpopular decision early to reduce the Civil Service but didn’t. Now they have a problem. Easy fix? No such thing but the PLP have offered nothing of substance to create jobs etc. 2017 is the watershed. Elect PLP and the game is over. OBA? I’d not want to be re-elected.

      • Really Really BETTTY says:

        Take off your political hat and read the numbers only….be honest to yourself and I am sure you will come to a similar conclusion as “we the People 1st”

      • We the People (1st!!) says:

        Yes, it is true that our debt has doubled under the OBA. When the OBA became government the debt level was 1.2 billion or somewhere around that figure.

        In four years under the OBA – At the end of December 2015, total Government debt was $2.31 billion and debt net of the Sinking Fund was $2.194 billion.” By the end of 2017, the OBA will have to call an election by that time, and they will have to increase the debt ceiling to around $3 Billion by that time.

        I am sure, if they haven’t doubled our debt yet, they are very close to it. Maybe Mr. Burchall can do an article on this. Debt under the OBA, and where we are going on the current trajectory.

        But your right, I’ve been disappointed under the OBA government so far.

        • Hoolieh says:

          Firstly, the OBA was voted in December 2012 (started in January 2013) so that’s three years in power by my count.

          Secondly, the largest government expense is people costs. So to fix the Government’s BIG problem, there’s MUCH MORE PAIN to come. Us Bermudians need to understand that! Sugar coating makes no sense at this stage. The Government needs to layoff thousands of people. They did it in Barbados, but our Government didn’t have the balls to undertake the Sage Commission recommendations. This is both good and bad, depending where you are sitting.

          For clarity, the OBA did NOT cause the problem. If anyone says this to you, they’re just disingenuous (lying). The OBA inherited what is called a Structural Deficit (government spending exceeding the amount of money that it makes). On taking over the government, this stood at $300 million per year. I believe they’ve reduced it now to $200 million (obviously more cutting to come). So, the OBA had no choice but to borrow or cut spending significantly. They still need to borrow and our national debt (amount we owe lenders) continues to growth… This cannot go on forever!

          How to solve? The only solution is to reduce payroll costs (the government biggest expense) and/or grow revenues. However, there was so much reputational damage done by the PLP government, getting out of the hole by growing revenues will take a long time. As the debt keeps growing, I only see one way out. Significant government layoffs.

          If government revenues don’t increase significantly, whichever government is in control in the next two to four years, will have to make this ultimate decision.

          Look out, MORE PAIN TO COME!

        • justin says:

          I agree with you and the debt ceiling should not be raised. The OBA needs to cut the civil service expenses one way or another in order to do it.

          What is the PLP’s plan to not raise the debt ceiling and balance the budget? That’s what I’m looking for in their response to the OBA budget .

          • blankman says:

            Cutting the civil service is the only way to make a meaningful reduction in costs. Everything else is just nibbling around the edges.

  4. JUNK YARD DOG says:

    Just as Governments are required to balance their budgets
    we the people have to balance our budgets also.

    As Governments explore the avenues of cost cutting and income accumulation , we the people are likewise forced in the unenviable position to do the same, just as the Government does, we will be forced to make cut backs in order to make our dollars go further.

    People will buy smaller cars, drive less miles,and so on the list is endless,the impact on our economy will aggravate our unenviable situation .

    You may ask what is the end result ? The quality of life will deteriorate for many of us, the trickle down effect will strike at the very heart of this country and its people.

    How do we tell our children that they can not go to college and have to seek employment because of higher taxes and redundancies depleting the family income.

    We will all have to get used to living on a shoe string, that meaning, we will purchase less, make things last longer, resulting with less income from import duties.

    Some call it a double edged sword.
    or
    Catch 22 if you will.

    No body wins ever body looses.

    Now the horrible truth of the matter, Government has to “earn its keep” Government is not without the brains or the man power to create a thriving economy for itself and our people ,conversely there are policies in place that make it very difficult to keep our local business viable as they too will explore cost cutting measures.

    All Governments take the easy way out and look initially at taxation for income, it was not always that way.

    We all know today where Bermuda’s income comes from these days.

    Bermudans often say ” As one door closes another door opens.”
    We may not be so lucky this time.

    There is a need to open more doors.

    Government is big business, we have to do what other countries are doing,with one exception, do it better.

  5. If the people of Bermuda are prepared to re- elect the PLP , we must ask ourselves why? Could it be that the OBA is not listening? Again, I ask why.? With the threat of the economy going off the rails again, the people, would rather the PLP, why? There is one thing Bermudians hate more than dumb and stupid, that is Arrogance .Is anyone listening ?

  6. Sickofantz says:

    Wouldn’t it be great if we could split out IB and IB servicing jobs from Blue collar. I do not understand why blue collar jobs are still going to NON-Bermudians AT all.

    • Onion says:

      Because no qualified Bermudians are responding to ads and/or Bermudians keep firing themselves by not performing.

    • Onion says:

      Also quite a few job categories have been put off limits for non Bermudians exactly as you suggest.