2019 - 2020

“In order for Bermuda to succeed, we need to return

our economy to a path of balanced growth that
creates jobs, provides rising income and assists our
budget challenges. It is our belief that a better
environment must be created in which Bermudian
businesses can thrive, opportunities for Bermudians
can be created, and in which capable, qualified
Bermudians can earn opportunities to work, train
and succeed at every level.”
– Progressive Labour Party 2017 Election Platform
 Purpose of Pre-budget Report

The objective of the Pre-budget Report is to

increase the public awareness of a government’s
fiscal and budget policy objectives, and to
establish a benchmark for evaluating the
conduct of fiscal and budget policy.
 Principles of our Fiscal Policy

• Prudently manage the financial risks

• Maintain the government debt and contingent

liabilities at prudent levels

• Ensure that fiscal policies contribute to the

achievement of adequate national saving
 Principles of our Fiscal Policy

• Promote fairness and equity in both spending and

taxes
• Exercise Fiscal Discipline
• Maintain the integrity of the tax system
• Ensure that policy decisions have regard to their
financial effects on future generations
 Consideration When Preparing The Budget

• Economic Growth

• Fiscal Discipline

• Direct Outcome of Governments Economic & Social

Policies
 Consideration When Preparing The Budget

• Shrinking Tax Base

• Deficit Reduction

• Prudent Management Of National Debt

• Rating Agencies
 Consideration When Preparing The Budget

• Lower US Corporate Tax Rate

• External Threat (EU, OECD, CFATF)

• Aging Population

• Rising Health Care Costs

 The Legislation that the Government laid
in Parliament was to protect Bermuda as
EU Substance
SubstanceIsIs an International Business.
the Greatest
Greatest
We are one of 41 Jurisdictions that has to
Challenge and
Challenge and address the European Code Of Conduct
Threat That
Threat That concern.

Bermuda Faces
Bermuda Faces Failing would risk Bermuda being on the
list of non cooperative Jurisdictions.
 Economic Substance is the criteria by
which we will be judged.
EU Substance Is
The world is changing and Bermuda is not
the Greatest isolated from this change.
Challenge and
This is not just an EU issue, it is an OECD
Threat That (Organisation for Economic Cooperation
Bermuda Faces and Development) issue.
WHAT IS ECONOMIC SUBSTANCE?

• Physical Presence In Bermuda

• Income Generation in Bermuda

• Control from Bermuda

• Employees from Bermuda

This Could Be Good For Bermuda.

 Debt Net Of Sinking Fund

$2,398 $2,470
$2,500 $2,218
$2,000 $1,768
Dollars 000's

$1,500 $1,236

$1,000
$482
$500
$197
$0
2007 2009 2012 2014 2016 2017 2018
YEAR
 TOTAL FILLED JOBS

40,213
38,097
35,443 33,475
33,481 33,653

2008 2010 2012 2014 2016 2017

 Employment By Status
30,000
27,500
25,000
22,500
20,000
17,500
15,000
12,500
10,000
7,500
5,000
2,500
0 2008 2010 2012 2014 2016 2017
Spouse 1956 1979 1968 1919 1902 1862
Bermudian 27180 26247 25132 26226 23494 23667
PRC 710 806 842 838 826 786
Non- Bermudian 10367 9065 7501 6885 7259 7338
 FACTS
Between 2008 – 2017

• 3,209 Less Bermudians Working

• 3,513 Less Foreign Workers

• $60 - $70 Million Tax Revenue Less Per Year

 Population Versus Tax Paid Per Population
65000 $18,000

64500
$17,000

64000
$16,000
63500

$15,000
63000

62500 $14,000

62000
$13,000

61500
$12,000
61000

$11,000
60500

60000 $10,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Population Tax Paid Per Person
REVENUE, EXPENDITURE AND SURPLUS (DEFICIT BY YEARS)
Revenues Expenditures Deficit

1183

1170
1143

1129
1126

1115
1065

1062
988
954
929

917

914

884

-67
-136

-162

-182
-209

-229

-299
2008 2010 2012 2014 2016 2017 2018
 Current Acount Expenditure By Year

999 2018 Includes a one-off

reduction in Bermuda
Hospital Board Subsidy
971

935
914
902
893

2013 2014 2015 2016 2017 2018

 INTEREST EXPENSE -VS-SINKING FUND
$000’s

$116 $121 $118

$109

$68
$58 $62
$56 $52
$38
$26
$18 $18
$14
$10
$4

2007 2009 2011 2012 2014 2016 2017 2018

Axis Title

Interest expense Sinking fund contribution

 INTEREST AS A PERCENTAGE OF REVENUE

12% 13%
12% 12%
11%
9%

7%
6%

3%
2% 2% 2%
1% 1% 1% 1%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Framing the 2019/20 Budget

