OBA’s De Couto On Pre-Budget Report

“Government’s recent Pre-Budget report shows steps in the right direction, but is not nearly ambitious enough about taking care of Bermuda’s future generations, by reducing Bermuda’s debt while we have Corporate Income Tax [CIT] money,” Shadow Finance Minister Dr. Douglas De Couto said.

Dr De Couto said, “The One Bermuda Alliance repeats its call to use the CIT funds to pay down Bermuda’s massive debt, repair critical infrastructure, and to support those most in need with targeted social support. That’s why we originally proposed to amend the CIT bill two years ago in 2023 to dedicate CIT money to those purposes. The OBA’s proposal was rejected by the PLP Government.

“Government claims to be focused on paying down debt, but doesn’t even plan to pay the full $605m of debt due in January 2027. Actions speak louder than words. As highlighted by the Tax Reform Commission and the Fiscal Responsibility Panel, CIT income is ‘highly uncertain’. While this year has been relatively good for the insurance industry, we should not bet on CIT income we might not receive in the future. For example, as reported by the Wall Street Journal, this year was the first time in ten years that no hurricane hit the US East Coast. No hurricane losses means more profit for insurers, and more CIT income for Bermuda.

“At the same time as the insurance companies pay our CIT, they are also the major contributors to payroll tax, including the increased payroll tax revenue that boosted Government’s reported fiscal performance. It’s easy to see how a bad year for the insurance industry is a double whammy for Bermuda: less CIT money, at the same time as less payroll tax as companies pay smaller bonuses, don’t give pay rises, or even cut workers. That’s why it’s important to reduce debt as quickly as possible: to get rid of the annual $128m in interest payments, so that money can be used for better purposes.

“Speaking of debt, Government’s so-called ‘surplus’ for the most recent fiscal year is sleight-of-hand, as they spent $71m of borrowed money off balance sheet, primarily on healthcare costs. Now that the borrowed money has run out, Government is increasing everyone’s healthcare premiums to cover those original cost increases, as well as even more increased funding for the hospital. Meanwhile, Government has failed to truly reform our healthcare system and reduce the underlying costs. This is a slap in the face for Bermudians who are being promised tax breaks by the Government with one hand while it reaches into their pockets with the other hand for healthcare costs.

“Government claims to increase the fairness and progressiveness of the tax system, but is planning blanket tax breaks for Belco bills and vehicle licensing. These tax breaks are regressive and will put more money back into the pockets of wealthier people: those who can afford bigger cars and bigger houses with large Belco bills. While those tax breaks make nice political gifts, the OBA proposes a more targeted system that helps those most in need the most. For example, by linking to a person’s payroll tax bracket.

“Finally, the One Bermuda Alliance strongly supports the Fiscal Responsibility Panel’s recommendation to put certain fiscal guardrails into legislation, to make sure the CIT money is used to the best benefit of future generations, not short-term political gain.

“There will be a lot to discuss in February’s Budget debate. Let’s hope that unlike last year, the Government is actually willing and able to engage on these topic of critical importance for our future.”

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