Country Rankings - Bermuda
Mar 01, 2016 Bermuda: hangoverFrom one danger area to another now. In this column, I've regularly praised the dynamism of certain international offshore financial centers in what remains an increasingly uncertain world economically. But, all is not well in the world offshore it seems. The financial crisis highlighted just how vulnerable some of these small "countries" are (although most are independent, several IOFCs still have significant constitutional ties to the United Kingdom). In terms of size, many of these island-nations would fit snugly into the metropolitan area of a large city in the United States, and as such they usually lack the resources enabling them to diversify away from tourism and financial services. So, the recession that struck North America and Europe was a double whammy for them, because many of the tourists stopped coming, and so did some of the international investors, meaning that income from tourism-related activities and company registration fees and other charges suddenly dropped. Some IOFCs have weathered the storm mostly intact, but others, as the sea of red ink in government accounts attests, are still suffering something of a hangover from the financial crisis. Bermuda is a prime example. Last year, the British Overseas Territory entered its seventh-straight year of recession, and public debt has risen from just 5 percent of gross domestic product in 2008 to around 40 percent. Barbados saw its public debt almost double to 101 percent between 2008 and 2015, while the Bahamas saw a heart-stopping 10 percent leap in its public debt in the year to June 2015. So what are these territory's doing to turn the situation around? Just like any other countries, they are raising taxes. Bermuda has just announced a payroll tax hike and the introduction of a five percent general services tax; the Bahamas introduced value-added tax in 2015 in an attempt to raise more revenue; and the British Virgin Islands, another country experiencing fiscal difficulties, plans an overhaul of its tax system next year to increase tax receipts. What you won't see these jurisdictions doing any time soon, however, is introducing or raising corporate tax on international business, which most no-tax IOFCs would probably equate to signing their own economic death warrants. That they've made it this far into the OECD/EU-driven crackdown on "harmful" tax regimes and the post-crisis world without having done so tells you that they would probably contemplate just about any measure but income tax. Still, an uncertain future is faced by these islands.
Feb 19, 2015 Bermuda: wrongly accusedWell done Bermuda and the Cayman Islands for exposing Ed Miliband's threat to blacklist tax havens with constitutional links to Britain for what it is: a political sound bite. In case you don't know who Ed Miliband is, he's the leader of Britain's Labour Party. And the way the opinion polls are shaping up, he could conceivably end up as Prime Minister after the May 7 general election, albeit in a weak minority or coalition government. So Miliband's comments cannot be written off completely given he could soon get the keys to Number 10. But his offshore barb does betray a certain ignorance of the issue he is attempting to address. Listening to Miliband, you'd think the OECD had never thought about blacklisting a tax haven before. But it's been almost 20 years since the first blacklists were issued, and the overwhelming majority of offshore jurisdictions now meet or exceed international standards on anti-money laundering and tax transparency – which is more than can be said for some "onshore" jurisdictions, as Cayman Finance's Antony Travers pertinently observed in his rebuttal. We can't of course rule out the possibility that the goal posts will move once again and new blacklists will emerge. And the OECD does like a list. But if Miliband thinks he can click his fingers and the OECD will jump, he's being a bit naïve. Or just a politician. There is an election to be fought after all, and as luck would have it, the vilification of fat cat tax dodgers has emerged again as a popular cause.
May 02, 2013 Bermuda: for the BermudansThe US Supreme Court is about to hear a case brought by Abigail Fisher which may lead to the end of affirmative action in US education; much research has shown that if anything it is counter productive. But in other parts of the world affirmative action is alive and well: in Dubai the "emiratization" program forces "Western" companies to employ a certain quota of locals, who generally don't have the requisite skills (not unknown in the USA, either, because of the green card system, or in the UK, where strict immigration controls have the same chilling effect). And in Bermuda this week in what we may call dis-affirmative action the government has announced that long-term immigrant workers are to be denied residency; on entry, they have to sign a formal declaration to that effect, thus creating a second class population which can be ejected when they have ceased to be useful. Bermuda is far from alone among "offshore" islands in having such rules - they are rife in the Caribbean - but that doesn't make the rule any the less distasteful. In many countries it would be illegal. I suppose the regime will turn away many of the better people that Bermuda actually needs, so it's a mistake as well as being odious. I hope nobody signs this unpleasant declaration.
