March 4, 2016

The Chair will recognise first the Mini ster of Finance. Honourable E. T. Richards, you have
the floor.
GOVERNMENT FEES AMENDMENT REGUL ATIONS 2016

Hon. E. T. (Bob) Richards: Thank you, Mr. Speaker.
Mr. Speaker, with the Governor’s recommendation and in accordance with section 36(3) of the
Bermuda Constitution, I have the honour to attach and submit for the consideration of the Honourable House
of Assembly the Government Fees Amendment Regulations 2016, proposed to be made by myself, Minister
of Finance, under the provision of section 2 of the
Government Fees Act 1965.

Good morning.

PROTECTED SPECIES AMENDMENT ORDER 2016

Hon. Patricia J. Gordon -Pamplin: Mr. Speaker, on
behalf of the substantive Minister, the Honourable
Member, Minister J . J. Atherden, Minister of Health,
Seniors and the Environment, I have the honour to
attach and submit for the information of the Honourable House of Assembly the Protected Species
Amendment Order 2016, proposed to be made by the
Minister responsible for C onservation Services, under
provision of sections 5 and 5A of the Protected Species Act 2003.

Thank you, Minister. Do you have a
second Order?

FISHERIES (PROTECTED SPECIES) AMENDMENT
ORDER 2016
Hon. Patricia J. Gordon -Pamplin: Yes, thank, Mr.
Speaker.
Again on behalf of the substantive Minister,
the Honourable Member J. J. Atherden, Minister of
Health, Seniors and the Environment, I have the honour to attach and submit for the information of the
Honourable House of Assembly the Fisheries (P rotected Species) Amendment Order 2016, proposed to
1050 4 March 2016 Official Hansard Report

Bermuda House of Assembly be made by the Minister for Environment, under the
provision of section 5 of the Fisheries Act 1972.

Thank you, Minister.
The Chair will now recognise the Honourable
Member from constituenc y 6, MP Wayne Furbert.

RESPONSE TO THE REPORT OF THE AUDITOR
GENERAL ON THE CONSOLIDATED FUND F INANCIAL YEARS MARCH 31ST, 2010/11 AND
MARCH 31ST, 2012

Hon. Wayne L. Furbert: Thank you, Mr. Speaker.
This is on behalf of my colleague, the Ho nourable D.
V. Burgess, JP, MP.
Mr. Speaker, I have the honour to attach and
submit for the information of this Honourable House of
Assembly the Response to the Report of the Auditor
General on the Consolidated Fund F inancial Years
March 31st, 2010/11 and March 31st, 2012.

The Chair will recognise the Honourable Member, Dr. Grant Gibbons, Minister of Ec onomic Development.
Dr. the Hon. E. Grant Gibbons: Thank you, Mr.
Speaker.
Mr. Speaker, I rise this morning to ask that
congratulations be sent to Mr. Craig Bridgewater and
a number of colleagues, who hav e started up a
branch of the Alternative Investment Management
Association, otherwise known as AIMA. It is a worl d-wide organisation, and it specifically is set up to advance and support alternative investment managers,
which are sometimes known as “ hedge f unds. ” And
they are starting up a Bermuda branch. They had a very successful launch last night at the National Gal-lery. Probably 150 people turned up.
And it is going to be an important part of both
having more organisation in this area to advance addi-tional fund development in Bermuda, but also to help
put Bermuda on the map and promote Bermuda as a location, a serious location for hedge and alternative investment managers. And they are off to a great
start. The Honourable Member, Mr. Richards, would
like to be associated with that, and I know the Pr emier, as well. They were both invited. Jeff Sousa . . .
We will do the whole House, Mr. Speaker, because I
did not realise there was such excitement about
hedge funds.

[Laughter]

Dr. the Hon. E. Grant Gibbons : But anyway, they are
off to a great start, and working very closely with not
only Government, but also the Bermuda Business D evelopment Association, as well. Thank you, Mr.
Speaker.

Thank you. Thank you, Dr. Gibbons.
The Chair will recogni se the Minister. Minister
Patricia Gordon- Pamplin, you have the floor.
Hon. Patricia J. Gordon -Pamplin: Thank you, Mr.
Speaker.
Mr. Speaker, it is with profound regret that I
ask that this Honourable House join me in sending
condolences to the family of Glen Iris. I was really
quite stunned when I heard that he had passed away
yesterday. And I am being asked to associate several
Members. I believe I can associate the entire House.
In addition to which, Mr. Speaker, we also
were advised yesterday of the passing of Mr. Augustus of Augustus Funeral Home. And again, I am being
asked to associate all Members of this Honourable House. It was Mr. Raymond Augustus, quite a young
man.
Both of them were quite young men, Mr.
Speaker. And it is always sad when we los e people at
such an early age, as we say, gone far too soon. But I
would ask that condolences be sent to their respective
families.
Thank you, Mr. Speaker.

Thank you, Mr. Speaker.
Of course, I would like to have a letter of congratulations sent to the Elliot Primary School for apBermuda House of Assembly pearing in these Chambers today. As you may know, I
am the PTA President of Elliot P rimary. It is very nice
to see Ms. Brangman and her charges out today. And
associate the Minister of Education with the comments to Elliot, or the whole House. We can associate the whole House.
I would also like to be associated with the r emarks for Mr. G len Iris. I actually was talking to him
just last week. And he gave me one of his famous poems. Of course, every time you see him he is quoting
a poem. And with your permission, I would like to read that poem, because I found it quite poignant at the
time, and he allowed me to record him. With your
permission, the poem goes:

I am a refugee in my own land,
forced to walk around with my family in my hand.
Where was I to go for someone to under stand?
A man who became a refugee in his own land.

Surely I was w ithin my rights to ask them for a home.
But still, they left me to wander and roam.
Now each day, I have to bear a heavy load,
for now I am considered a criminal because I have no
fixed abode.
For the life of me, I could never understand
how any society or government can
survive by turning their backs on their fellow man,
the man who became a refugee in his own land.

Thank you, Mr. Speaker.

Just hold on. Just hold on.
The Chair will now recognise the Minister for
Tourism.
Hon. Shawn G. Crockwell: Yes, good morning, Mr.
Speaker.
Mr. Speaker, I rise on a sad note, to invite the
Honourable House to send a letter of condolences to
the family of Mr. Jasmine “Jazz” Saltus, who was an
employee of the Transport Control Department. He
rose to the position of acting Special Investigations
Officer. He started at TCD in 2007 as a traffic officer. And he was a well -respected member of the staff,
very knowledgeable about transport matters. I was not
aware, Mr. Speaker, that he had become ill. So it was
a shock to me when I learned yesterday morning that he had passed away in Boston. A nd so, I wish to send
his mother, Ms. Saltus, and his father, [Gladwin]
‘Bobby’ Goins , the condolences fr om the House, and certainly wish them to get comfort during this difficult
period of time. And I would associate the Honourable
Member Glen Smith and the Honourable Member Mr.
Diallo Rabain.
Also, on a positive and more upbeat note, Mr.
Speaker, I would just like to recognise —it seems like I
am doing this quite often, by recognising Mr. Paul Telford, who is the General Manager of the Rosewood
Tucker’s Point Resort. The resort has received the
2016 Forbes Travel Guide Four -Star Award for the
first time. And it is the first time that any property in
Bermuda has obtained this accolade. And so, he is a
Bermudian, as you know, Mr. Speaker, very young
black Bermudian who has been doing very good work
there. And I would just like to tip my hat to him and his
staff for this achievement.
Thank you, Mr. Speaker.

Thank you.
The Chair will now recognise the Honourable
and Learned Member from constituency 36. MP M ichael Scott, you have the floor.

Hon. Michael J. Scott: Thank you, Mr. Speaker.
Mr. Speaker, certainly I would like to be ass ociated with the condolence message that the Minister
of Tourism offers and extends to the family of Mr. Saltus, Jasmine, to his whole family.
Sir, in the same vein, may I ask that this
House, if it has not done before, offer the condolences
to the family of Hilton Derrick Floyd Binns, a great
member and promoter of the hospitality industry.

Mr. Speaker, I would just rise to
associate myself with the condolences that are being
sent to the family of Mr. Jasmine Saltus. As Honourable Members would know, in a former and current life, I do a lot of work for the Transport Control D epartment. And I worked with J azz quite closely over
1052 4 March 2016 Official Hansard Report

Bermuda House of Assembly the years. And yesterday when the news came in from
those persons whom I know at the Transport Control
Department, it was an incredibly saddening thing. So I
just wanted to at least associate myself with those
remarks, and hopefully pass on the condolences to his family, and also the staff and his extended family
at the Transport Control Department.

Good morning.
Hon. Michael H. Dunkley: Good morning, co lleagues.
Having been associated with the condolences
expressed by honourable colleagues, there is no nee d
for me to get into that any further.
But what I would like to do, Mr. Speaker, as
this Honourable House sent a letter of congratulations
to the Brothers of Bermuda who launched a charity
yesterday. Individuals had stepped up to form a group
of well -respected and highly motivated men to mentor
our young men throughout Bermuda. And I think it is
appropriate that colleagues in the House send them
congratulations. The group, led by Rollin Nathan, had a function yesterday at the Cathedral Hall, where they
introduced themselves and thanked all the senior
school head boys and deputy head boys for their service. And I am excited to see that a very committed
and dedicated group of men are willing to come forward with a community spirit to get involved, with the
expertise and experience in life to get involved, and to
give something back to the community.
We often complain about men not pulling their
weight in our society. And while there are many who do not, I think the vast majority of men contribute
greatly to our society, especially to our families. It is
gratifying to see that a group of individuals are willing to get together and give something back to young
men, who are looking for mentors, who are looking for
guidance, who are just looking for a shoulder to lean
on as they have questions and challenges that they might face as they mature.
So, congratulations to Rollin Nathan and his
team of well -respected individuals. And I am sure we
all support them in their task. It will leave a great stamp on our lifesty le.
Thank you, Mr. Speaker.

The Chair will first recognise the Ho nourable Premi er.

FIRST READINGS

COMMISSIONS OF INQUIRY AMENDMENT ACT
2016

REFERENDUM (SAME- SEX RELATIONSHIPS) ACT
2016
Hon. Michael H. Dunkley: Thank you, Mr. Speaker.
I am introducing the following Bills for their
first reading so that they may be placed on the O rder
Paper for the next day of reading: the Commissions of
Inquiry Amendment Act 2016; and the Referendum
(Same -Sex Relationships) Act 2016.
Thank you, Mr. Speaker.

