A living wage would be a mistake, create a universal basic income instead

There has been some talk of the introduction of a living wage in Bermuda.  That would be a mistake.  A living wage, or minimum wage puts a heavier burden on businesses that already struggle to employ people at the bottom rungs of society.  It adds more complexity, bureaucracy and oversight in order to ensure it works.  It has a risk of eliminating jobs and increasing costs rather than creating jobs.  A better proposal would be to introduce a universal basic income.

Let’s use a simple example considering the recently announced 1% tax hike.  Assume you have 10 people, one who makes no money and then each subsequent person earning $20,000 a year more than the previous person.  In total, they would earn 900,000 a year in income.  A 1% tax would equate to 9,000 a year in tax revenues.

Take that $9,000 a year in tax revenues and redistribute it equally among the 10 people. Each person, universally, regardless of means or earnings would get $900 a year, or about $75 a month.   The person who is unemployed gets $900 and pays no taxes because they have no earnings.  The person who makes $80,000 pays $800 a year in taxes but effectively gets an extra $100 a year via the basic income.  The person who makes $100,000 pays $1000 a year in taxes and thus effectively pays $100 in taxes.  The person who makes $180,000 pays $1800 a year in taxes, gets the same $900 basic income as everyone else and thus really pays $900 in taxes.

The benefit is that this creates a progressive tax system without the complexity.  Everyone pays the same flat 1% regardless of their earnings.  Everyone gets paid the same universal basic income amount annually or monthly regardless of earnings.  It is a simple to administer tax system with very low overhead. In exchange, it opens the door to eliminating most and hopefully all of the social nets with complex means testing and bureaucracy.  There’s no longer any need to create special tax reduction incentives or social programs for the people with low or minimal income.  That reduces bureaucracy and allows us to reduce the size of the government necessary to manage it.  This puts more people out into the workforce who can subsequent their basic income with full or part time work.  It reduces overhead on businesses and eliminates the need to force businesses to pay a “living wage” and allows them to attract people on the basis of working to supplement their basic income. The more people brought to the island at the high end of the pay scale the more money flows into the basic income pool.  As they say, a rising tide lifts all boats.

In Bermuda’s case, it would make a great deal of sense to apply this to the duty system to disincentivize frivolous consumption.  A flat 25% duty rate would mean someone who buys a $100 t-shirt pays $25 in duty.  Someone who buys a $10 t-shirt pays $2.50 in duty.  Each would get a basic income of $13.75 as a result and thus the $10 purchaser has their purchase subsidized while the $100 purchaser pays a more progressive tax.

If you took 10 different shirt purchases, each $10 more than the previous and charged 25% duty on it, you’d collect $137.50 in duty from those 10 purchases.  If you then divided that duty amongst the 10 people as a basic income, each person would get $13.75.

The individual who purchases a shirt for $10 + $2.50 duty would have gotten $13.75 in basic income.  This means that the person would effectively have $1.25 left over from their basic income to spend on something else, perhaps some food.  The person who bought a shirt for $50 + $12.50 in duty would have paid $62.50, but after their $13.75 basic income is applied, the shirt would actually have cost a net value of $48.75, leaving them $1.25 to spend on something else.  The person paying $60 + $15 duty would have paid $75 in total, which after considering their basic income would amount to the shirt having a net cost of $61.25.  This means they would have paid $1.25 in actual duty expense.  The person buying the $100 shirt would pay $25 in duty, which after their basic income would net them a total cost of $111.25, thus effectively paying $11.25 in duty.

The purpose of this is to again create a progressive taxation system without the complexity.  Rather than a crazy 460 page tariff program that is a nightmare to administer, you replace the entire thing with a flat duty rate.  You take a portion of the proceeds and use it to create a basic income that helps subsidize lower cost items, mainly essentials for the poorer elements of society.  The poorer elements of society are more likely to put any savings directly back into the economy which helps fuel more economic growth and create more jobs.

In an ideal case we’d aim to streamline and eliminate government bureaucracy by reforming our tax systems to a flat tax structure and using the proceeds to create a universal basic income.