Apr 11, 2013 Bermuda: spends awayQuite rightly, Moody's has censured Bermuda's Finance Minister for his Keynesian disregard of a mounting deficit. It's all about the insurance sector, of course. Premiums are nearly 20% below the peak level they reached before the debt crisis, and have not yet started to recover. This has both direct and indirect effects on government revenues, obviously. The Bermuda Monetary Authority is putting a positive spin on the situation, but the numbers don't lie. The problem is to know whether the changes taking place are temporary or structural. Other insurance-linked jurisdictions such as Guernsey are seeing better figures, and there has to be a real chance that Bermuda's model is going to be less successful in future. It's easy to rehearse the problems that Bermuda faces: a protectionist and anti-"offshore" Congress in Washington; a successful domestic "captives" sector in the US; a European Union that is determined to encourage its own insurance sector at the cost of "offshore;" and rivals in other low-tax jurisdictions, including the BVI, Guernsey, Turks & Caicos and Hong Kong. The government is in denial about this. Bermuda has had it easy for a long time, but is now a very expensive jurisdiction. Instead of proudly ignoring the problem, Bermuda needs to get real and face up to its uncertain future.
Mar 07, 2013 Bermuda: on the road to ruinOne quickly runs out of superlatives when describing Bermuda, which has the highest per capita income in the world on some measures, the most expensive houses, the richest gardeners etc etc. Also it seems to have one of the most spendthrift governments in the world, spoiled by good times which seemed set to last for ever, but are coming to a juddering halt. A new government has just produced its first budget, which should have taken an axe to public spending, but has instead increased it! Debt will rise to more than USD2bn in the next financial year, which, to be fair, represents "only" about 50% of GDP. But Bermuda should run surpluses and have cash in the bank, given the astronomical amounts of insurance business it hosts and the hordes of wealthy tourists it attracts. Putting off the evil day, which is explicitly what the government is doing, is the wrong policy. It's very lucky for Bermuda that neither of the two giants that face it across the Atlantic has attacked its lifeblood, insurance. In the case of the US, it is preserved only by the hung Congress; in the case of the EU, they just haven't gotten around to it yet. If I was in charge of Bermuda, I would be afraid, very afraid of the European Parliament. Look what it is doing to the banks!
Jan 31, 2013 Bermuda: in the soupBermuda is becoming the latest in a line of "offshore" island jurisdictions to fall foul of the economic downturn, although it's not clear yet whether the solution will be more taxes or less government, nor whether the UK will so to speak stick its oar in, as it has done in the case of the Cayman Islands and Turks and Caicos. At least there has been no suggestion of skullduggery; it's always a problem in these small places that government can be captured by undesirable elements. It's their smallness that lies at the root of all their problems, from one perspective, although it's also their quasi-invisibility that allowed them to flourish for decades as the home for foot-loose money on the run from the tax man. But then they got noticed, big-time, and they have had to grow up quickly, learning how to be respectable world citizens. And that's not easy, when you're small. So now we have the spectacle of a number, let's say a dozen, of mini-states with vast financial sectors, tiny populations and large, cumbersome bureaucracies. A linked problem is that they are mostly ex-colonies, with racially mixed populations which have taken over their own governance without, at first, really knowing how to do it. All of this is very expensive for them, which was just about bearable in the good times, but has now brought one after another of the islands to their knees. Really it's illogical for these over-grown governmental and regulatory apparatuses to exist in such numbers; they ought to merge, to make more sense of it. How about Bermuda and the BVI? There would be a power-house. Of course that's not going to happen; CARICOM shows you how it goes when a group of such jurisdictions tries to create a bigger unit: 1 + 1 + 1 + 1 + 1 + 1 doesn't = 6, it equals 7. Or however many it is, plus one extra government, just as in Europe. Bermudians are much too proud to consider such a thing, anyway
Oct 11, 2012 Bermuda: Bermuda stays the courseA trickle of relocations to Bermuda by major reinsurers and captives shows that the island's determination to stick to its last is paying off. Bermuda and Bermudians can appear to behave arrogantly, and it is not a place where you would want to set up a run-of-the-mill offshore business. Costs are through the roof and work permits are a hassle. But for those niches where Bermuda has carved out a specialized role for itself, it is hard to beat, and insurance is the most obvious case. Insurance assets are more than half a trillion US dollars, and continue to rise steadily. One of Bermuda's advantages is its top-grade regulatory regime: it has always wanted to be seen as a completely respectable jurisdiction, and by and large it has succeeded. For instance, while some of its competitors view the EU's new Solvency II Directive as an opportunity to tempt European insurers away from tight regulation, Bermuda has embraced Solvency II (a prickly embrace, indeed) and is now reaping the rewards. Bermuda is not the only offshore jurisdiction to dine out on captives: it is strange that while the fiscal militant tendency (OECD etc) has attacked most aspects of 'offshore', no-one has said a word against captives, which surely represent one of the most blatant tax dodges around? They are a bit arcane, it's true: you have to be a bit of an insurance freak to understand them (I used to work in insurance). Maybe people outside the industry are merely puzzled by them? This is the stick insect defence: you may be good to eat, but if you look like a twig no-one is going to try.