Mr Speaker, it is an understatement to say that we are living in unprecedented times. A global contagion of fear, an endless parade of viruses, social and civil unrest, and economic crises have simultaneously impacted every nation on this planet. Indeed, the COVID–19 crisis and the knock-on effects have caused catastrophic damage to economies the world over.
In Bermuda, we witnessed businesses closing or contracting, over 120 Covid-related deaths, and disturbing incidents of youth violence on an almost regular basis, with no end in sight.
Once again, lives were lost, and people’s livelihoods were taken away.
Investor confidence has been battered by the pandemic, and our economic prospects were dealt a severe blow, especially in the retail, service, and tourism sectors.
Despite efforts to mitigate the financial impact, as in other countries, the shock of the pandemic exposed the fragility of Bermuda’s social, economic, and political landscape.
On the world stage, as geopolitical tensions rise across the globe, we are now witnessing the horror that is unfolding in Ukraine as the occupation and invasion by President Vladimir Putin’s Russia is well underway. We must brace ourselves for the knock-on effect of this war as even more challenges will be added to energy supply chains as bills. wheat products, as Ukraine is known as the breadbasket of Europe, producing, and exporting 40 percent of the world’s wheat.
Mr Speaker, in 2021, societal disruption in Bermuda was grave. We will continue to experience disruption because we have yet to turn tourism around which employs 14 percent of Bermuda’s workforce. Added to this is the unabated rise in inflation of approximately 7 percent, the highest it has been in the past 40 years. This increased inflation is a silent killer and impacts our real purchasing power. Let’s face it, we were just not prepared for this unexpected perfect storm.
While Bermuda has a great history of managing our way through natural disasters like hurricanes, the pandemic proved to be more than overwhelming for us and we have yet to see the full effect of the war in Ukraine.
Mr Speaker, opportunistically, we have seen that the economic impact of disasters such as pandemics, provide Bermuda with prospects for bold new initiatives.
We must continue to capitalise on opportunities to work together towards a common end. As a nation, we must chart our way together through economic recovery and rehabilitation. Bermuda is small and agile enough to do it.
Mr Speaker, the Bermuda Economic Recovery Plan must be more than aspirational. The Plan must be realistic with milestones and timelines that are measurable. We must see progress.
Mr Speaker, we must rebuild a vibrant economy where jobs are created with a focus on equity, diversity, fair trade, and real opportunities for Bermudians. We must find investors to support small businesses and our local economy, and we all must ‘Buy Bermuda.’ The increased cost of fuel will result in an increase in Belco The conflict is also impacting the exportation of
This rebuilding process must be supported by a realistic blueprint. We cannot continue to listen to the same old dusted-off budget promises year after year, which now read like a familiar, yet boring bedtime story. The PLP’s 2022-23 budget lacks courage and quite frankly, is irresponsible.
Premier Burt has only kicked the proverbial can further down the road, instead of making the hard decisions necessary to improve Bermuda’s financial position.
Bermuda needs a recovery plan that is realistic, workable and addresses Bermuda’s fiscal framework and ever-growing debt, and infrastructure investment strategies.
The PLP government must develop a bold prospectus for the country that will be attractive to potential investors and attract human capital which will, in turn, create or bring jobs back to Bermuda.
This prospectus will build trust and a real bond within our business community, through the deployment of taxes and business support; and through the prioritisation and delivery of green investments, strategic investments in Tourism and Hospitality, the Arts and creative sectors, Seniors’ Care, the philanthropic sector, and let’s not forget, the critical support of our students.
We must also identify and develop new skills training for the labour market, and apprenticeships jobs, as the pandemic seismically changed how we work. New skill sets and training will result in an economic framework that will showcase and support Bermuda’s assets.
Mr Speaker, there is a view that there will be a better sense of normalcy by the middle of this year. It is thought that this will be realised through discipline and through Bermuda’s herd immunity, medicine, and health sciences.
Worldwide, we can now see that there have been improvements in the management of the risks associated with the virus and its effects. As global citizens, we learned to better manage and live with COVID-19; much like the flu and the AIDS virus, which, unfortunately, have not been eliminated.
Mr Speaker, as Bermuda is a part of the global economy, our fiscal health and success is dramatically influenced by external influence. Therefore, it would be remiss of me not to look at the overseas jurisdictions which are very important to us because they fuel our economy, and because we are dependent upon them.
SANCTIONS FROM THE RUSSIAN AND UKRAINIAN THEATRE HITS BERMUDA
Mr Speaker, as we have all recently seen in the news, international sanctions have been served on the Russian Government, government officials and the Russian Oligarchs, by the UN, the EU, and the These sanctions have hit Bermuda because we are home to the largest offshore aircraft registry, and at one point, we were also home to the world’s 10th largest aircraft registry.
Mr Speaker, last year, Thomas Dunstan, the director-general of the Bermuda Civil Aviation Authority (BCAA), noted that most of the aircraft registered with the organisation are from Russia and the Commonwealth of Independent States.
He added: “The offshore aspect of the BCAA is extensive, as over 95 percent of BCAA safety oversight activity is located offshore, mainly in the Russian Federation where 84 percent of Bermuda registered aircraft are located.”