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Less than a day

Rather unsurprisingly it has taken less than a day before the PLP’s leader is announcing that it intends to renege on the deal agreed to yesterday.  Opposition leader Bean has fullfilled the suspicion that “Comprehensive bi-partisan immigration reform” was little more than a catch phrase intent on manipulating and deceiving the people.  It smacks of the “we had to deceive you” phrase that has become their modus operandi.  It certainly doesn’t reflect a genuine commitment to actually following through with reasonable discussions on the merits of how we can properly reform immigration.

If the OBA were focused on controlling the narrative, the opportunity to call out the PLP for only playing lip service to “comprehensive bi-partisan immigration reform” and really only being out for their own political gain has been served up on a silver platter.

The OBA aren’t the only ones who have spent all their political capital and are trying to survive on a massive trust deficit.  You clearly can’t trust anything either party says as neither are capable of living up to their word.

There’s simply very little if any honour left in Bermuda politics on either side.  Anyone would be better than these lot.

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Clearly explaining the jobs expats create

The fear of foreigners taking jobs from Bermudians is the top reason why registered voters oppose the Bermuda Government’s Pathways to Status Bill.

This, if anything, clearly showcases that the government has not done enough to communicate the symbiotic relationship we have with our guest workers.

It is rather shocking that we don’t have good approximations produced by the statistics department on the impact the average expat worker has on our economy and job creation.

We should have breakdown estimates of where every dollar an expat makes is spent and how that translates into jobs for Bermudians.

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Using my old rough analysis the average non-Bermudian spends nearly $1000 a week, most of it in the local economy.  Take housing for example, it amounts to nearly $600 a week by my old analysis.  That housing is pretty much guaranteed to be owned by Bermudians.  That means the average expat contributes $600 to the pocket of a Bermudian every week that that Bermudian can use to pay off a mortgage or reinvest in the economy.  Subsequently look at the rest of spending.

  • How much of that money is spent on island?
  • How much goes to buying goods and how much of that money goes towards hiring Bermudians to man the shops providing those goods?
  • How much goes to buying services and how much of that money goes towards hiring Bermudians to provide those services?
  • How much duty is paid on every good?
  • How much money does the average non-Bermudian approximately contribute to the local economy and how many non-Bermudian jobs does that account for?

First of all, such approximations would make a great media campaign explaining the value every non-Bermudian brings to the island and the number of jobs non-Bermudians create.  It would be especially valuable in explaining the impact the decline in the non-Bermudian workforce has had on the Bermudian economy and jobs for Bermudians.

We have 3000 Bermudians unemployed because every week there was nearly $900,000 less spent by expats in 2010 than was spent in 2009 and nearly $700,000 less in 2011 than in 2010. That’s over $1.5 million less in spending, a large portion of it going towards jobs and into Bermudian pockets, EVERY WEEK.  That’s just from 2009-2011, not all the way to 2016 and only direct spending, not the indirect spending such as the case of where the $600 a week on housing is spent and the jobs that in turn creates.

It boggles the mind how we have politicians that create fancy budgets and budget replies talking about creating jobs for Bermudians and yet there seems to be no effort to create approximations to know how many non-Bermudian jobs we need to create in order to drive the economy enough to create those Bermudian jobs.  We have teams of statisticians working fro government and these answers don’t seem to be available.  It boggles the mind.

Every 1 average non-Bermudian jobs creates approximately X Bermudian jobs.

The question that should be answered?   What is X?

 

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A brief recess

As expected, the OBA have withdrawn the immigration bill.  They’ve broken it into 3 parts to be reviewed via “comprehensive bi-partisan immigration reform” and then retabled within the year.  One could be forgiven for wondering what really is all that different and who really backed down to the compromise, the government or the unions.  Had the strike continued much longer it would have become very unpredictable who the mob would turn against and blame once shelves started going empty.

Ultimately the government has bought itself time.  If it wants any hope of avoiding a repeat of this last week’s events it’ll need strong focus on steering the narrative to their advantage and rebuilding trust.  If they don’t the PLP surely will control the narrative to their advantage because they’re masters at manipulating public opinion.

The government has established clear goals of each point of the bill to be put to a working group to determine how to meet those goals.  It has also established clear timelines. That’s a good start.  Next, it’ll need to focus on being as transparent as possible.

