‘Piece of the rock’? Every Bermudian understands that. Every Bermudian also understands that a ‘piece of the rock’ is very expensive. 

            According to Coldwell Banker JW Realty: “…the average price of a home was…$965,000…”.            In a Bermuda Sun story a manager at the Bank of Bermuda: ‘…her bank would require a household to take in excess of $12,000 a month ($144,000 a year) in order to buy a million dollar home on a 30-year mortgage.’

            In other economies, a household [at least two adults] will pay from two to five times its annual household income if it chooses to buy, instead of rent, its own housing.            In our Bermuda, a two-adult household will need an annual income ranging from a LOW of $144,000 a year – buying at seven times annual income; to a high of $482,500 a year – buying at twice annual income. In our Bermuda, that’s what’s needed in order to buy ‘an average single family dwelling’.

            Ridiculous? It is. But it’s a Bermuda reality.

            The 2001 Census says that the median income for Bermudian households is $70,777. That means that exactly half the households in Bermuda have an annual household income that’s more than $70,777 a year – and the other households have a smaller income.

            Obviously, then, half of all households in Bermuda cannot possibly buy ‘an average single family dwelling’. To do so, they’d have to spend more than thirteen times [that’s right!] their annual household income. OR, they’d have to get TWO more jobs – have four incomes – in order to double their household income to [$70,777 x 2 = $141,554] and even then still spend SEVEN times their total doubled annual household income.

            So, no two income family here. Nope. This needs a four income family. Two adult persons, each working two jobs – and the kids packing groceries at the supermarket.

            Family life? Kiss it goodbye! Children? The “village” will have to raise them! Community activity? When?

            But there’s another side to our high prices. Every Bermudian who owns a ‘piece of the rock’ boasts of its value. You will not – absolutely NOT – find any Bermudian anywhere on this Island who’ll admit to living in a $100,000 dwelling.

            The only place where Bermuda residents dwell in property worth less than $100,000 is in the graveyard. And graveyard plots are damn expensive!

            The 2001 Census Report says that the median value placed on ‘a single family dwelling’ is $493,446. So a family earning the $70,777 ‘median’ income will have to spend SEVEN times that income to buy a ‘median’ priced dwelling.  

            Of Bermuda’s total of 9,764 owner-occupied dwelling units, 8,336 are said to be worth more than $350,000. Only 1,428 of all of Bermuda’s owner-occupied dwelling units are said to be worth under $350,000 – which is five times the annual (median) household income of $70,777.

            What’s happening to those 1,428 units? Their owners are doing – or planning to do – all that they can to raise the value of their ‘piece of the rock’ to the highest level possible.

            That’s the free market working with all its brutal efficiency. Everybody’s trying to get the highest possible price for his [or her] ‘piece of the rock’. The most common method of raising the price – the value – of a Bermuda dwelling?  Add on!

            By adding more bits to the house, the owner hopes to push up its value by one or two hundred thousand dollars. That way a shamefully low-value $350,000 single dwelling becomes a socially acceptable higher value $550,000 single dwelling.

            That’s the real estate reality.

            Yes, people do wail and gnash their teeth about a lack of affordable housing. These wailer’s are not homeowners. But once these wailers and gnashers can be converted into homeowners – they do exactly as I’ve just described.

            A recent Royal Gazette story. A young couple managed to find a house for $365,000. What are they planning? Yup! Add on! So this $365,000 ‘find’ will become a $465,000 or $565,000 ‘value’.

            Does Bermuda have a Housing problem?  Perhaps not. The reality?  Bermuda may have a ‘free market economy’ problem. In this ‘free market economy’, everybody really desires a $500,000 ‘piece of the rock’ and nobody – absolutely NOBODY – wants a simple $100,000 ‘affordable’ single family dwelling?

            If any Bermudian family or household manages to get its hands on a $100,000 single family dwelling – they’ll add on anything to take its value up as high and as fast as they can.

            Isn’t that the real Bermuda?  Really?



Not unusually, several people called me, and others stopped me and spoke to me about that end-of-the-year article about Bermuda house prices and wages [30 Dec 05]. The gist of the comments was that the situation was ‘scary’ because it meant that so many people would be shut out of owning a house. Two interesting points arose. One came from within my mind. The other came from a caller.

            First, the caller’s point. He referred to someone with whom he’d spoken and said that this person was a hardworking tradesman. He said that this tradesman had told him that he was working steadily and was handling all the work that came his way. He didn’t need more work.