• Taxation
• Sensitivity
• Deficits and High Debt Levels
• Fiscal Strategy to Halt the rise of debt
 Policy Options Under Consideration for
the 2019/20 Budget
Economic Substance Incentive Program
The Government will extend the relief for
exempted companies as part of the Economic
Substance program. This program will provide
two year employer payroll tax concession for
additional jobs created in Bermuda.
Policy Options Under Consideration for
the 2019/20 Budget
Retail Industry Payroll Relief
• The Government is very much aware of the
pressure on certain segments of this sector.
• In an effort to maintain and increase employment
levels in this sector, the Government is considering
providing some form of targeted payroll tax relief
to specified businesses in this sector, whose annual
payrolls are greater than $1 million.
Policy Options Under Consideration for
the 2019/20 Budget
Rental Tax – Commercial and Residential

• The Government is considering taxing commercial

and residential rents in line with the
recommendation of the TRC report.
• It is propose that the tax will be charged on the ARV
of the property.
Policy Options Under Consideration for
the 2019/20 Budget

Financial Service Tax

We are considering increasing the Financial Service

Tax on Insurance premiums.
Policy Options Under Consideration for
the 2019/20 Budget

Foreign Currency Purchase Tax (FCPT)

We are considering increasing the FCPT from 1% to

between 1.25% to 1.75%.
Policy Options Under Consideration for
the 2019/20 Budget
Land Tax

We are considering amending the land tax rate

structure for residential properties by increasing
the taxes for properties with an ARV of under
$22,800, to a flat rate of $250 per annum.
 This Chart Shows The Number Of Units in Land Tax Band Versus The Revenue Collected
$20,000,000 16,000

$18,000,000
Out Of The 27,418 Homes In
14,000
Bermuda, 1,022 pays
$16,000,000
$23,525M of the $42,371
12,000
$14,000,000
Million Land Tax collected, or
56%
10,000
$12,000,000

$10,000,000 8,000

$8,000,000
6,000
$6,000,000
4,000
$4,000,000

2,000
$2,000,000

$0 0
0 - 11000 11001 - 22000 22001 - 33000 33001 - 44000 44001 - 90000 90001 - 120000 120000 +
NO OF UNITS TAXES PAID
 This Chart Is Very Interesting it Shows the number Of Units
In Each Land Tax Band Compared to The The Tax Rate
This Shows That Our Tax Rate Is Very Progressive
16,000 50%

14,000
45%

40%
12,000
35%
10,000
30%

8,000 25%

6,000
20%

15%
4,000
10%
2,000
5%

0 0%
0 - 11000 11001 - 22000 22001 - 33000 33001 - 44000 44001 - 90000 90001 - 120000 120000 +
NO OF UNITS TAX RATE
 Here Is Another Chart That Shows Land Tax Bands With Average
Land Tax Paid in those Bands and The Percentage of Tax Rate
$40,000 50%

45%
$35,000

40%

$30,000

35%

$25,000
30%

$20,000 25%

20%
$15,000

15%

$10,000

10%

$5,000
5%

$0 0%
0 - 11000 11001 - 22000 22001 - 33000 33001 - 44000 44001 - 90000 90001 - 120000 120000 +
TAX RATE 0.8% 1.8% 3.5% 6.5% 12.0% 25.0% 47.0%
AVERAGE LAND TAX PAID YEARLY $73.86 $167.38 $344.16 $715.85 $2,887.46 $10,081.56 $36,741.83
TAX RATE AVERAGE LAND TAX PAID YEARLY
Policy Options Under Consideration For
The 2019/20 Budget
Tax Collection & Accounts Receivable
The Government will enhance the links between IT
systems in government departments to place more
restrictions on individuals, homeowners and business
who are not current with their tax obligations. These
links will also assist the OTC in identifying employers
who may be underreporting taxes to better direct
resources for enforcement.
Policy Options Under Consideration For
The 2019/20 Budget
Tax Collection & Accounts Receivable
• The Government will be looking at all accounts that are listed as
“provision for bad debt”.
• These accounts will be analysed and those accounts that are deemed
collectible and do not have payment plans in place will be handed over to
the Debt Enforcement Unit in the Attorney General’s Chambers to take
action.
• The Government is considering implementing a Tax Amnesty Programme.
Policy Options Under Consideration For
The 2019/20 Budget
Government Efficiency
Controlling Public Sector expenditure remains a
focus of the Government. Whilst there has been
some success in cutting costs, it has become
increasingly difficult to implement further
reductions under the current Government
structure and the across-the-board expenditure
cuts in previous budgets.
Policy Options Under Consideration For
The 2019/20 Budget
Government By The Numbers
The Government proposes to set the total current
account appropriation, less debt service, at
approximately $929 million. The amount is equal
to the budgeted expenditure for the current
2018/19 fiscal year (total current expenditure will
remain unchanged).
Policy Options Under Consideration For
The 2019/20 Budget
Government By The Numbers
It is critical that we maintain and strengthen our
infrastructure and stimulate economic activity,
therefore the Government plans to set capital
expenditure at a prudent level of about $60
million.
Summary Of Revenue Under Consideration

• Land Tax

• Rental Tax

• Financial Service Tax

• Foreign Currency Purchase Tax

To Learn More About The Pre-Budget
go to
www.gov.bm/prebudgetreport