Everything related to the working groups and the immigration bill should be published through every means necessary.   Outcomes of any meetings.  Summaries in video, tweet, photo, blog and press release forms.  Make it clear every step of the way who has been involved, what was was discussed, what proposals were made and that people were listened to and every suggestion was considered with the benefits and drawbacks considered and stated.

It is of little doubt that the PLP will rise up to challenge the controversial parts of the immigration bill.  They needed to delay its implementation as the strike could well have turned against them had shelves started going empty. Their focus will likely be on raising the same arguments they made in the last week, especially ones that help rally their support base.  They will likely be aiming to continue demonstrating that the OBA is high handed and doesn’t listen and hammer home that they haven’t delivered on their many promises.

The OBA will also likely need to deal with the many incensed at the prospect of new holders of status swaying the next election.  Thus it is likely that if the OBA doesn’t offer or deal for an implementation date for status grants after the next election that they’ll draw a lot of fire about this being a partisan initiative designed to win votes.

If the OBA hopes to steer the narrative, the discussions would certainly need to be very clear that they’re bi-partisan and that all views are not only heard, but also broadcast.  What many Bermudians feel right now is that we have a government who doesn’t listen to the people and that isn’t a sentiment isolated just to those striking against the immigration bill.

If the PLP hopes to win support beyond their core they’ll likely need to give some real thought to positive solutions combined with realistic plans that can deliver tangible measurable results.  They don’t have any problem swaying the opinion of the mob but many hard working individuals feel slighted by their willingness to hold the island hostage at the drop of a hat, repeatedly.  Their approach tends to be reactionary, sensationalist and manipulative.  It works to their advantage in rallying support, but can readily be defused if the OBA starts learning from their mistakes.

If the PLP hopes to have a really good shot at swaying more than just their core support base, they’ll need to focus less on manipulation and more on soundly thinking through the long term implications of their policy ideas.  Their approach is far too often filled with lofty ideas that aren’t backed by solid well thought out plans.  Too often, they lack clear targets, have fuzzy unverifiable goals and too often involve the solution of throwing money at the problem.  People are gradually waking up to the reality that we’ve starved the cow to the point where not only is it likely to stop producing milk, it might die.  If they hope to rise up to a a party capable of truly leading this island rather than just being good at manipulating public opinion, they’ll need to start focusing on putting as much effort into constructing sound policy as they do into rallying the people.

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Controlling the narrative

The OBA is stuck between a rock and a hard place.  They failed to control the narrative on the immigration bill and now they’re paying the price.  It’s been said many times, the OBA is good at policy, bad at politics.  They have to learn how to be more transparent and control the narrative on key issues.  If they don’t, those who do will most certainly win the next election because politics isn’t reality and fact, it’s storytelling.

This immigration issue has blown up in the OBA’s face and made them look really bad.  It was announced poorly, they’ve been combative and taken a high-handed approach in trying to push it through anyway.  It’s created a really bad image of their governance onto which the PLP has gleefully poured gasoline to fuel the fire.

The PLP own the narrative.  Driving home messages like calling for “comprehensive bi-partisan immigration reform” makes it seem like the OBA is not open to feedback or collaboration.  It doesn’t really matter if they were or they weren’t.  Perception matters far more than reality in politics and the perception is that the OBA are dictators hell bent on doing what they think is right, no matter what people say.

The big issue here isn’t the rally and the “withdrawal of labour”.  Its that the PLP is managing to suck the middle class swing vote into believing the narrative and the OBA is playing right into it.  The OBA has little choice now except to play the bad guy and make a run to break the unions at a time too close to the next election for a solid recovery or back down.  When they back down, because they will, they can either control the narrative or be owned by it.

How do they control the narrative?  They’ll need to push things back on the unions and the PLP.  They’ll need to call their bluff and establish a clear path to “comprehensive bi-partisan immigration reform”.  They’ll need to do it as transparently and publically as possible. It really doesn’t matter if the PLP and the unions actually will take a step back and put forth realistic proposals for immigration reform.  The OBA would need to make it very clear that their proposals are welcomed and would be considered.  It would need to state clear goals to be achieved and very publically press the PLP and the unions to deliver tangible solutions to those goals.  It would need to hammer again and again at them until they propose something, then invite public critique of the proposals.  Give strict timelines and be as transparent as possible every step of the way.  It would need to control the story and the narrative and shift it from one where they’re heavy handed to one where they can promote the story that the PLP has no realistic ideas and is only capable of making noise.