Thank you, Honourable Premier.
The Chair will now recognise the Honourable
Minister of Finance, E. T. Richards.

GOVERNMENT LOANS AMENDMENT ACT 2016
Hon. E. T. (Bob) Richards: Thank you again, Mr.
Speaker.
I am introducing the following Bill, which, according to section 36(3) of the Bermuda Constitution,
requires the Governor’s recommendation, so that it
may be placed on the Order Paper for the next day of
meeting: the Government Loans Amendment Act
2016.

Thank you, Honourable Minister.


Bermuda House of Assembly The Chair will now recognise the Minister of
Economic Development, Dr. Gibbons.

CONTRACTS (RIGHTS OF THIRD PARTIES) ACT
2016

Dr. the Hon. E. Grant Gibbons: Thank you, Mr.
Speaker.
Mr. Speaker, I am introducing the following
Bill for its first reading so that it may be placed on the
Order Paper for the next day of meeting: Contracts
(Rights of Third Parties) Act 2016.
Thank you, Mr. Speaker.

Thank you, Honourable Member.
The Chair will now recognise the Honourable
Minister, Minister Atherden. You have the floor.

HEALTH INSURANCE AMENDMENT ACT 2016

Hon. Jeanne J. Atherden: Mr. Speaker, I am intr oducing the following Bill for its first reading so that it
may be placed on the Order Paper for the next day of
meeting: Health Insurance Amendment Act 2016.

Honourable Members, we are now in
Comm ittee of Supply for further consideration of the
Estimates of Revenue and Expenditures for the Year 2016/17, Finance Heads 10, 11, 12, 38 and 58.
I now call on the Minister in charge to pr oceed. Minister, you have the floor.

MINISTRY OF FINANCE

Hon. E. T . (Bob) Richards: Thank you, Madam
Chairman.
Let me say as a preface to my brief, I recall
that a year ago, I was supposed to deliver this budget,
and I was flat on my back in the hospital. So it is very
nice to be here a year later to be able to conduct the
business of the Government and to do my duty in this respect. So it may be a bit late, but I would like to
thank the Honourable Minister, Dr. Grant Gibbons, for
filling in for me at that time. I hope you never have to
do that again.

[Laughter]

HEAD 1 0—MINISTRY OF FINANCE HEADQUA RTERS

Hon. E. T. (Bob) Richards: Madam Chairman, the
2016/17 Budget Estimates for the Ministry of Finance
Headquarters, Head 10, may be found in section B of
the Budget Book on pages B -89 through B -92, and in
section C on pages C -10 (for Capital Acquisitions) and
C-16 . . .

[Crosstalk ]
Hon. E. T. (Bob) Richards: I cannot hear myself.

The kids are back. There you go.
Hon. E. T. (Bob) Richards: It is not the kids.
[Laughter]

Hon. E. T. (Bob) Richards: Also, in section C on
pages C -10 (Capital Acquisitions) and C -16 (Grants).
Madam Chairman, the overall purpose of the
Ministry of Finance is to supervise the economy of
Bermuda, generally, and to provide an overall fram ework for the financial management and con trol of government activities.
The Finance Ministry comprises five depar tments led by Ministry of Finance Headquarters and
1054 4 March 2016 Official Hansard Report

Bermuda House of Assembly includes the Accountant General, Customs Revenue,
Social Insurance, and the Office of the Tax Commi ssioner. Allocations to cover the interest on gover nment debt and contributions to the Sinking Fund are
also included in the Ministry of Finance budget. The Ministry has a total staffing establishment of 130
posts, an aggregate current account budget of $287.8
million and is responsible f or collecting $770.3 million,
or 77.3 per cent, of all government revenue. A snapshot of key information for the Ministry of Finance is
shown on page B -89 of the Estimates Book.
Department current account allocations are as
follows:
Head 10, Ministry of F inance Headquarters —
$4.297 million, a decrease of $110,000, or m inus 2 per cent.
Head 11— Accountant General, $86.817 mi llion, an increase of $11.276 million, or 13 per cent.
(We will get to that.)
Head 12— Customs. This only includes Customs revenues. The expenses for Customs are under
the Cabinet Office. So we are only going to talk about
Customs revenues.
Head 28— Social Insurance, $6.1 million, an
increase of $84,000, or 1 per cent.
Head 38 —Office of the Tax Commissioner,
$3.181 million, an increase of $55,000, or 2 per cent.
Head 58 —Interest on Long Term Debt, $129
million, an increase of $11.381 million, or 10 per cent.
Head 59 —Sinking Fund Contribution, $58.375
million, an increase of $6.125 million, or 12 per cent.

Madam Chairman, the executive and senior
officials in the Ministry of Finance Headquarters are:
• Financial Secretary, Mr. Anthony Manders;
• Assistant Financial Secretary (Policy), Mr. T yler Moniz;
• Assistant Financial Secretary (Economics and
Finance), Mr. Stephen Gift;
• Assistant Financi al Secretary (Regulatory
Unit), Mrs. Pamela Burrows;
• Assistant Financial Secretary (Treaty Management and Administration), Mr. Wayne
Brown; and
• Director of Budget, Mrs. Tina Tucker.
Madam Chairman, it is most fitting that having
delivered my fourth Budg et Statement on Friday, Fe bruary 19
th, which was the official start of the b udget
cycle in this Honourable House, that we again are f ocused on the Ministry of Finance fairly early in the batting order .
Over the course of these four budget a ddresses, Madam Chairman, you woul d have noted a
recurring theme—that is, my Government’s resolve to
a two -track strategy to stimulate economic activity , as
well as bring much- needed control to the public purse.
We are mandated to provide the best fiscal
and economic m anagement possible, and to this end will continue to make the hard and necessary choices
required to do so.
The 2016/17 Budget is not just numbers . It
puts in place a three- year plan to eliminate the deficit,
which has been driving unsustainable growth in public
debt. The objective is to increase annual revenues by
$150 million over three years. To achieve that target,
reforms will be introduced in 2017/18 to broaden the
tax base, with progressive meas ures to ease pressures on lower -income earners. Governm ent will also
have to continue with its cost -savings efforts on the
expenditure side, as the above- mentioned revenue
increases will not alone be sufficient to completely
eliminate the deficit.
Madam Chairman, the Government’s twotrack strategy not only r equires the controlling of government spending, but also the stimulation of ec onomic activity. To this end, evidence that the economy
is growing once again, after six years of contraction , is
further proof that our strategy is beginning to bear fruit. The major parts of the economy are much
stronger than when we first took the reins of gover nment in December 2012.
We have been working to restore investor
confidence to attract foreign dollars back to our
shores, opening the Island to job- and revenuecreati ng activities, creating new possibilities for Bermudians to make a living.
The Finance Ministry ’s key goals and objectives are:
1. to facilitate balanced economic growth and
development;
2. to provide strategic direction and an overall
framework for financial management and c ontrol of government activities; and
3. to safeguard Bermuda’s economic interests in
the face of challenges and threats in a changing global economy.

The detailed objectives, or core functions, are
as follows:
1. To facilitate balanced eco nomic growth and
development by:
a. development and diversification of the
financial services sector ;
b. restoring investor confidence to attract foreign direct investment ; and
c. providing support for small bus inesses ;
2. Provide strategic direction and an overall
framewo rk for financial management and control of government activities by :
a. optimis ing the yield from gover nment’s revenue base;
b. assuring the alignment of resource a llocation with policy priorities ;
c. instituting and adhering to the princ iples of prudent budgeting and the


Bermuda House of Assembly medium term expenditure framework
[MTEF]; and
d. using output and performance measures to evaluate programme expend itures;
3. Safeguard Bermuda’s economic interests by:
a. meeting international standards of f inancial supervision and regulation;
b. establishing and maintaining ec onomic intelligence networks ; and
c. establishing and maintaining strategic
economic alliances .

Madam Chairman, other key department objectives are as follows:
• To prepare, implement and closely monitor
the National Budget;
• To arrange all Government borrowing r equirements at the most competitive rates;
• To report on the country’s economic perfor mance to the public;
• To maintain effective relations with c redit rating agencies;
• To oversee and m anage the Public Pension
funds;
• To ensure and support the fair, coherent and
predictable development of financial services
regulation;
• To be proactive in treaty negotiations with r espect to tax information exchange agreements.

The Ministry’s core functions are discharged
through five broad programme areas:
• Policy Planning and Management area;
• Fiscal Planning and Control area;
• Regulatory area;
• Economic and Financial Intelligence area;
• Treaty Management and Administration area.

In discharging its functions , the Ministry of
Finance Headquarters seeks to a chieve the following
outcomes:
• a Bermuda that maintains its position as a
domicile of choice for international business ;
• a Bermuda where citizens have confidence in
Government’s stewardship of the public
purse;
• a Bermuda where funding and resources are
available for key programmes and initiatives ;
and
• a Bermuda where citizens regard Gover nment’s policy responses to economic and f inancial challenges as appropriate and in the
national interest .

Madam Chairman, in seeking to fulfil this
mandate, the Ministry of Finance Headquarters has a staff establishment of 15 permanent full -time posts ,
and its total budget for 2016/17 is $4.297 million.
The allocation for the Ministry of Finance
Headquarters in 2016/17 reflects a decrease of
$110,000 (or 2 per cent) com pared to the original estimate for 2015/16. The budget for Ministry Headquarters includes an operational element for each of the
five pr ogramme areas within Ministry Headquarters,
plus grant funding to the Pension Commission.
Cost centre 20000— Policy Plan ning and
Management ( a decrease of $273,000, or 16 per
cent) . Madam Chairman, the policy planning and
management unit provides overall directi on and management of Ministry Headquarters and supervisory
oversight of the four departments in the Ministry of
Finance, namely, the Accountant General’s Depar tment, HM Customs Revenue, the Office of the Tax
Commissioner , and the Department of Social Insurance.
In addition, this unit undertakes strategic
planning, manages the Ministry’s public relations, c oordinates initiatives i n economic diplomacy, and organis es the review and development of economic and
financial planning. The budget for this unit in 2016/17
is $1.441 million, some $273,000 less than the budget allocation for the previous year . The budget decrease
of $273,000 reflects the removal of professional ser-vice fees for the Washington, DC, consultant that was
moved to the Cabinet Office.
Madam Chairman, Honourable Members are
aware that , in 2015, the Ministry was vigorously i nvolved in two major initiatives. The first initiative was the commissioning of a review of Bermuda’s tax sy stem by the Caribbean Technical Assistance Centre ( or
CARTAC). The second initiative was devised to boost
international transparency and credibility by establis hing a committee of independent, internationally based
economists to publicly assess Bermuda’s fiscal situation. The committee has come to be known as the Fiscal Responsibility Panel ( or FRP).
I can confirm that the objectives of these i mportant initiatives have been fully met and the Go vernment is pleased with the work that has been done
and reports produced by CARTAC economist s and
the FRP.
Madam Chairman, I will first touch on the
CARTAC tax review.
Hono urable Members are aware that the most
important tax in Bermuda is the payroll tax, followed
by import duty (or customs duty) . Other important
taxes are the land tax and the tax on international
companies, which consists of a set of fees , the values
for which depend on the capital of the international
company (also known as the exempted company) and
on the activities carried on by that company. These
four taxes account for about 72 per cent of the total
tax revenue base .
Government clearly needed greater tax rev enue, and that was one of the criteria that we gave the
1056 4 March 2016 Official Hansard Report

