One Bermuda economist has warned against the island nation’s over-reliance on the reinsurance sector for economic growth, especially as challenges loom across the globe.
Craig Simmons provided insight into the island’s fiscal forecast, comparing the current optimism surrounding a projected Budget surplus in 2024 with past predictions that failed to materialize due to unforeseen circumstances, such as the global pandemic that struck following the 2019 forecast.
In a column for the Royal Gazette, Simmons underscored the inherent risks associated with banking on an unproven corporate income tax (CIT) to generate an additional $780 million in tax revenue, advising caution against premature expectations of financial windfalls by 2026.
Simmons argued that while making predictions and formulating plans is necessary, Bermuda must be wary of its economic vulnerabilities, particularly its heavy dependence on the international reinsurance sector. This reliance, he suggests, does not offer a sustainable solution to the island’s economic fragility or its debt problem, given the limited scope of the tax base.
Despite the impressive economic growth rates recorded in 2021 and 2022, driven largely by the international business sector, Simmons pointed out the inherent dangers of depending too heavily on a single sector.
With international business now being the primary private-sector employer and responsible for a significant portion of Bermuda’s payroll taxes and foreign currency earnings, the prospect of this sector also contributing an additional $780 million in tax revenue could exacerbate the island’s economic concentration risk.
Simmons also cautioned against the over-reliance on international business for tax revenue, highlighting the political and economic implications of allowing one sector to bear a disproportionate share of the tax burden. He advocates for diversification and a broader tax base as essential steps toward mitigating Bermuda’s economic vulnerabilities.
Ultimately, Simmons emphasized that reducing national debt should be Bermuda’s top economic priority, warning against the dangers of a false sense of security and the need for a balanced and prudent fiscal strategy.
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