One of my former managers taught me some very useful lessons.  Every time he attended a meeting he would follow up with notes.  Even if it was only a couple minute chat between you and him, he’d follow up with the quick note “we spoke” and then note his interpretation of what was discussed.  He was incredibly transparent, he relentlessly cc’d in every person that was possibly relevant.  It took me a while to understand that what he was really doing was controlling the narrative.  If you didn’t bother to read his summary and respond back disputing it, he had you on the hook.  At any time he had a long chain of documented evidence that he could hold up, usually with the right people cc’d in along the way. It really didn’t matter what you’d actually spoken about and agreed on, if you hadn’t disputed it at the time and owned your part of the narrative, you were screwed by your silence because he had evidence and you didn’t.  He was incredibly skilled at building trust with management through this kind of transparency and story telling because he could readily point back at a chain of emails that often times management had even been cc’d on at the time (though probably never read).  It was a powerful lesson to learn.

The OBA needs to control the narrative if they expect to survive the next election.  They can’t make claims that they met with the unions or the PLP regarding the immigration bill and got no input or feedback.  Where’s the evidence?  The OBA would be very well served if they started cc’ing the country on as much as they possibly can.  They should make it a priority to setup simple blog / web / social media sites for each ministry and start documenting everything they can publicly.  That way if they go to the unions for input on the immigration bill before launching it they can readily document it and the outcome at the time, in public, on the internet.  Later, when people claim that there was no “comprehensive bi-partisan” effort to produce the bill, they’d have real public evidence they can keep pointing to to support their cause and steer the narrative away from them being heavy handed toward the opposition’s lack of real tangible solutions.

 

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Disrupting tourism: a ubiquitous platform

The tourism industry has a low barrier to entry and a high barrier to disruption.  Almost anyone can setup a fancy website with a shopping cart and start taking bookings online. Getting online seems incredibly easy, gaining traction, volume, distribution and a foothold isn’t.  This is why, despite many attempts otherwise, the tours and activities portion of tourism hasn’t been fundamentally changed by technology.  Many efforts to get tours and activities online generate a lot of excitement but ultimately fizzle out.  Disrupting tourism and gaining traction requires more than just a fancy website, it requires a distributed ubiquitous platform.

Take Expedia as an example of lack of disruption in the tour and activities sector.  A search for things to do in Bermuda the first two weeks of April comes up with only 12 results.  Do you think that’s representative of all the things there are to do in Bermuda in early April?  Really?

How is it possible that only 12 things are available?  Expedia is a premium travel site with great brand, why isn’t everyone on there?

The trouble comes from when you look at what the average tour operator has to do to get online with Expedia.

  • They have to register with Expedia
  • They have to either provide bookable time slots or accept vouchers to accept participants at any time.
  • They have to give a hefty commission

Seems pretty simple, does it?  Well what happens if you take bookings via the phone and other sources?  What do you do about your Expedia listings?  If you loaded timeslots, you then have to log in and update those timeslots every time you get a booking.  If you have someone with a voucher arrive and your program is full, what do you do?   This becomes a big problem.  Worse, you pay Expedia a huge chunk of your revenue for these problems.

Now, consider that problem amplified every time you want to allow someone with a shopping cart to take bookings for your activity.  There are many options both locally and abroad.  You could have many different places you’d have to update and manage your timeslots in order to ensure you don’t get overbooked.  You’re a small business, cancelling due to overbooking would really upset customers and you can’t necessarily simply shift them to a different tour or time.  So you have to stay on top of it.

Then comes the trouble, you’re not only burdened with trying to run your tour, you’re also juggling a variety of distribution points for it.  If those websites don’t bring you enough regular business, why go through the trouble of listing with them?  If they then doesn’t have many listings, there’s no incentive for others to also list there because it isn’t a very comprehensive source.  An individual might have the great idea to throw up a great website, offer bookability as “the source for Bermuda bookings online”, get a lot of buy in and excitement from operators and then watch as it fizzles.