Bermuda House of Assembly CARTA C committee that did their work. The Gover nment was also open to proposals that would expand
the tax base and improve equity. Another objective
was not to increase the size of the [ tax] administration ,
but rather improve its efficiency and simplify compl iance. Therefore, the introduction of a full -fledged income tax or a value- added tax was ruled out. Given
this guidance, the CARTAC mission concentrated its
effort on analy sing taxation of labo ur remuneration, of
goods and services and of property, and reorg anisation of the tax administration.
An important part of tax reform proposed by
CATRAC involves changes to the payroll tax structure. Currently, payroll taxes are payable by the employer at rates up to 14.5 per cent of the remuneration
paid to staff members. Up to 5.5 per cent of that tax
may be recovered by the employer from employees.
Government is currently considering reforms
to the p ayroll tax structure to make it more progressive and to yield additional revenue. The current struc-ture takes little or no account of the ability to pay of employers or their employees. It therefore puts a
heavier relative tax burden on lower -income emplo yees. The challenge is to weigh the desire to make
payroll tax more equitable against the need of the
Government to rai se revenue and its impact on bus inesses.
In order to get that balance right , Government
will continue its consultation with business, receiving
more detailed data from employers in order to model
the outcomes of various payroll tax options. This will
be performed over the coming fiscal year. The restruc-tured payroll tax system is to be implemented in F iscal
Year 2017/18.
Also as announced in the Budget Statement ,
Government intends to conduct a thorough review of
all notionals in the system , with a view t o updating
them to reasonable and fair levels.
Madam Chairman, the current customs tariff
imposes a selected number of excise duties on alc ohol and tobacco products, petrol , and passenger veh icles. Excises account for about half of all revenue co llected o n imports. In line with the CARTAC recommendations, in 2017/18, the Government will seek to
establish a separate statute from the customs tariff to
impose excise taxes. Separating the imposition of ex-cise taxes from customs duties would improve the
transparency of the fiscal system. This tax will be
payable at the frontier, just like customs duties , and
will be administered by HM Customs.
With regard to customs duties , in 2016/17 the
Government will commence preparations for the intr oduction of a single unified tariff.
Madam Chairman, in order to broaden the tax
base, another recommendation put forward by
CARTAC was the introduction of a 5 per cent sales
tax on turnover from the provision of most services —
excluding health care, education, social, financial , and
exported services —to take effect at the beginning of Fiscal Year 2017/18. It was recommended that small
service providers be exempted from the tax. As this is a change that will require significant adjustments in
operations, billing , and reporting on the part of service
providers , as well as collecting, tracking, and enforcement on behalf of Government, this tax will not be implemented until April 1
st, 2017, at the earliest.
Madam Chairman, in 2016/17 the Gover nment will continue consultation with ke y stakeholders
to ensure all tax reform proposal s are implemented
appropriately and to find approaches that avoid damage to the Island’s most important industries and that, so far as possible, avoid placing extra burdens on the
least -well-off.
The role of the Fiscal Responsibility Panel (or
FRP) is to provide Bermuda’s Parliament, Minister of
Finance , and Financial Policy Council with an annual
published assessment of the territory’s fiscal strategy,
focusing on progress in meeting the territory’s medium
term objectives for public spending, taxation, borro wing, and debt reduction.
The FRP, during the week of November 23,
2015, visited the I sland and met with a wide cross -
section of Bermuda society and published its first r eport in December. Their report w as written and published without any oversight or approval from Government.
One of the principal findings in the report concluded that, “Bermuda’s economy faces a number of risks and uncertainties, short term and longer term.
The current level of governm ent debt —taken together
with very large potential liabilities from government
guarantees and underfunded public pension and health insurance schemes —risks turning the possible
impact of any one of these into a serious setback for the island’s economy. Reducing debt and debt service
costs is therefore a priority. Meeting the aim of a balanced budget in 2018/19 is appropriate.”
Madam Chairman, this finding is nothing new
to the Ministry of Finance and only reiterates what we
have been saying for the last three years. Along with
the poor fiscal situation and the level of public debt
accumulated in recent years, Bermuda, like other similar small jurisdictions, faces a number of economic
risks both in the short and longer term s.
If left unchecked, these risks threaten our very
way of life. It is because of this that the 2016/17
Budget represents the first year of a three- year plan to
eliminate the deficit, after which we will be in a pos ition to begin paying down the public debt. This will
have a significant positive impact on confidence and
investment, as it clearly shows that the Government has a plan to reduce the deficit and return our f inances back to a sustainable position.
Madam Chairman, the Ministry of Finance is
confident that the 2016/17 Budget wil l provide a r enewed level of confidence in Bermuda amongst the rating agencies and potential investors. However, on-going work is required to achieve our fiscal targets.


Bermuda House of Assembly Madam Chairman, the 2016/17 Budget also
contains an economic stimulus element, with th e announcement of over $900 million of inward direct i nvestment from various capital projects , and economic
activity from the America’s Cup. As these projects b ecome reality, they will provide the local economy, and
the local job market in particular, with the stimulus
needed to expand jobs and income.
Madam Chairman, there is one more element
to our stimulus efforts, and that is the continued su pport and encouragement for our partners in intern ational bus iness and tourism. The Minister of Economic
Development and the Minister of Tourism Development and Transport will expand on these. I think certainly the latter Minister, the Minister of Tourism and
Transport, has already expanded on these sectors during his presentation of the Budget Debate, and we
will look forward to the Economic Development Mini ster’s [presentation] in the future.
The largest share of the $1.441 million budget
for the Policy Unit is professional services and sal aries.
The salary provision for the Policy Unit is
$512,577, and this covers four posts including the F inancial Secretary, Assistant Financial Secretary (Policy), and two Administrative Officers. This amount s to
the same as last year.
Further , Madam Chairman, as part of its str ategic policy work in support of the National Budge t
2016/17, the Ministry of Finance Headquarters Policy
Unit’s key policy initiative was to reduce the deficit by
strengthening the tax base. This policy objective is to
be achieved by increasing revenue from p ayroll tax,
customs duty on fuel, tobacco and a lcohol , and i mplementing the biennial review of government fees.
Specifically, the following steps will be taken:
1. Setting the standard rate of payroll tax at
14.5 [sic] per cent, an increase of 1 per cent ,
and providing a similar increase of 1 per cent
for most other tax rate categories. Setting the
rate of tax recoverable from employees at
6 per cent in the 2016/17 Budget . . .
[Inaudible interjection]
Hon. E. T. (Bob) Richards: Fifteen- point -five. Yes,
excuse me. It was a typo. That is right. When I read that, something said to me that it was wrong—
15.5 [per cent]. Quite right. Glad to see you were li stening, Honourable Member.

[Laughter]

Hon. E. T. (Bob) Richards: That was a test.

[Laughter]

Hon. E. T. (Bob) Richards: Setting the rate of tax
recoverable from employees at 6 per cent in 2016/17, up from 5.5 per cent . This is so that the increase may
be shared by both employer and employee.
2. Partially rolling back p ayroll tax concessions
currently in place for the hospitality, resta urant, and retail sectors businesses to a rate of
8 per cent. The yield from the revised rate
structure and partial rollback for payroll tax
concessions is estima ted at $390 million in
2016/17;
3. Raising the duty rate on fuel by eight cents
per litre and 5.5 cents for fuel imported by
BELCO to achieve additional c ustoms rev enue of about $11.7 million. Madam Chairman,
the price of g asoline recently decreased by
20.8 cents per litre. So, the tax increase of
eight cents per litre will have minimal impact
on consumers.
4. Raising the duty on cigarettes and tobacco,
and beer, wines , and spirits to achieve additiona l customs revenue of about $4 million.
5. Increasing Government fees for an array of services provided to the public by about 4 per
cent for most fees , providing an increased
yield of approximately $1 –2 million. This increase is generally in line with inflation over the past two years.

Madam Chairman, major changes are ongoing in order to improve the way we approach the handling of public money. The Policy Unit will continue to
oversee this transformation of the management of the
public purse. Although there have been some i mprovements , there is always room for further enhancement. Accordingly, ministries will continue to
enhance their monthly reports pertaining to their expenditure versus budget allocations so that slippage
can be arrested before becoming problematic.
In 2016/17, the Ministry will continue to focus
intensely on salaries and wages. We are certain that,
with a dedicated effort and focus, we can reduce this
spend and subsequent budget allocations signif icantly. To this end, the Ministry will be working with
Cabinet Office to continue the hiring freeze through
2016/17.
Madam Chairman, I will conclude this snapshot of some of the work that is carried out by the Po licy Unit within Ministry of Finance Headquarters by
noting that this unit is responsible for coordinating all
of the legislative items that support the National Budget. The process includes providing drafting i nstructions to the Attorney General’s Chambers for
Bills, Orders and Regulations ; coordinating with other
ministries where necessary; and preparing legislative
briefs to assist Ministers and Junior Ministers in steer-ing the legislative items through the approval process
in the Legislature. There a re more than 10 items of
legislation associated with the 2016/17 National
Budget.
1058 4 March 2016 Official Hansard Report

