By Ivan Clifford

HAMILTON, Bermuda, Feb 24, CMC  — Finance Minister Bob Richards unveiled a billion-dollar (US) Budget on Friday, offering tax cuts to lower-paid workers but increasing the tax rate for big earners in this British Overseas Territory.

Taxes on alcohol, tobacco and fuel are to rise.

Announcing the fiscal package in the House of Assembly, Richards said payroll taxes for the lower-paid would be cut over two years.

Financial sector firms such as banks, insurance companies and money service businesses will be hit with a new Financial Services Tax in April in a bid to spread the tax burden more fairly.

Fees for permit companies — those incorporated elsewhere but which do business in Bermuda — will rise sharply.

In addition, tax breaks for hotels, retailers and restaurants will be withdrawn completely in the coming financial year.

The House heard that the budget for the next financial year would be US$1.17 billion, including current account spending, capital spending, debt service and sinking fund contributions — US$19 million lower than the current financial year.

Richards said it was estimated that government revenue would be US$1.04 billion in the 2017-18 financial year, with current account expenditure, excluding debt and sinking fund payments, of US$923.4 million.

He told the legislators there would be a 1.6 per cent decrease on total expenditure of US$19 million from last year’s budgeted figure, with revenues forecast to rise by 4.6 per cent or US$45.4 million.

“While reducing government expenditure has been, and still remains, a focus of the government, achieving sufficient savings in expenditure to balance the Budget in the short term is becoming increasingly difficult considering government’s current structure.

“Therefore, government must aggressively focus on increasing revenues through actions such as tax reform and limiting concessions.”

The One Bermuda Alliance inherited a national debt of US$1.4 billion when it defeated the Progressive Labour Party in the 2012 general election. The debt has since risen to $2.4 billion.

The increase in taxes on alcohol, tobacco and fuel will bring in an extra US$10.3 million a year., Richards said

The cap rate for tax for the highest earners, the maximum taxable salary level, will increase from US$750,000 to US$900,000.

People earning US$48,000 or less will see the tax rate fall from six per cent to 4.25 per cent by 2018-19 and those paid between US$48,000 and US$96,000 will see their tax rate cut from six per cent to 5.5 per cent.

But those earning between US$96,000 and US$235,000 can expect to see their payroll tax rate jump by a half, from six per cent to nine per cent by 2018-19.

The biggest earners — those who take home between US$235,000 and US$900,000 —can expect a five percentage point rise from six per cent to 11 per cent over two years.

Richards said it had been impossible to introduce a new five per cent services sales tax, the General Services Tax, announced a year ago because consultation had been delayed by payroll tax reform.

But the new Financial Services Tax (FST) will be introduced in April, with a 0.02 per cent tax on bank assets, a 2.5 per cent tax on gross premiums written for insurance firms, excluding health premiums, and a five per cent tax on money service companies based on their aggregated incoming and outgoing transmission volume.

“The new FST is expected to generate about US$11.4 million a year,” Richards said.

Meanwhile, fees for permit companies, sometimes referred to as overseas companies, will jump from US$1,995 to US$25,000.

Richards said these firms had generated controversy abroad as major nations eyed so-called tax havens.

“If there were evidence of unlawful activities, we would not allow them to use Bermuda as a platform,” he said.

“However, in view of the current transatlantic crossfire over multinationals’ tax burdens, their presence in Bermuda has meant that our excellent international reputation has become a casualty, a reputation which the government has a duty to staunchly defend.

“The defence against reputational risk comes at a significant cost,” he added.