Activity bookings in tourism is an incredibly challenging market for this reason.  You have to have the ability to build traction, volume and distribution all at low cost in order to gain a foothold.  The barrier to entry is low  but the barrier to disruption is incredibly high because you have to reach critical mass to be able to tip the scales to make the whole thing work.  There has to be enough incentive to participate at low enough cost because everyone in Bermuda tourism feels squeezed like they’re trying to divvy up the same pie which keeps shrinking.  Without awareness of things to do, things don’t get booked and the cycle thus repeats itself. You effectively need a platform that allows bookings to be distributed everywhere and provides operators with a single place to manage their inventory.  Not exactly trivial.

In other news, Bermuda.com has 34 activities available to be booked in April.  IslandTourCentre.com also has 34 activities available.  The very same activities and timeslots offered by Bermuda Hidden Gems and KS Watersports which you can also book via their websites.  Activities which are also bookable via concierge desks in many island hotels.  Its the closest we’ve gotten yet to a ubiquitous platform.

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Immigration reform

Immigration reform is absolutely necessary.  Anyone who understands the island’s demographics and the serious reliance Bermuda has on a non-Bermudian workforce to sustain its economy knows this.  The trouble is that the intentions and motives behind the OBA’s proposed immigration reforms are rather confusing.  Their message creates a disconnect that has inflamed the issue and now they’re dealing with unnecessary fallout.

Their primary argument is that it is the ‘right thing to do’ and that it helps prevent long term residents of the island from leaving.  They’ve showcased a number of individuals whom contribute to society whom are trapped by the island’s current status framework.  The trouble is, none of this resonates with many Bermudians as it offers little added personal value.  For many it is hard to comprehend why this is more important than other possible efforts.  It won’t create any additional jobs, it won’t improve the lives of any Bermudian, it will only improve the lives of non-Bermudians wishing to become Bermudian.  We’re still deep in a recession so the people are more worried about helping themselves than helping others.  It’s a pretty hard current to try to swim against.

The increasing challenge the OBA faces is that they have a trust deficit that needs repairing just as much as the government’s revenue deficit.  This immigration issue is a very odd issue to take a firm stance on.  Yes, not changing the status laws will cost us some money in legal battles we’ll likely lose.  It’s a weak argument though as we could simply not try very hard to contest them to keep costs low and be legally forced into granting status.  Ideal?  Certainly not.  But better than stirring a storm in a teacup over an odd issue.  If we were going to stare down the unions it would have been much preferable to have happened over the furlough days which would have helped cut the deficit more and prevented tax increases.

The framing of the message is a core factor in why the OBA faces a problem.  They didn’t frame the proposal very well from the beginning.  The story you weave around an issue can have a major impact on how its received.  The story they’re telling doesn’t make a whole lot of sense.  Sure, immigration reform to try to prevent people from leaving is great.  The trouble is it is like abolishing term limits, it’s welcome, but as the saying goes, it’s like closing the stable door after the horse has bolted.  One could be mistaken for thinking that perhaps the real reasoning behind the policy is to grant status to major international business owners.  That would make quite a bit more sense as if they leave, jobs and investment go with them.  If they were to gain status, they may well be inclined to invest even more into the island.  One could wonder if the OBA has avoided admitting this as a true motive and if so, why they feel it would be a detractor?  Certainly that’s a far better explanation than a sous-chef that has bafflingly managed to stick it out through 20 years of work permits including term limits.

The biggest problem is that this kind of reform is about 2 years too late and really doesn’t go far enough.  The OBA is getting increasingly close to the election whose date they promised would be decided by fixed term but won’t.  They burnt through most of their political capital abandoning and not delivering on promises and are running heavy deficits.  The good ship Bermuda is sadly sailing very close to the rocks.  To borrow an analogy from the sailing world, the real trouble is that the OBA keeps trying tack when it really needed to jibe.  One is a gentle change that can be easy when you’ve got the wind in your favour.  The other is a violent change with a lot of risk when the wind can be working against you.  When the wind is against you and you’re up against the rocks, it’s time to stop being afraid of the jib and far more afraid of the rocks.

What the island needs most is a drastic increase in population in the form of a well paid foreign workforce.  The OBA is toying with status grants where it should be eliminating any and all restrictions to importing skilled labor.  Hiring highly skilled, well paid labour in fields that traditionally are vastly undersupplied by Bermudians should be less bureaucracy than a rubber stamp.  That kind of immigration reform would at least be worth all this “withdrawl of labour” harassment.