Bermuda House of Assembly Also, during the past fiscal year, the Policy,
Planning and Administration Unit participated in multi -
ministry working groups to develop two things: (1) an
asset management plan for Government. In particular,
the Corporate Property Working Group focused on making recommendations relating to IT assets and the
government vehicle fleet ; and (2) enhanced debt co llection procedures and practices aimed at more aggressive pursuit of debtor s.
In 2016/17, it will be another [ important ] year
for the Policy Unit , as they will be heavily involved in
the implement ation of various tax reform proposals
recommended by CARTAC.
Fiscal Planning and Control , cost centre
20010, [will see] a decrease of $20,000 , or 4 per cent.
Madam Chairman, the Fiscal Planning and Control
Unit, or the Budget Team as it is called , is primarily
responsible for the management, collection and coll ation of Consolidated Fund budget data, the monitoring
and control of overal l government expenditures (on
both Capit al Account and Current Account) and the
achievement of government revenues. The unit is also
tasked with the responsibility of reviewing and developing the Government’s annual Capital Expenditure
Plan. The budget for this unit in 2016/17 is $497,000,
which reflects a 4 per cent decrease compared to
2015 /16. The primary reason for the decrease relates
to reduced printing cost s for the budget documents.
The Budget Team provides advice and gui dance to department heads and controllers on both the
formulation of ministry budgets and on budget monitoring and control. The team provides two formal trai ning sessions each year , designed for ministry and departmental staff who have responsibility for budget
preparation and/or budget monitoring and control. As
part of the budget monitoring and control exercises , all
ministries and d epartments are required to review expenditure performance and to confirm, on a monthly basis, their current and capital account expenditure
performance with the Budget Office.
Madam Chairman, in 2015/16, the Budget
Office closely monitored budget performance, and due
to this constant oversight , current account spending
was restricted to $921.8 million, which is only 1 per
cent higher than the $912.7 mi llion originally budgeted
in 2015/ 16. This resulted from increase in demand for
Financial Assistance, the cost of minimum revenue
guarantees for certain airlines serving the Island, legal
aid, and other legal cost s incurred by the Government.
These amounts were offset by underspends in staff
cost, as the Government has continued its efforts to
gradually downsize the public service. It is through
these efforts that the overall deficit in 2015/16 was
revised down by an estimated $7.8 million, a 3.6 per
cent v ariance.
The Government has remained steadfast in
prudently managing expenditures.
The Budget Office is constantly encouraging
all managers to commit to higher levels of financial rigour. It is their strong view that it is in the country’s
best interest for all senior executives in the public service to maintain a disciplined grip on the budgets that
they have under their charge. The introduction of
budget checking in the Enterprise Resource Planning system has also assisted w ith enhanced budget monitoring.
This capability has facilitated stronger control
over the use of budgeted funds by ensuring that m inistries and d epartments have budgeted funds avai lable before committing to the procurement of goods and services on behalf of the Government of Bermuda.
Madam Chairman, at its highest level, the d ecision -making process that shapes the budget is si mple. If the objective is to reduce the annual deficit,
then you can do one of three things: increase rev enues by raising taxes and/or imposing new taxes, cut
government spending, or some combination of the
two. In this Budget , we have chosen to focus on i ncreasing revenue in order to reduce the deficit and
provide for much- needed services. The result is the
second consecutive current account surplus. This level o f revenue will enable the Government to service
our debt, improve our infrastructure and provide for
educational opportunities for our children, health care,
security for our citizens , and provide for the less -
fortunate among us.
Madam Chairman, you and t he Honourable
Members of this Honourable House will recall th at
Government moved to a medium term expenditure
framework ( sometimes referred to as MTEF) co mmencing in 2014/5. This is the name given to the
Government’s medium term plans to eliminate the
deficit and ultimately reduce the debt. The full impl ementation of a medium term expenditure framework
involved the introduction, from the 2014/15 budget cycle, of rolling three- year budgets and forward est imates to establish hard multi -year budget ceilings for
ministries. This was done to enable the Ministr y of
Finance to begin to fulfil its commitment to changing
the trajectory of deficits and debt over the medium
term.
To achieve the Finance Ministry’s strateg y for
fiscal consolidation (which is a fancy ter m for “ deficit
reduction” ), the Ministry set an ambitious target of cost
savings on current account expenditure of 15 per
cent, in real terms, to be achieved by the end of three years. This plan has been a challenge, and the Government was not able to meet the expenditure target
as required by the MTEF for 2015/16, and spending
was set at $912.7 million, representing a 3.5 per cent
reduction on the 2014/15 Budget. This amount is expected to increase further due to above- budget expenditures reported by ministries and should come in
at $921 million. Considering the current level of services and programmes offered by the Government ,
and various other commitments such as the America’s


Bermuda House of Assembly Cup, the MTEF targets will not be achieved in
2016/17.
Considering the aforementioned issue , the
level of current and capital account spending approved in the 2016/17 Budget is $24 million higher than the amount approved in 2015/16. It should be
noted that current account spending levels have been
reduced by $74 million ( or 7.4 per cent) since March
2013. Further, current account spending reductions
have been increasingly difficult to implement under
the current Government structure and formulaic a pproach to expenditure cuts in previous budgets. Mo ving forward , the Government will take a revised a pproach in order to implement further savings, either by way of increased efficiencies or making structural r eforms in the way in which services are delivered and
institutions are structured, and by continuing to reduce
the size of the publ ic service .
A salary provision of $419,691 accounts for
81 per cent of the Budget Team’s allocation for
2015/16. The provision covers the posts of Director of Budget, Principal Budget Officer, Budget Officer , and
Budget Assistant. For the fiscal year 201 6/17, the department
has set objectives, four of them:
1. to resume the open budget process;
2. to effectively implement the medium term
framework;
3. to enhance budget monitoring and reporting to
Cabinet; and
4. to bring all supplementary appropriations current.

The Regulatory Unit , which is cost centre
20020, has a budget decrease of $ 1,000, or 0.0 per
cent. The Regulatory Unit is the lead policy division
within the Ministry of Finance Headquarters in relation to the financial services sector. The Regulatory Unit is
accountable to the Financial Secretary for the effec-tive discharge of the unit’s functions , and through the
Minister of Finance to Cabinet and Parliament. The
head of the unit, the Assistant Financial Secretary
(Regulation), carries out the Minister’s f inancial se rvices policies through the Ministry of Finance, the
Bermuda Monetary Authority , the Attorney General’s
Chambers , the National Anti -Money Laundering
Committee (also known as NAMLC), the Bermuda
Public Accountability Board, and specialist global
partners.
The Regulatory Unit operates in response to a
broad range of opportunities and risks, many of which
also remain the primary responsibility of the Bermuda Monetary Authority and the NAMLC . Those opportun ities and risks are constantly changing. The Regulatory
Unit’s plan responds to these challenges through var ious goals focused on advancing the unit’s priorities
and reflecting the outcomes that the people of Bermuda deserve. There are three of these goals, Madam Chairman: 1. to ensure and support the fair, impartial, eff icient and transparent development of regul ation at the national and international levels;
2. to strengthen capacity to secure regulatory
solutions to economic security issues; and
3. to strengthen public diplomacy and support b ilateral and multi- lateral engagement.
The Regulatory Unit is involved in virtually
every policy and management area—from regulatory
reform and financial stability to anti -money laundering
and trade and development issues at home and
abroad.
The scope of the Regulatory Unit’s activities is
as follows (five of them) :
1. Support the Minister of Finance and the F inancial Secretary in coordinating the financial
services regulatory policy initiatives of the
Government;
2. Oversee the Ministry of Finance component of the financia l services legislative program me,
together with the Bermuda Monetary Authority
and the Ministry of Legal Affairs;
3. Provide policy advice to the Minister of F inance and the Financial Secretary on anti -
money laundering policy initiatives , together
with the Na tional Anti- Money Laundering
Committee, pursuant to Section 49 of the Pr oceeds of Crime Act 1997;
4. Provide policy advice to the Minister of F inance and the Financial Secretary on matters related to the regulatory component of financial services, audit and t rade in services directives issued by the European Union , together
with th e Cabinet Office, London Office, and
our EU counsel; and
5. Provide policy advice to the Insurance Adv isory Committee on matters related to the i nsurance sector.

Madam Chairman, in thi s environment of declining resources, the Regulatory Unit is uniquely pos itioned at the intersection of the financial services i ndustry, regulatory and law enforcement agencies, as well as domestic and global partners. The unit is able
to network these var ied perspectives to bring a comprehensive insight into the development and protection of our economic security. This unique position allows the unit to develop and support multiple par tnerships that have a broad domestic and international impact.
In order to achieve its priorities, and pursuant
to the Finance Ministry’s Legislative Agenda, the
Bermuda Monetary Authority Business Plan, the Mi nistry of Finance EU Engagement Strategy , and the
NAMLC strategy, the unit will undertake the following
key strategic ownership goals in 2016/2017:
1. To lead efforts to coordinate the Finance Ministry’s legislative component of the EU So l1060 4 March 2016 Official Hansard Report

Bermuda House of Assembly vency II insurance equivalence exercise, t ogether with the Bermuda Mone tary Authority
[BMA] and the Attorney General’s Chambers.
This wil l include amendments to the insurance
regime where required;
2. To lead efforts to coordinate the Finance Ministry’s legislative component of the Money
Service Business regime, together with the
BMA and the Attorney General’s Chambers.
This will include an upgrade to the existing
framework to accommodate more products ,
together with a corresponding upgrade in the
report ing and enforcement procedures;
3. To lead efforts to coordinate the Finance Ministry’s component of enhancements to the
corporate service providers’ regime , together
with the BMA and NAMLC . This will include
amendments to the e xchange control legislation, company and partnership legislation, and
the Corporate Serv ice Providers Business Act
2012;
4. To lead efforts to coordinate the Finance Ministry’s legislative component of the European
Union Audit Directive , together with the Bermuda Public Accountability Board and the A ttorney General’s Chambers. This will include
amendments to the Bermuda Public Accountability Act 2011;
5. To lead efforts to coordinat e the Finance Ministry’s engagement component of the Finance
Ministry’s EU Engagement Strategy , together
with the Cabinet Office, the BMA, and our EU
counsel. This will include preparation for the
Minister of Finance to meet with key EU
stakeholders. This work also includes working
with public and private sector stakeholders,
participation in strategy sessions , and expa nsion of analytical support efforts to public and
private sector stakeholders;
6. To w ork with the Financial Secretary and the
Assistant Financ ial Secretary (Economics and
Finance) to coordinate the Finance Ministry’s
component of the Bank Special Resolution
Regime, which we brought to the House fairly
recently, together with the BMA and the Attorney General’s Chambers. This work includes
the enac tment of rules and regulations;
7. To w ork with the Financial Secretary and the
Assistant Financial Secretary (Economics and
Finance) to coordinate the Finance Ministry’s
component of a new banking model for Ber-muda. This work includes amendments to the Bank s and Deposit Companies Act 1999;
8. To contribute to and support the implement ation of Bermuda’s Anti -Money Laundering
Strategy , together with NAMLC . This work i ncludes the provision of strategic and policy advice to the committee on matters related to
the s tandards set down by the international organisation known as the Financial Action
Task Force, or otherwise known as the FATF;
9. To s upport the Government’s goal of engaging with priority countries and international bodies to strengthen mechanisms for Ber-muda’s bilateral relationships and overseas
footprint.