It is my further understanding that approximately 50 percent of the revenue earned by our registry is realised from commercial passenger jets, cargo jets and private jets which are owned by Russian oligarchs and Russian institutions.
Our records also indicate that 713 leased Russian airlines are registered in Bermuda, and over 158 are owned by Russians, Russian institutions, and a few foreign banks.
Given the current conflict in Ukraine, for the time being, Bermuda should discount most of the aircraft registry revenue expected for the 2022/2023 fiscal year because they may be uncollectible. These challenges are further exacerbated by the fact that Russia has been expelled from the global SWIFT wire payment systems which move money around the world and consequently, it is very unlikely that the Bermuda Government will be paid for their services.
Mr Speaker, at the very least, there will be a deficit of between $1 million to $2 million in our economy in the coming year.
Further, Mr Speaker, the One Bermuda Alliance is interested in understanding whether the Government plans to do anything about Russia trading on Bermuda’s registered cryptocurrency exchanges.
GLOBAL GROWTH AND RISKS
As the global economic recovery continues, the fault lines opened by COVID-19 are looking more persistent. Near-term, challenges with inflation, labour shortages and supply chain disruptions have begun to leave lasting imprints on medium-term performance. Vaccine access and early policy support are the principal drivers of the gaps.
Mr Speaker, the global economy was projected to grow by 5.9 percent in 2021 and 4.9 percent in 2022, 0.1 percentage point lower for 2021 than in the July forecast.
The downward revision for 2021 reflects a downgrade for advanced economies, due in part to supply disruptions and for low-income developing countries, largely due to worsening pandemic dynamics. The rapid spread of the Delta variant and the threat of new variants have increased uncertainty about how quickly the pandemic can be overcome. Moreover, policy choices have become more difficult, with limited room to maneuver.
IMPACT OF THE U.S. ECONOMY:
Mr Speaker, A leading economist at Pantheon Macroeconomics stated that the early part of 2022 will likely see another temporary slowdown in economic growth as rocketing Covid, and Omicron cases hit the discretionary services sector.
However, looking beyond Omicron, we expect people to begin running down some of the $2.5 trillion in excess savings accumulated during the pandemic. Solid growth in employment and hourly wages, coupled with falling inflation from Q2 onwards, means that after-tax incomes will rise strongly, and with the additional kick from a drawdown of savings, we expect $600 billion in savings in 2022, which should be enough to drive a 4-to- 5 percent full-year increase in real consumption. GDP growth should be even stronger, because business Capex is on course to rise twice as fast as consumption, and we expect to see a sustained inventory rebuild across much of the economy, as supply-chain pressures ease.
The headline unemployment rate likely will soon return to the pre-pandemic lows, 3.5 percent, though the employment to population ratio will likely remain depressed for much longer. Still, with unemployment so low in the U.S., the Federal Reserve is forced to now focus on inflation. These indicators will bode well for Bermuda’s tourism and international business.
THE E.U. CHALLENGES:
Mr Speaker, as stated in my response to last year’s PLP Budget, the EU challenges are still with us and have crystallised even further.
I noted that in the 2013 report by the European Parliament’s Directorate-General for Internal Policies, entitled “European Initiatives on Eliminating Tax Havens and Offshore Financial Transactions and the Impact of These Constructions on the Union’s Own Resources and Budget’, the impact of tax havens, secrecy jurisdiction, and similar structures on the E.U. were reviewed. The Report concluded that the availability of these structures constrains the E.U. budget and undermines the fiscal recovery of E.U. Member States. They distort markets by conferring advantages on large companies that engage in transfer pricing.
That Report notes that the shadow economy in the E.U. is estimated to amount to some €2 trillion, and that tax evasion is estimated to be around €1 trillion annually. It further notes that “recent reports suggest that the tens of billions of euros are held offshore, are unreported, and untaxed.”
The E.U. takes the view that tax havens have a negative impact on E.U. revenues by reducing the gross national income of its Member States. Unfortunately, it appears that Bermuda is viewed with suspicion and is being challenged when conducting real business. In the E.U., they will continue to place hurdles in our economic lanes, given their perception of tax havens and their impact on the EU states.
In fact, as recently as last year, European Union politicians were calling for any jurisdiction with a zero percent tax rate on corporate profits, including Bermuda, to be included on the E.U. list of non- cooperative jurisdictions.
Mr Speaker, as we recently witnessed last month, Bermuda was once again downgraded to the E.U. ‘s Grey List from its previous position on its Whitelist, with no hope of reversing our status for at least another 3 to 6 months.
Why is that you may ask?
Mr Speaker, I have been advised that yet again Bermuda missed a deadline for its commitments to the E.U. Code of Conduct Council on matters of tax fraud or evasion, illegal non-payment or underpayment of taxes, tax avoidance, and money laundering,
Mr Speaker, while Bermuda is competing globally for inward investment capital, this downgraded status is very unattractive to potential investors and detrimental to all our local and international partners as well as our local international reinsurance, Insurance-Linked Securities, and fund
businesses which are domiciled in Bermuda.
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