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Trust deficit

The biggest challenge facing the OBA is not the countries’ deficit, it’s their own.  They have a massive trust deficit that they accrued over the last few years.  They campaigned on many promises that they broke.  They faced a number of scandals when they were supposed to be something different.   They’ve taken far too heavy handed of an approach to policy.  It is beginning to take its toll and they need to focus on restoring trust and faith in their governance.

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Expiring work permit search still not live

Back in January upgrades to the Bermuda Job Board site were announced.  It was suggested that it would be possible to search expiring work permits.

“Second, information on expiring work permits will now be displayed to include the job title and work permit expiration date and job details from the original job posting. This will allow for candidates to prepare themselves for upcoming potential jobs by ensuring their skills are relevant to the required skills needed.”

The changes were due to go live back in January.

“The new features will go live on Saturday January 23rd, 2016.

It was a positive initiative as it can help Bermudians seeking work keep an eye on when opportunities are arising and perhaps even prepare with any additional training or qualification needed to meet the requirements of a work permit.

Too bad it still doesn’t return any results, no matter what you search for.

 

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Universal basic income

For those who follow it, Ontario, Canada has now announced that they’ll join Finland and The Netherlands in doing a trial of a universal basic income while New Zealand is considering it.  This blog has been hinting at the possibility of a universal basic income as a possible answer to some of the island’s problems since back in 2007.

The basic premise of a universal basic income is to give a guaranteed income to all citizens/residents with no conditions attached.  Every individual gets a monthly payment from the government with no requirements for how it is spent.  In exchange, social benefits like welfare, housing, social security etc are phased out and eliminated.

One of the big reasons that a universal basic income is an attractive idea is that it greatly simplifies things.  Governments have gotten far too big, complex and expensive.  Around the world civil services have grown to unsustainable sizes trying to manage a complex myriad of programs and services.  The trouble is that this leads to a great deal of administrative overhead that burdens the productivity of a society.  A basic income is an opportunity to streamline government inefficiencies, eliminate waste and remove excuses.

People mistakenly think that a basic income program encourages people to avoid work.  Instead, it has often been shown to do the exact opposite.  It provides a rising tide that lifts the income security of all individuals.  It reduces the risk associated with entrepreneurship and encourages more business growth.  It puts more money in the hands of the poorer elements of society who are quick to put it back into the economy.  It eliminates attempts to game the system and expectations of handouts.  It encourages people to do more to supplement their basic income with part time and full time work.  Overall it does more to encourage work and economic growth rather than discourage it.

The trick to a universal basic income is that it needs to be universal.  No conditions, no bureaucracy, no complexity.  In the ideal case, every individual gets X a month, rich or poor.  In turn, every individual pays the same percentage of taxes.  Effectively this creates a progressive taxation system without the complexity of a progressive taxation system.

In Bermuda’s case, there is a great deal of merit in flattening the duty system to penalize consumption of imported goods and use that to fund a basic income.  While other countries are heavily reliant on a consumer element as the lifeblood of their economy, Bermuda’s economy is different.  A large portion of every dollar spent on goods is sent off island.

Bermuda is far too consumption driven as we have a very high cost of living but also high earnings and thus a high disposable income in comparison to other countries. Bermudians have some of the highest percentages of tv, cellphone, computer ownership on the planet.  Home ownership however is far out of reach for a great many.  It is far too easy to consume and discard as it is unrealistic to afford a future.  Bermudians aren’t known for repairing and making things last.  Too often we toss it and get another.  We shouldn’t be encouraged to live like that.  Our tax system could encourage more investment in making things last and create jobs around making it a reality.

How could we do it?

  • Eliminate work permit requirements for skilled positions traditionally unfilled by Bermudians
  • Reintroduce furlough days
  • Flatten the duty system for everything except cars at 25%
  • Use the proceeds to create a basic income with a portion going to paying off the debt.

Since Bermuda produces almost nothing, a good pairing would be to simplify the duty structure towards a single higher rate and use the proceeds to fund a basic income.

It will be interesting to see how these three basic income experiments work out.

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