The complexity, scale and impact of the financial sector demonstrate just how much we need this
unit with the right capabilities, structure, and interna-tional reach. The Regulatory Unit serves seven different markets with different dynamics. Supporting the
BMA with the development of the regulatory fram ework is a dynamic fast -changing service. Advising the
market, as well as international assessors, on financial market policy development is a long- term rel ationship-based service. Though Bermuda has been generally successful in the financial services sector, the
Regulatory Unit has to carefully manage trade- offs
between product innovation teams, regulatory teams,
and international assessors. This requires de livery on
proposals with a high degree of accuracy, speed and
transparency.
With the backdrop of changing market conditions and regulatory transformation, the unit’s primary role going forward in the next year will be to continue
to influence how the Min istry of Finance is able to contribute to the formulation and implementation of international standards to address Bermuda’s macroec onomic needs. In doing all of this, we shall maintain our
network to protect and promote the Bermuda brand and serve the Ber mudian people worldwide.
A salary provision of $228,074 accounts for
71 per cent of the Regulatory Unit’s allocation for
2016/17, which covers two posts including the Assi stant Financial Secretary (Regulatory Unit) and one
Administrative Officer. This amount reflects roughly
the same allocation as last year.
Economic and Financial Intelligence, cost
centre 20030, had an increase of $11,000, or 2 per
cent. Madam Chairman, the Economic and Financial Intelligence Unit provides research and analysis of
economic and financial conditions to facilitate sound
decisions on public policy and fiscal management. Responsibilities of the staff in the unit include ec onomic forecasts, economic modelling, projections of
GDP, and the development of key economic indic ators. Analysis and commentary on economic and f inancial statistics are provided, and an annual and
mid-year review and outlook are produced. The
budget for this unit in 2016/17 is $471,000, representing $11,000 more than the budget allocation for last
year. The increase is mainly due to an upgrade of an
online economic analytical package that we use.
Economic forecasting in a small, relatively
open economy, as ours is, is always problematic, especially since changes in aggregate demand and
supply usually have substantial effects on output, as


Bermuda House of Assembly they are magnified throughout the economy. Accor dingly, risks to forecast are always high. However, the
Economic and Financial Intelligence Unit met these
challenges head- on and worked with the Caribbean
Regional Technical Assistance Centre (aka CARTAC)
to establish a detailed macroeconomic projection framework that encompassed both short -term and
medium -term projections. These projections are
meant to provide the Government with projections on fiscal variables based on underlying movements in
economic activity and to enable a more accurate for-ward estimate of the country’s Gross Domestic Product.
Madam Chairman, the unit also manages the
relationship with credit rating agencies and is responsible for government debt management policy. The
Government currently holds credit ratings of A1 from
Moody’s (which is the fifth- highest rating), an A+ from
Standard and Poor’s (which is also the fifth- highest
rating). Madam Chairman, it should also be noted that we have, in general, maintained our investment grade credit ratings when various other countries have been
significantly downgraded.
Madam Chairman, the unit is constantly r eviewing our debt management policy in order to take advantage of favourable market conditions. When
raising funds in capital markets, the Ministry’s most
important objective is to provide the Government with
stable financing at minimal cost under the prevailing
market conditions. Madam Chairman, in 2015, this
unit successfully negotiated a BD$200 million tw oyear term loan facility agreement with Butterfield Bank
Limited. This achieved the following results:
1. Competitive pricing at 4.75 per cent that will
lower Bermuda’s weighted average borrowing cost;
2. Lower costs as a result of the fact that the
usual arrangement and other fees that normally are associated with other forms of bor-rowing, such as public bond offerings, are
lower for this deal. For context, it is noted that
these fees can typically range from $500,000
to $2 million;
3. Minimal documentation requir ements resulting
in lower legal fees;
4. Market certainty —there are no market timing
issues and pricing uncertainty associated with
this transaction. International deals will have
this risk, which can negatively impact the cou-pon rate and extension of the deal;
5. Minimal reporting requirements and no restri ctive covenants;
6. Flexible drawdown terms so that funds can be
drawn as needed, saving on interest cost; and
7. The borrowing was arranged locally.

Madam Chairman, as at March 31
st, 2016,
gross public debt will s tand at $2.335 billion, and debt,
net of the Sinking Fund, will stand at $2.21 billion. As at March 31st, 2016, the Sinking Fund balance is pr ojected to be approximately $118.25 million.
As mentioned in the 2016/17 Budget Stat ement, Government will need to incur new borrowing of
approximately $150 million in order to finance a portion of the fiscal deficit. The unit will work with financial
institutions to determine the most efficient and least
expensive way in which to do so.
As at March 31st, 2017, it is estimated that the
gross public debt will stand at $2.444 billion, and debt,
net of the Sinking Fund, will be $2.357 billion.
Madam Chairman, in 2013, the Government
set up debt -related targets, or rules, that were appr opriate for an economy the size of Bermuda’s. These rules committed the Government to keep public debt at such levels that the net debt/GDP ratio would not
exceed 38 per cent. Additionally, Government recognised the desirability of achieving a net debt/revenue ratio that would not exceed 80 per cent, and a debt
service cost/revenue ratio that would be below 10 per
cent—and in the longer term, implementing the rule
that net borrowing can only be considered for the f inancing of capital expenditure.
Although all three debt ratios are relevant , the
debt to GDP is a conventional measure used for larger countries, with GDP giving a measure of the taxable capacity of an economy, and hence a gover nment’s ability to service its debt. This is a measure,
however, that the Fiscal Responsibility Panel r ecommended that we drop, as it was not appropriate for an
economy like Bermuda’s. The debt and debt service/revenue ratios are, however, in some ways more
appropriate for jurisdictions such as Bermuda, with lower levels of taxation, the significant sections of the
economy that are difficult or impossible to tax at a
much higher rate and which cannot afford the pressure of high expenditure on debt service. And that
puts the Government at risk.
Given the nature of Bermuda’s economy and
the uncertainties and challenges it faces in the future,
I believe that debt and debt service/revenue ratios are
the two most appropriate ratios on which this Government will set up fiscal rules.
As of March 31
st, 2016, the net debt/revenue
ratio will be 237 per cent, and the debt service
cost/revenue ratio will be 18 per cent. As you can tell,
Madam Chairman, this is way over the benchmarks of
where we want to be. So, there is much work to do to
bring these ratios in line with what is expected for a
country of our nature.
Madam Chairman, the unit provides advice to
various Government boards and is closely involved in the administration of numerous customs duty relief
regimes, including duty relief provided to hotels, restaurants, and retailers. The unit also administers the
MOUs that the Ministry of Finance has with the Bermuda Hotels Association and the Restaurant Division
of the Chamber of Commerce.
1062 4 March 2016 Official Hansard Report

Bermuda House of Assembly In addition, this unit oversees the public pe nsion funds, along with the Bermuda Public Funds I nvestment Committee.
Madam Chairman, against the backdrop of
difficult market conditions, the investments of the public sector pension plans continue to perform well. I can
report that, as of December 31st, 2015, the Contrib utory Pension Fund’s [CPF] assets totalled $1.623 bi llion ver sus $1.696 billion in 2014, while the Public
Service Superannuation Fund [PSSF] totalled $548.3
million versus $563.4 million in 2014.
In 2015, the Contributory and Superannuation
Plans both posted returns of [minus] 2.4 per cent, exceeding the policy index by 1.1 per cent. Threethrough ten- year returns for the funds all outperformed
the actuarial required return of 6 per cent.
In the short term, the CPF and PSSF are in
decent financial shape. As at December 31st, 2015,
the CPF total assets represented approximately 12
times the annual value of benefits to be paid in the
fiscal year, while the PSSF’s assets represented seven times the annual value of benefits.
The effect, Madam Chairman, is that if the
CPF or PSSF received no further contributions, they
could still continue to pay out pensions at the prevai ling rate for some 12 and 7 years, respectively. Ho wever, the reality is that contributions will continue through time and will likely be increased from time to
time. In addition, the prudent investment of the pension fund’s assets is also an important factor in the
fund’s financial position.
Madam Chairman, the Government is not
considering a sovereign wealth fund to use pension
assets. It is felt that this leads to a circular, or self -
reinforcing, ri sk paradigm that is not appropriate for
the pension funds of Bermudians.
However, Madam Chairman, Bermuda faces
a very serious demographic challenge, which will have
increasingly significant implications for economic and
fiscal policy. This is driven by lo w fertility and increasing life expectancy, as the baby boom generation,
baby boomers, moves towards retirement. These factors are having a major effect on public sector plans in
Bermuda. To address this issue, the Ministry of F inance established the Pensi on and Benefits Working
Group, under the Public Sector Reform Initiative.
The purpose of the Pension and Benefits
Working Group [PBWG] is to review all public sector
pension plans, namely, the PSSF, the Ministers and
Members of the Legislature Plan Fund [ MMLPF] for
Members of the Legislature, the Contributory Pension
Fund, and other Government -sponsored benefits,
namely, the Government Health Insurance Plan (or
GEHI) and to make recommendations to Cabinet in
order to ensure the sustainability of these plans and
benefits in a manner that is responsible and fair to both the pensioners and members of the plans and
Bermuda taxpayers. To this end, the benefits provided under the
PSSF and MMLPF were amended in 2014 with the
removal of the automatic cost -of-living adjustment (or
COLA) clause as at June 30
th, 2014. In dollar terms,
the immediate removal of the COLA provision reduced liabilities of the PSSF by $426 million, while the
MMLPF liabilities were reduced by $8 million. The unit
will now work closely with th e Pension and Benefits
Working Group to ensure the sustainability of the public sector pension plans.
Madam Chairman, during the 2015/16 Fiscal
Year, this unit continued to work on implementing a deposit insurance scheme in collaboration with the
Bermuda Deposit Insurance Corporation. The intr oduction of a deposit insurance scheme in Bermuda
would complement the existing supervisory regime,
thus strengthening the local financial safety net, which will help promote financial stability.
Madam Chairman, the development of Bermuda’s banking sector has entered a critical stage in which new and arising opportunities and challenges co-exist. As for challenges, the banking sector is confronted with a more complicated and competitive env ironment, with increasingly diversified demands for
financial services and heightened difficulties in striking
a balance between serving the local economy and
preventing risks. Meanwhile, there is still a long way to go before a successful strategic transformation can be
achieved, si nce systemic problems remain unsolved
in the aspects of unemployment, foreclosures, and an
economy that is coming out of recession.
Historically, there have always been rules and
regulations put in place to protect domestic banks
from foreign competition, and there was a saying,
What is good for the local banks is good for Bermuda .
However, that saying no longer holds true. Bermuda
banks are now local only in name, as their ownership
composition has changed.
With this in mind, the Economic and Intell igence Unit continues to work with various stak eholders on legislation that will facilitate the expansion and diversification of the local banking sector. The
unit’s objective will be to amend the Banks and D eposit Companies Act 1999 such that there would be
different licences or classes of banks.
Madam Chairman, other notable tasks to be
achieved by the Economic and Financial Intelligence
Unit in the upcoming fiscal year include:
1. reviewing the Government’s Debt Manag ement Policy and making any changes deemed
appropriate;
2. completing the necessary work needed to develop a deposit insurance scheme in collab oration with the BDIC;
3. continuing to develop its economic model for not only the forecasting of key economic ind icators, but also Government medium -term fi scal data;


Bermuda House of Assembly 4. continuing to working with the Government
Employee Health Insurance Committee (or
GEHI) to assist in redesigning the health plan;
5. conducting a review of our pension arrange-ments to determine whether public and private pensions are set at appropriat e levels; and
6. continuing the review of all government pension plans to determine sustainability of the
funds.

