Bermuda Budget Delivers Payroll Tax Cut

Mike Godfrey, Tax-News.com, Washington

21 February 2011

Bermuda is to see a 2% cut in payroll tax rates during 2011-2012, according to Premier and Minister of Finance Paula A. Cox. Cox delivered the country's 2011-2012 Budget Statement on February 18 and spoke of Bermuda's "bleak outlook" and the measures she would take to "help us win the future by resetting the dial".

Bermuda's GDP fell by 5.8% in 2009, and, with unemployment standing at 5%, the situation has been described by opposition leader Kim Swan as the "most serious economic challenge in many generations". Cox admitted that "the road to recovery for Bermuda would be long and challenging", with "no quick fix" available, but insisted that her government "will not allow Bermuda to settle for the role of victim in this or any other recession".

One of the flagship proposals unveiled by Cox was a pledge to roll-back the standard rate of payroll tax from 16% to 14% for the forthcoming fiscal year, the rate having been increased only last year. She noted that the cut would "widen the deficit" by an estimated BMD50million, but argued that "the overriding consideration is that businesses and workers need the assistance now to help through the final stages of the recession". She added that this was "the essence of resetting the dial", the very title of the Budget Statement, demonstrating the central importance of the measure in the government's calculations.

Cox also highlighted various tax other related measures the government was championing, including a "continued programme" of TIEAs, which was "producing real benefits for the economy". Customs duty relief measures on "capital goods for a number of sectors including the retail sector will be extended beyond March 31, 2011", and relief for hotels and restaurants from payroll tax would be extended to March 31, 2012, with a reduced payroll tax rate for retailers in January, February and March, 2011. Aside from these alterations, "most other tax rates will remain unchanged".

The Statement was criticised by E.T. Richards, Shadow Minister of Finance. Richards stressed that it "simply did not rise to the occasion", for "merely recognising tough times is not a plan and this is where [Cox's] new Budget fails Bermuda". Richard's UBP party will issue its formal Budget reply on February 25. However, political considerations aside, the wider business reaction to the tax measures included in the Statement has been largely positive. Premier Cox met with members of the Bermuda Industrial Union (BIU) shortly after her announcement, and BIU' s president Chris Furbert said of the changes in payroll tax that "I know a lot of employers and workers were concerned about that and I'm glad to see that". He added that the government had "rolled it back for good reason" - "they have listened to everybody and rolled it back". The hope was that the cut, among other measures, would help "mitigate weak job growth", said Cox.

The CEO of the Bermuda Employers's Council, Martin Law, said the rate cut was "very welcome", "a real attempt to give some stimulation to employers", and that, "all-in-all we see this as an encouraging budget". Arnell Thomas, president of the Bermuda Public Services Union said the new tax measures "are going to help create jobs", and Michael Fahy of the opposition party BDA added that his party endorsed the change as a "good initiative to support spending and encourage people to employ and keep employing Bermudans".

These reactions were tempered however by a strong warning from Peter Everson, Chairman of the economic committee of the Bermuda Chamber of Commerce. Everson pointed out that the clock could not be turned back on the public sector job losses felt during the worst of the recession, and that these "jobs aren't going to return just because the payroll tax has changed". The Chamber's President, Stephen Todd, credited last year's rate rise with having added to business expenditure, which caused the very job losses Cox is now endeavoring to temper with the rate roll-back.

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