Treating symptoms

The recent Bermuda budget gets a lukewarm rating from this writer.  Overall it was positive and a step in the right direction but it could have gone further.  One of the concerns I have is that the budget aims to alleviate symptoms of our problems rather than root causes.  I fear it relies far too much on the prospect that a global recovery will save us rather than recognizing that we need to save ourselves.

A good example is the removal of employer tax for the first 2 years of non-Bermudian hires.  The perceived problem?  A significant number of unemployed Bermudians.  Thus with the symptom identified they’ve attacked it head on.  This is clearly a well intentioned move but I fear that it may have unforeseen consequences much like many of the PLP’s well intentioned moves.

What impact could this move have?  Its aim is to encourage companies to hire Bermudians.  That’s positive.  However, why would an approximately 8.5% rebate do all that much?  If a company was choosing between a qualified foreigner and an unqualified Bermudian, the difference wouldn’t matter.  They’d need someone qualified for the job.  It reduces costs a bit, but not really a tremendous deal more.  It does help the bottom line of a business, but does it contribute to a business hiring more people or investing significantly more in the community?  I’m rather unconvinced.  I suspect it won’t tilt things all that greatly in the favor of economic improvement.  It certainly helps, just I fear the benefits may be overestimated.

For a party that seems to herald the notion of “trickle down economics” I’m rather mystified by this approach.  My thought is that what would be far more valuable to our economy and creating jobs is to inject as much more disposable income into the economy as possible.  That stimulates spending, helps people pay bills, adds to demand and ultimately helps grow the economy and create jobs.  Given the choice between the equivalent amount of lost revenue from a rebate for hiring Bermudians and an across the board cut in payroll taxes (or even just a cut for Bermudians) I would have thought a payroll tax cut would have been preferable.   I’m rather surprised that the OBA didn’t stick to the UBP’s concept of cutting taxes for those earning under 50k, even though I didn’t directly agree with that specific implementation of tax cut measures.  That would have seemed more fitting to boost spending.

I’m also left to wonder about the various consequences that arise from this approach.  We’re already seeing some of them.  The opposition and numerous Bermudians are expressing dismay that the OBA seems focused on helping business rather than helping Bermudians.  One could reasonably see the argument that by helping business, they are indirectly helping Bermudians by trying to inspire job creation but this reality could understandably be missed by many.   Beyond that there are other notable consequences such as the added complexity of implementing such a change.  Rather than simplifying our bureaucracy we’re adding to it.  We’ll need even more people in government to manage yet another change to administering our tax laws.  I’m left thinking we’ve taken a step in the wrong direction.

Overall the budget was a positive step forwards and I honestly doubt we would have seen the same realism and pragmatism from the PLP had they won the election.  I am however dismayed in my feeling that we just haven’t gone far enough.  I fear that the OBA, much like the PLP before them are relying far too much on the fantasy that a global recovery will alleviate our problems and that we just need to bide our time.  I’m rather sorry to say that I have a rather pessimistic view that I believe we dug our own hole long before the global recession and it was simply the catalyst rather than the cause to our woes.  Waiting around for a global recovery to dig ourselves out of our own mess could well be a mistake because we’ve dug ourselves so deep we might be the only ones who can get us out.

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