The salary provision of $291,603 covers two
posts including Assistant Financial Secretary (Ec onomics and Finance) and the Economic Advisor. The
other major item in the cost in this unit is a provision
for consulting services for special studies and fees for the credit rating process, which are $109,500. You
might find it interesting, Madam Chairman, that even
though credit rating agencies make their opinions on
countries like Bermuda, we have to pay them to do so.
So that is what that $109,000 is for.
[Inaudible interjection]
Hon. E. T. (Bob) Richards: The next unit, the Treaty
Management and Administration unit, cost centre
20040, has an increas e of $148,000, or 33 per cent.
Madam Chairman, the Treaty Management and A dministration Unit (otherwise known as the Treaty Unit) was added to the policy teams in the Ministry of F inance Headquarters in January 2007.
The budget for this unit for the upcom ing fiscal
year is set at $594,000, which is $148,000 more, or
33 per cent higher, than the previous year. The pr imary reason for this increase is the addition of the
funding for one post in the unit, which was not funded
last year, and also an increase in legal fees.
Madam Chairman, the Treaty Unit is respo nsible for negotiating Tax Information Exchange Agreements (otherwise known as TIEAs), other
agreements relating to tax information exchange and
associated agreements, with member countries of the
Euro pean Union, the G20 Organisation, the OECD
[Organisation for Economic Cooperation and Development] and other jurisdictions. The unit is also r esponsible for relationship management regarding tax matters with the US, the European Commission, and member countries of the European Union. Additio nally, the unit manages and administers requests for
information received under the provisions of Bermuda’s tax agreements.
Since Bermuda’s commitment letter to the
OECD in July 2000, there have been many changes and developments with respect to the nature of the
OECD’s work on tax competition and its resulting i mpact on the nature of Bermuda’s commitment to international cooperation and transparency in relation to tax matters. Honourable Members will be aware that,
in the year 2000, Bermuda participated in the OECD’s development of a model tax information exchange
agreement that was adopted in 2002.
Madam Chairman, the G20 has increased its
targeting of small jurisdictions like ours, and while they
are doing so offici ally under a so- called “level playing
field” approach, it is not a level playing field. What has
happened is that the people who make the rules bas ically exempt themselves from the rules. This is what
has happened. So, the rules get imposed on us, and
the larger countries, particularly members of the EU
and the OECD, generally do not impose these r equirements on themselves.
An example was on June 17
th, 2015, when the
European Commission [EC] published a list of 30 uncooperative tax jurisdictions from around the world.
That list included Bermuda. The European Commi ssion stated that this action was part of their effort for
tackling corporate tax avoidance by large multinational
corporations. The criterion for inclusion on the list was
that 10 or more EU member states had to list a cou ntry on their national blacklist. The construction of this
list was replete with errors, inconsistencies and
opaque rationales. All of this was despite the fact that
Bermuda had done its part; we have signed every tax
agreement the OECD and others have thrown at us.
Fortunately, following much advocacy, particularly by
the unit, we caused Latvia and Poland to inform the European Commission that Bermuda was not on their
national lists, and the European Commission corrected its list a nd Bermuda was removed. What this
translates into, Madam Chairman, is that we cannot afford to let our guard down .
Bermuda’s international tax relationship policy
is to be (and remain) fully compliant with globally supported international standards for cooperation in exchange of information for tax purposes. In keeping
with this objective and evolving transparency and exchange of information principles in the international
tax cooperation arena, and as part of our efforts to
combat tax evasion, Bermuda has taken the following
steps:
1. In 2013, we joined the Multilateral Convention on mutual tax administrative matters [Mutual Tax Administrative Assistance in Tax Matters].
It is a long name, but it is now just generally
referred to as the Multilateral Conventio n,
which is, in effect, a multilateral TIEA with
over 90 countries to exchange information on
tax purposes on the by -request basis. Bermuda’s participation entered into effect on
March 1
st, 2014.
2. In 2013, we signed the US FATCA [Foreign Account Tax Complia nce Act] Inter -
Governmental Agreement Model 2 with the
US Treasury, for exchange of information on an automatic basis with the United States of
America.
3. In 2014, we signed the Common Reporting Standard (otherwise known as CRS) Multilat1064 4 March 2016 Official Hansard Report

Bermuda House of Assembly eral Competent Author ity Agreement [CAA]
between tax competent authorities of over 90
countries that are participants in the Multilateral Convention whereby the CRS is legally
enabled under international law pursuant to Article 6 [Automatic Exchange of Information]
of the Mult ilateral Convention.
4. In 2014, we joined the OECD Global Forum
Peer Review Group, a body which assesses
every international financial centre’s compl iance with TIEAs and agreements for exchange of information on the automatic basis.
5. In 2014, the Treaty Unit led Bermuda to
achieve a TIEA compliance OECD rating of Largely Compliant, the same good rating as
the UK, the US, and some of the other me mbers of the G20, OECD and EU.
6. In the near future, Bermuda will sign the
Country by Country [otherwise known as CbC]
Multilateral Competent Authority Agreement
between tax competent authorities of the over 90 countries that are participants in the Mult ilateral Convention. The CbC is legally en-abled in international law, and we are now
signed up to it.

Madam Chairman, the CbC is the G20endorsed regime for all multinational enterprises the
world over to report their income segregated by
source country for purposes of countries’ tax author ities to conduct due diligence on transfer pricing transactions. This is a multilater al global regime, and there
is no escape from it, even if the multinational enterprise is in a country that does not sign up, because
that multinational enterprise must select one of its
subsidiaries in a signed- up country to file the whole
group’s income segregated country by country. So
you see, Madam Chairman, every time you comply with something, the target moves and you have to
comply with something else.
Madam Chairman, today Bermuda has the
multilateral tax information exchange agreement [the multilateral TIEA] with over 90 countries, and by this time next year it will probably be with over 100 countries, inclusive of 100 per cent of the EU, G20, and all
but one OECD member country. Bermuda’s 41 bilateral TIEA agreements are with 90 per cent of the G 20,
76 per cent of OECD, and 52 per cent of EU member
states.
Madam Chairman, despite the good work accomplished by the Treaty Unit over the years, there have been unjustified attacks, particularly in Europe, about how much so- called tax havens are drain ing the
treasuries of certain G8 nations. Compliance with i nternational cooperation in tax matters is one of the most effective strategies to combat this threat, ac-companied by private bilateral activity, including at the
political level [i.e., Ministerial level] with our key par tners. I have to say an aside, Madam Chairman, that
we have been accused of siphoning away $2 trillion
from developed countries by certain people in Europe.
If we could have 0.001 per cent of that $2 trillion, we
would not have a na tional debt. But we are accused of
things that are totally absurd, but that is the nature of the rhetoric that is going on.
The previous and ongoing work of the Treaty
Unit in the Ministry of Finance has placed Bermuda in a strong position and has made sure that we are
globally recognised as complying with the highest i nternational standards on tax transparency and compl iance.
Although negotiating and signing TIEAs and
double taxation agreements will remain an important
strategy in Bermuda’s bilateral relations, there has
been a material change in the primary focus of the Treaty Unit, from negotiating and signing TIEAs and
double taxation agreements, to handling exchange of
information requests in a timely manner and preparing
for the new age of informati on exchange for tax purposes —that is, automatic exchange of information
under US FATCA, OECD CRS and OECD CbC —and
all the other alphabet things that you can think of. That
is going to be the main activity that is going to occupy
our Treaty Unit, going forw ard.
Due to this change, the Treaty Unit has just
gone through a period of restructuring, and there are currently three posts in the unit, including the Assi stant Financial Secretary (Treaties), the Senior E xchange of Information Officer (which is vacant) and the Junior Exchange of Information Officer (which is also vacant). Steps are now well advanced to fill one
of these two vacant posts.
Madam Chairman, later this calendar year,
between September and December, Bermuda will
undergo an in- depth monitoring and peer review of
our implementation of the international standards of
transparency and exchange of information for tax pur-poses by the OECD Global Forum. Madam Chairman,
the last Global Forum review on Bermuda was conducted in November 2013, and we achieved a rating of Largely Compliant, the same as the UK and the US,
as I mentioned before. This OECD assessment that
will take place later on this year is a very, very, very important process for Bermuda, and we must dedicate
the required resources to maintain our rating of
Largely Compliant, demonstrating our commitment to
comply with the highest international standards on tax,
financial regulation, and international economic crime.
This is how we maintain our blue- ribbon brand,
Madam Chairman, by doing well in the international
inspections. So this is a very important thing that is
coming up.
The salary provision for the Treaty Unit in
2016/17 is $326,000. The other major recurring item
of cost in this unit is for travel for attendance at OECD Global Forums, between the European Commission
officials in Brussels, and the legal fees for lawyers


Bermuda House of Assembly who represent the Minister during any challenges from
law firms on exchange of information requests under
Bermuda’s TIEAs. And I have to emphasise, Madam
Chairman, that this travel budget is not for me. It is for
members of my Ministry.