            After paying for his weekly expenses, he said that he was able to ‘bank’ $1,000 a week. Every week. I thought about that and I reckoned that if it was true, this tradesman was actually saving $50,000 a year – or over $4,000 a month. I put that in the context of buying a Bermuda house.

            At $4,000 a month, he could carry a 30 year mortgage of about $440,000. Assuming he was paying market rent for wherever he was living [say $1,800 a month] he could add his current rent to his mortgage capability. That meant that he would be able to carry another $200,000 of a 30 year mortgage. So, altogether he could afford a mortgage of around $640,000.

            Not bad, huh?

            So if he saves up for four years and puts $200,000 down and takes up a mortgage of $640,000 he can buy a house for $840,000.

            If he can find one at that price. No house? That’s OK. Get a condo instead. Condos are being advertised for as low as $685,000. At that price, our tradesman only needs one year’s savings and then he can carry a 30 year $640,000 mortgage.

            So as difficult as it seems, house-buying is possible. Not much choice though, and you’d need a very high personal income like our tradesman who, if his story is true – must be taking home something in the region of $96,000 a year – which means that he has to be grossing around $110,000 a year. Now that income seems very high, and according to all the Census Reports on incomes in Bermuda, it’s not an annual income that is common or frequent for individual Bermudians.

            So back to the question – is house-buying a practical proposition for a married couple taking home a net $97,000 from an annual household income of $115,000? It’s the same this week as it was last year. NO! It is not.

            That makes Bermuda the land of the ‘wealthy poor’.

            The other thought that I had? Why buy a house anyhow? Why not rent all your life and invest the money that you’d pay out in a mortgage?

            Sound idea. It would work actually very well in an economy where rising house prices did not rocket past rising wages.

            That’s not what happened in Bermuda.

            In Bermuda, from 1972 to 2005, dollar wages went up 833%. That means that the starting out $14,000 household income I’d spoken of last time would only have the spending power of about $115,000 now – before taxes and contributions.

            But what happened to house prices?  You would still actually need to work more than twice as long to get to build up to a ‘house price’.  House prices, if they’d stayed level with wages, would now be around $500,000 for a small cottage or condo. But house prices are almost twice that. – with only the odd condo appearing for $685,000 – and cottages at $960,000 and up and up…

            What about rents? Rents for long-term Bermudian households seem to have stayed more level with wages.  A two bedroom unit that would have rented for $200 a month in 1972 is still available at a rent between $1,600 and $2,500 a month now. Hard-to-find I know, but actually still there for good tenants.

            So should people give up on trying to buy a house and just rent instead – and spend the difference on expensive clothes and shoes and cars and trips?   

            In many cases, in Bermuda, is that what’s actually happening now?



I’ve always described Bermuda’s economy as a unique economy.  Even so, things here still follow the general laws of economics. For instance, the relationship between supply and demand is not different here; nor is there any difference in the relationship between the supply of money and the desire for choice.

            It’s clear that Bermuda residents pay, not just for goods, but also for the ability to have a choice of goods. That’s one of the main reasons why Bermudians shop abroad and over the Internet. Their action is driven by choice and is not, in the main, limited by price; though price is a factor.

            In this general aspect, Bermuda is similar to a wealthy American town like Danbury, Connecticut, or a wealthy area like ‘Park Avenue’ New York. There, local shops carry the kind of goods that their customers want. No ‘Dollar Stores’ on Park Avenue. Tiffany’s not Zales. 

            Bermuda certainly has that top end reality. Bermuda also has a bottom end reality.

Bermuda has an economy in which both politicians and statistician’s talk of a ‘poverty line’ of $30,000 per annum. This Bermuda poverty line is a reality accepted and agreed by the warm-blooded PLP and UBP, and the cold-blooded statisticians.

            Bermuda has a national ‘median’ household income of $70,777 per year. At least that was what the 2000 Census reported. Since that was six years ago, it would be even higher now, in 2006.

            In 2006, we talk of ‘average’ house prices of $960,000 – and for that we expect to get a two bedroom cottage. A cheap two-bedroom condo comes on the market at $645,000.  At the other end, there are houses for sale from $5,000,000 to $45,000,000.

            Mixed up in all this is a peculiar little thing that I simply do not understand. I need help in understanding this, and I am asking, genuinely asking, for help.

            It’s reported and agreed that Bermuda has about 38,000 active working workers. It’s reported and agreed that there are only about 27,000 Bermudian workers, and that the remaining 11,000 workers are non-Bermudians who are in Bermuda working on Work Permits.

