Tax hikes loom in Bermuda

By added on 23/01/2013

The new Bermuda government that was elected on December 17 will tackle the substantial budget deficits the territory has racked up in recent years, Bermuda's newly-appointed Finance Minister Bob Richards has announced, reports Tax-News.

Speaking at a recent conference on the state of Bermuda's finances, Richards recounted that the previous government had not released audited financial statements for the year ending March 31, 2012, or the mid-year report on September 30, 2012.

In providing a comprehensive overview of the island's finances, Richards said that revenues were 2.7 per cent below budget targets during the fiscal year 2011/12, and down four per cent against budget estimates for the first six months of the fiscal year 2012/13, up to September 2012.

For the fiscal year 2011/12, the budget deficit on a cash basis amounted to BMD169.9m (USD169.9m), and BMD220.9m after capital expenditures are taken into account.

Government total net debt, excluding guarantees, increased by BMD154.3m in the first six months of this fiscal year ending March 31, 2013, to stand at BMD1.39bn, Richards reported, attributing the increase to poor tax administration, the rollback of payroll tax rates, and the weakening economy.

Commenting Richards stated: "The inescapable reality is that Bermuda's present economy cannot carry the government as it is presently structured and sized without implementing crippling tax increases. Your government does not want to go this route."

Richards outlined optimistic plans to cut the cost of government without slashing the size of the public sector workforce, as committed to during elections. This would involve wage reductions and cuts to funding for quangos. In the short-term, the government will legislate to further raise the legally binding debt ceiling to permit further borrowing.

Given the government's commitment to maintain the size of the public sector, it seems likely that the taxpayer will have to pick up at least some of the tab. This will likely occur through increased enforcement actions by authorities to chase tax debts which reportedly exceed BMD100m, and new or higher fees and taxes in Bermuda.