Line-Item Analysis of Operational Budget, Head 10

Hon. E. T. (Bob) Richards: Madam Chairman, the
estimated cost of operating Ministry of Finance Head-quarters in 2016/17 is approximately $4.297 million, 42 per cent of which is accounted for by salaries
($1.787 million). The salary allocation is $63,000, or
4 per cent higher than the previous year, due to the
additional funding of the one post in the Treaty Unit
that I just mentioned. The salary allocation is apportioned between the functional units in the Ministry
Headquarters as follows:
• Policy Planning [and Management], $523,000;
• Fiscal Planning and Control, $419,000;
• Regulatory Unit, $228,000;
• Economic and Financial Intelligence,
$291,000;
• Treaty Management, $326,000—for a total of
$1.787 million. And that is 15 staff, 5 of which
are vacant. There are no non- Bermudians
working in the Ministry of Finance;
• Training, $15,000, a $4,000, or 21 per cent
reduction.
This funding is used to train and continues to
give professional development of Ministry Headquarters staff. In 2016/17, there will also be training needs
for new staff in the Treaty Unit to prepare for the OECD assessment.
• Travel, $136,000, a $7,000, or 5 per cent i ncrease.
This allocation makes provision for travel
costs in connection with relationship maintenance with the United States, the United Kingdom, and Europe. Travel involved for overseas treaty negotiations and
OECD meetings overseas are also covered in this
allocation. The international environment for Bermuda is currently hostile, through no fault of our own. Ther efore, more than ever, it is critical that we travel and
actively engage in the appropriate places, the appr opriate forums, and the appropriate manner to get the
Bermuda story out there. The increase in the travel
budget is mainly to provide for additional travel by the
Treaty Unit in preparation for the upcoming OECD
Global Forum assessment.
• Communications, $36,000, a $5,000, or
12 per cent decrease.
This item is to provide for the cost of tel ephone accounts, which are now devolved to depar tments having previously been paid centrally by the Ministry of Works and Engineering.
• Advertising and Promotion, $8,000, an i ncrease of $3,000. The Ministry has previous ly actively pursued
the placement of advertisements and/or supplements in quality business journals, magazines, and newsp apers that have a high likelihood of being read by senior executives in the C -suite of their organisations.
This advertising is now mos tly performed by the Bus iness Development Unit within the Ministry of Ec onomic Development, but the Ministry still places some
of these supplements; therefore, funding is allocated;
• Professional Services, $1.070 million, a de-crease of $180,000, or 14 per c ent.
The Professional Services item is allocated
across the following programmes in the Ministry of Finance Headquarters: Policy Planning and Management ($720,000), Regulatory Unit ($40,000), Ec onomic and Financial Intelligence ($119,500), Treaty
Unit ($1 65,000), and Fiscal Planning ($25,000). The
decrease is due to funding being removed for the
Washington, DC, consultant who was moved to the
Cabinet Office. Also, the Ministry has to provide the Bermuda Public Accountability Board with funding to
cover consulting expenditures associated with the
cost for the Canadian Public Accountability Board to
undertake inspections of Bermuda- based public accountants, and there has been an increase in legal
fees for lawyers who represent the Treaty Unit.
A core sum of $510,000 is earmarked for
maintaining effective relationships with the United
Kingdom and Europe. With the ever -increasing external threats to our economic survival, it is crucial that
we aggressively engage with the relevant entities. The
international en vironment for Bermuda is currently
hostile, as I have said before. These consultants help
the Government to actively engage in the appropriate
places, forums, and manner to get the Bermuda story out there. As an example, our EU consultant played a
key role in getting Bermuda off of the European
Commission (EC) blacklist that I described before. But
that was, I have to say, money very well spent.
Revenue, the department generates revenue
of $1.846 million, which represents a guarantee fee for the $200 milli on Butterfield preference share issue
of $1.831 million and a guarantee fee for the Morgan’s
Point guarantee. The revenues for work permit exemptions have been moved to Home Affairs, out of
the Ministry of Finance.
In the Budget Book, Capital Acquisitions is
found on page C -10.
Cost centre 76152 —National Trust Furnishing
Fund, $25,000, which has not changed over the years. This provision is to fund new furnishings for
Government House.
Cost centre 76153— National Trust Maint enance Fund of $5,000 is also unchanged. This prov ision funds the refurbishment of furnishings for the
public rooms at Government House.
Cost centre 76867 —OECD Common Repor ting System, $743,000. This is a new cost centre.
As I mentioned before, the Treaty Unit has
1066 4 March 2016 Official Hansard Report

Bermuda House of Assembly moved into a new phas e, from negotiating TIEAs and
double taxation agreements, to handling exchange of
information requests in a timely manner —and there
are lots of them. It happens totally under the radar. But there are many, many requests for information from Bermuda by other countries that the Treaty Unit
has to handle. It is going to get worse as we move into
the age of automatic exchange under US FATCA,
OECD CRS and OECD CbC.
To meet the obligations of this change in f ocus, there has been a need to acquire a new specially encrypted e- portal exclusive system —an e- portal exclusive to the Treaty Unit to retain the confidence of
our tax treaty partners in the US and other countries.
So, Madam Chairman, in addition to our having to provide this information, we have to pay for the sy stem to provide the information. It is not being given to us.
Madam Chairman, in the upcoming fiscal
year, the Ministry of Finance will issue a Request for Proposal to secure an IT vendor to create this e- portal
to enable in- scope entities in Bermuda to file their
CRS and CbC information with the Minister of F inance, as the Competent Authority for Bermuda. This
information will then be uploaded to a central web portal at OECD, which they are now creating, from which
the Bermuda tax treaty partners will log in and obtain
the information uploaded by Bermuda.
All known international financial centre cou ntries are doing the same in order to comply with the
G20 mandate and the OECD standard for automatic
exchange of information. This project is necessary i f
we want to remain fully compliant and competitive in
the international financial centre business as an international financial centre.
It is helpful that there are a number of IT vendors that have already created this e- portal for some
of our peer juris dictions, which presents a useful
benchmark for comparative purposes. Nevertheless,
we shall allow the RFP process in this highly specialised area of IT to run its course, to seek the best deal
for Bermuda, taking into account all relevant factors.

HEAD 1 2—CUSTOMS
Hon. E. T. (Bob) Richards: Now, Madam Chairman,
the Ministry of Finance has only Customs Revenue. The expense for Customs is now under the National
Security Minister. So we are going to be looking only
at Customs Revenue here. It is Head 12, pag e B-99.
Total Customs revised projected revenue for
2015/16 was $197.593 [sic] million, and the projection
for 2016/17 is $213.075 million.
Customs Duty —$209 million, an increase of
$22.1 million, or 12 per cent. The revised forecast of
duty collections for 2015/16 has increased by $6.6
million when compared to the original estimate for that
year. It is expected that duty collections for 2016/17
will increase by $22.1 million, or 12 per cent, from the original 2015/16 forecast. The increase reflects the
adjustments in the duty rate increases on certain key
items. It is further anticipated that we will see the [co ntinuation] of an economic improvement during 2016/17, which will translate into increased imports of goods, and therefore an increase in duty co llected.

Other Revenue Sources

Hon. E. T. (Bob) Richards: Forecasted revenue
sources, other than Customs Duty, are expected to contribute a total of $4.4 million during 2016/17,
which, based on our forecast, would equate to 2.1 per
cent of the revenue c ollected by Customs. There is
little indication that receipts in these areas will change significantly from the revenue levels received during
the last year. The forecasted revenue sources other than
Customs Duty are as follows:
• Customs Duty for the General Post Office —
$809,000, an increase of $5,000;
• Yacht Arrivals —$34,000, a $108,000 [decrease];
• Services to Ships (Customs) —$348,000, an
increase of $61,000;
• Wharfage—$750,000, unchanged;
• Container Fees —$1.02 million, an increase of
$235,000, or 30 per cent;
• Customs service charges —$379,000, an i ncrease of $72,000, or 23 per cent;
• Courier Package Fees —$633,000, a decrease of $88,000, or 12 per cent;
• Light Dues —$178,000, an increase of
$33,000, or 23 per cent;
• Licence General charges —$102,000, a d ecrease of $138,000, or 58 per cent;
• Penalties —$86,000, a decrease of $54,000,
or 39 per cent;
• Sundry Receipts —$61,000, an increase of
$49 thousand, or 408 per cent.

OFFICE OF THE TAX COMMISSIONER

Hon. E. T. (Bob) Richards: Madam Chairman, moving to the department known as the Office of the Tax
Commissioner, this can be found on pages B -103 to
B-106; also, Capital Acquisitions at C -10.
Madam Chairman, the primary responsibility
of the Office of the Tax Commissioner [OTC] is to effectively administer the timely and accurate collection
of all taxes and stamp duties in accordance with applicable legislation. That includes payroll taxes, corp orate service taxes, betting duty for turf, betting duty for pools, stamp duties, land tax, foreign currency pur-chase tax, hotel occupancy tax, cruise ship departure
tax, airport departure tax, passenger cabin tax, timesharing service tax, and time- sharing occupancy tax.


Bermuda House of Assembly The following are some key statements r egarding the OTC (I will be referring to the Office of the
Tax Commissioner as the OTC):
The OTC is responsible for the largest portion
of government revenue and is estimated to generate $556 million, or 56 per cent, of government’s total
revenue in 2016/17.
The OTC generated $166.00 of revenue for
every current account dollar spent in 2014/15. It is
estimated to generate approximately $175.00 of rev enue for every current account dollar spent in 2016/17.
Payroll tax is the single largest revenueearner for the Government, generating $334 million in
Fiscal Year 2014/15. The 2016 /17 Budget Speech
highlighted potential reforms to the payroll tax structure, which are to be implemented in the next year.
During 2016/17, as an interim measure for revenue
growth, the standard payroll tax rate will be adjusted
to 15.5 per cent, an increa se of 1 per cent. Most other
payroll tax rates will also be increased by 1 per cent,
and the rate of payroll tax recoverable from emplo yees will be set at 6 per cent.
Payroll tax concessions for the hotel, resta urant and retail sectors, as I mentioned bef ore, will be
increased by 2.5 per cent, to 8 per cent.
During fiscal 2016/17, the OTC will conduct a
comprehensive review of notional salaries being r eported by self -reporting [self -employed] and deemed
employees in all sectors.
The results of these changes will be estimated
to have a payroll tax of $390 million. And that is for all
payroll tax, not just for notionals.
The OTC’s mission is to provide superior
quality and efficient service with responsible enforc ement of tax legislation, thus contributing to the ec onomic and social stability of Bermuda.
The four core objectives of the OTC are:
1. to administer and collect taxes (as I mentioned before);
2. to conduct responsible and effective enforc ement activities, creating an environment which
promotes compli ance and ensures that all
taxes are collected in accordance with their
respective Acts;
3. to educate and advise taxpayers on matters relating to their statutory obligations under the
Acts and maintain community confidence;
4. to ensure that revenue is available to fund
Government programmes through the collec-tion of taxes.

Madam Chairman, the OTC is strategically
divided into four cost centres: the Administration team,
the Stamp Duties team, the Audit and Compliance
team, and the Operations team.
The Administr ation team, cost centre 48000,
provides the overall direction and management of the office, which includes strategic planning, staff deve lopment, training, and general office support. The Stamp Duties team, cost centre 48050, is
responsible for the admini stration and collection of
stamp duties under the Stamp Duties Act 1976. This includes the adjudication and processing of a variety
of legal instruments including, but not limited to, con-veyances, transfers, leases and mortgages, as well as
administering t he Primary Family Homestead Exem ption programme.
The Audit and Compliance team, cost centre
48070, is responsible for ensuring that taxpayers are
compliant with the Taxes Acts through the life of the taxpayer, starting with their initial registration. The
team conducts audits and inspections of taxpayer
books and records, and is responsible for knowledge
management and taxpayer education.
And four, the Operations team, cost centre
48080, oversees the major activity of collecting and reporting on all taxes under the remit of the OTC. The
team maintains taxpayer accounts receivable balances, and levies penalties for late and insufficient
payments, and is responsible for debt collection and
enforcement.
The OTC’s overall direction is defined by its
strategic priorities, as follows:
• Top-quality taxpayer service;
• Modernisation through technology; and
• Enforcement and debt collection.
The Operational Budget can be found on
pages B -98 and B -99. The budget estimate for
2016/17, the current expenditure is to be $3. 181 mi llion; capital expenditure, $521,000. The revenue co llected is expected to be $544,000,945.
Page B -103, a 1 per cent increase in current
account expenditure. The OTC’s current expenditure
budget in 2016/17 includes a modest increase of
1.7 per cent, or $55,000. The additional funding
represents four vacant posts that need to be filled during the ensuing year. The additional staff resources
will be necessary to meet current operational mandates, as well as the objectives, which will be tasked
to the O TC in order to achieve the tax reforms to be
implemented in 2017/18.
For the Capital Account, there will be a decrease of 21 per cent. That is on page C -11. The
Taxes Information Management System (or TIMS) project continues to make steady progress. Origin ally
projected timelines have been adjusted, resulting in
funding adjustments. Delays have resulted primarily
from data clean- up issues and a lack of internal r esources and excess capacity to work on specific pr oject tasks.

[Background sound of marching drums]

Hon. E. T. (Bob) Richards: Well, all I have to do is
pick out my hearing aids.
Madam Chairman, the OTC’s departmental
operating expenditure budget has been increased in
1068 4 March 2016 Official Hansard Report

Bermuda House of Assembly 2016/17 by 1.7 per cent. The additional funding is
necessary to ensure that a sufficient number of staff
are employed in OTC to meet the operational and
strategic objectives for 2016/17 and beyond. Other
departmental expenses have been cut in order to pr ovide funding for the vacant posts as well as minimising
the increase in total expenditure from 2015/16 levels.
Salaries increased by $131,000, or 5.5 per
cent. The additional funding will provide for the r ecruitment of the following four vacant posts, which are
critical for tax enforcement, compliance and revenue collection: Knowled ge Manager, Tax Inspector, Stamp
Duty Assistant, and Administrative Support Clerk.
Training decreased by $2,000. The OTC supports the continuous improvement and investment in the training of its employees. However, due to the
need for expenditure reduction, the use of internal
government training programmes and other lower -cost
options, such as webinars, will be explored.
Travel increased by $3,000. The OTC mai ntains relationships with a variety of key international tax authorities, with the most important of these being
the Inter -American Center of Tax Administrations (or
CIAT) and the Caribbean Regional Technical Assi stance Centre (that we referred to already as
CARTAC). These relationships provide a forum for
information- sharing and technical advice, ens uring the
OTC has in place effective tax administration and best
practices.
Advertising and Promotion, decreased by
$3,000. An important component of OTC’s mandate is to educate taxpayers and increase the taxpayers’
awareness as it relates to their tax ob ligations. Ho wever, due to funding restrictions and the need to employ additional staff, the budget for advertising and
promotion has been decreased in 2016/17.
Professional Services, decreased by $40,000.
The OTC will engage in creative ways to minimise the need for consultant services in 2016/17. Although l ocal consultant services are currently needed for the maintenance of our existing tax information system,
there are continuing efforts to minimise these costs.
Materials and Supplies decreased by $3,00 0.
Internal office materials and supplies will be closely
controlled, and the cost reduced through creative
measures.
Rent Expense is $371,000. During the prev ious fiscal year, OTC worked closely with the Public
Lands and Buildings Department of the Minist ry of
Public Works to identify alternate government -owned
office space. Although we have been successful in
locating suitable government -owned office space,
funding for rent is required to cover the period while
the new space is being retrofitted for OTC’s requir ements.

Revenue Analysis
Hon. E. T. (Bob) Richards: Revenues are projected
to increase by approximately $38 million, or 7 per
cent, compared to the original estimate for 2015/16.
Payroll Tax Revenue is anticipated to i ncrease by $37 million, or 10 per cent. The standard
rate of payroll tax will be increased by 1 per cent, to
15.5 per cent in 2016/17. Most other tax rate categ ories will also experience a similar increase of 1 per
cent. Additionally, the payroll tax concessions or relief
programmes currently in place for the hotel, restaurant
and retail sectors will continue to be rolled back in
2016/17. The taxpayers in these sectors will pay a
rate of 8 per cent.
Most other tax types have been projected to
achieve minimal increases in 2016/17 as a result of
increased economic activity.

Staffing

Hon. E. T. (Bob) Richards: There are 29 full -time
positions in the OTC, which includes four vacant
posts. Funding for all 29 posts has been included in the estimates for 2016/17. The office currently comprises 24 Bermudians and one non- Bermudian.

Site and Technology

Hon. E. T. (Bob) Richards: There have been no si gnificant upgrades to the buildings that the OTC occ upies. The existing office lease expires in April 2016;
however, a monthly lease will be maintained until the
new identified government -owned office space is
ready for occupation.
The new Tax Information Management Sy stem (or TIMS) project continues to make progress.
The Stamp Duty Module, Land Tax Workflow System,
and improvements to the E -Tax System have all gone
live. The remaining phases of the project are expected
to continue through 2017/18. However, the OTC is cognisant of the fact that limited funding allocation
may result in delays in the implementation of the r emaining modules.

[Pause]

[Crosstalk]

Hon. E. T. (Bob) Richards: My voice needs a rest,
Madam Chairman. Anyway, let us push on.
We will still continue with the Office of the Tax
Commissioner.

Key Achievements 2015/16

Hon. E. T. (Bob) Richards: The OTC continues to
exper ience challenges in the area of tax enforcement
and debt collection. As a tax authority, the role of the
OTC is often difficult, but critical to the fiscal stability
of the economy. The OTC continues to take steps to


Bermuda House of Assembly improve the tax culture and level of compliance by
working with taxpayers and, wherever possible, avoid
the need for punitive measures of debt collection and
enforcement. The OTC is actively pursuing the collection of debts through both courts, and working closely with the Debt Enforcement Unit of the Attorney General’s Chambers in these efforts. The OTC will continue in its efforts to escalate matters of collection
through the courts in order to reduce outstanding go vernment tax receivables.
The modernisation of OTC’s legacy tax sy stems and business processes has been an ongoing
objective and will continue to be a strategic focus in
2016/17. In order to remain a modestly sized tax a dministration, OTC will maximise efficiencies through
technology.
The existing E -Tax system is used by only
25 per cent of the taxpaying population. In order to
increase that percentage, mandatory e- filing will be
enforced for large taxpayers —those with a gross annual payroll greater than $1 million. Credit card pa yments will be accepted, using the E -Tax system, effective April 1
st. That is something new, Madam
Chairman, because prior to that, credit cards could not
be used on the E -Tax system. And now we are i mplementing that to make things a lot easier for people—so, effective April 1st, 2016— which will help to
make E-Tax the preferred choice for taxpayers who
process their quarterly payroll tax returns in that manner.
The reduction of manual paper -filed tax r eturns will then allow OTC staff to focus on more val-ued-added functions, such as enforcement and compliance.
The OTC, in addition to the aforementioned
objectives, continued to support key Government in itiatives that provide relief to various taxpayers and
economic sectors. The office continued to succes sfully administer the Government -initiated Memorandum of Understanding with the Bermuda Hotel Ass ociation, and restaurants through the Chamber of
Commerce Restaurant Division, and supported a
number of concessions and rebate programmes
across a variety of sectors including the retail sector, the Economic Empowerment Zone (EEZ), and the
Construction Sector Relief Programme for Approved
Projects.
Major priorities, as I said earlier, include modernisation through technology; strengthening compl iance; and recommending amendments to existing tax legislation to impro ve registration, collection, and enforcement.

Additional Budget Measure —Capital Acquisitions

Hon. E. T. (Bob) Richards: The Tax Commission E -
Filing and Back Office system will have $500,000 all ocated to it for the 2016/17 Fiscal Year. It can be found
on page C -10 in the Budget Book. What is the project? The Tax Information
Management System (TIMS) was tendered in 2009,
and a successful developer was engaged. However,
due to the unexpected vacancy at the tax commi ssioner level, the project did not start until 2011. The
major objectives of implementing the new system are:
• to replace legacy and manual systems;
• to automate administration of all taxes;
• to provide a virtual digital representation of
taxpayer ;
• to install an e- enablement platform —

You have the floor.

Hon. E. T. (Bob) Richards: Thank you, sir.
1070 4 March 2016 Official Hansard Report

Bermuda House of Assembly I am continuing with the Office of the Tax
Commissioner and we are looking at the brief for the
Capital Acquisition, which has to do with a computer
system known as TIMS (Tax Information Management
System).
The Tax Information Management System
(TIMS) project was tendered in 2009 and a successful
developer was engaged. However, due to the unexpected vacancy at the Tax Commissioner level, the
project did not start until 2011. The major objectives of
implementing the new system are:
• To replace legacy and manual systems;
• To automate administration of all taxes;
• To provide a “virtual digital representation of
taxpayer”;
• To install an E -enablement platform;
• To provide tools to effectively monitor and enforce tax compliance;
• To help facilitate efficient tax collection/processing;
• To enable an electronic record of case management;
• Integration and information exchange between Government departments in the interest of debt collection and enforcement —