            Given that it is unlawful for any non-Bermudian to ‘seek work’ in the way that a Bermudian can seek work, it must follow that there are no ‘un-employed’ non-Bermudians – in Bermuda – who are seeking work – in Bermuda. That must mean, therefore, that only Bermudians can be defined as, or said to be, un-employed and seeking work.

            Simply, very simply – the only un-employed people in Bermuda have to be Bermudians. There cannot be any un-employed non-Bermudians because they are supposed to get on a plane or boat or raft and vamoose as soon as their ‘work permit job’ ends or their work permit expires.

            If, then, every Bermudian has a job choice amongst 38,000 jobs; if 27,000 Bermudians then choose jobs and start working; if 11,000 non-Bermudians then have to be imported to fill the remaining 11,000 jobs – how can any Bermudian be described as unemployed?

            Surely in an economy that imports actuaries, beauticians, cooks…gardeners, hairdressers, insurance specialists…potwashers, radiographers, teachers….; there must be a job – somewhere – that one more Bermudian can do. With 11,000 jobs to pick from, there must be at least one suitable choice for one more Bermudian.

            To my mind, Bermuda – from a purely national Bermuda aspect – has 40% over-employment. To my mind, the arithmetic says that 29% of the total 38,000 jobs that exist in Bermuda can disappear before Bermudians start becoming unemployed. To my mind, there cannot be national unemployment in a national economy that imports such a huge chunk of extra people to do ordinary national work. There cannot be.

            I put it arithematically. 27,000 Bermudians = 100% employed.  11,000 non-Bermudians = 40% additional employed.  Overall employment [relative to available Bermudians] = 140%. 

            How can Bermuda have 3% – 2% – even 1% – ‘unemployed’ Bermudians?

            Please, people, please, unlimber those BSc’s, MSc’s, BA’s, MA’s, and PhD’s; please turn on the plain old common-sense; and enlighten this poor befuddled Bermudian. Please?



Bermuda’s middle class is certainly in the middle. They’re pressed down from the top by very high housing costs and limited high-end high-pay job opportunities that would allow them to earn the incomes to afford an average house. They’re squeezed out of the lower level jobs that were once used as the ‘second jobs’ that enabled individuals and families to supplement their incomes.

            Argus CEO Gerald Simons, has recently pointed out that, relative to incomes, Bermuda’s house prices are ‘four times’ higher than house prices in the USA, Canada, UK. Gerald also pointed out that Bermuda’s median annual household income is now $84,000, or $7,000 a month.

            But Bermuda is bedevilled by two impacts of the globalization of Bermuda’s unique isolated economy.  In Bermuda’s hospitality industry, in particular, wages growth has been held down by globalization. Service workers who were earning $10 an hour twenty years ago have not had their wages keep pace with overall increases in the cost of living. In 2006, wage rates for many service workers are still holding in the region $10 – $15 an hour, which is almost zero wage growth. 

            Elsewhere in this economy, in the past twenty years, wages have generally gone up by about 75% or more.  So a person who was earning $12 an hour in 1986 would now be earning – same job – about $20 – $25 an hour today.

            A middle class two-income Bermudian household with income levels at $15 an hour in 1986 couldn’t afford to buy a house. Despite wages generally keeping up with most increases in the cost of living, a to-income middle class household in today’s 2006 Bermuda still can’t afford to buy a house because house costs have gone up faster than wages.

            House prices and top end rents have been sucked upwards by Bermuda’s shift away from the six day staying tourists, to the six year staying International Business worker who requires quality accommodation and who can pay top dollar for it. What should be low end rents have also been sucked upwards by the vastly increased number of  lower paid – $10 to $15 an hour – expatriates who crowd themselves into lower end rental accommodations; and so deliver bigger rental incomes to landlords.

            So where is Bermuda’s ‘middle class’?

            At $84,000 a year – too poor to buy a house – too rich to starve. The whole class is hard pressed to find a decent paying ‘second job’ so that it can better its $84,000 a year income – and that isn’t because the second jobs don’t exist, it’s because many of the second jobs are now taken by cheaper ‘global’ workers.

            Upward income mobility is stifled by a combination of the narrow specializations and skillsets required; and parallel the need for immediately useful experience in a difficult business that is in intense and unforgiving global competition.

            In the past, Bermuda’s middle class climbed upwards by two-jobbing in a much bigger and more vibrant and profitable hospitality centred industry. Today, that’s not possible. So, in 2006, what does Bermuda’s middle class of 2006 do?

            It twists and turns and searches and frets. It finds itself shut out and shut in. It finds itself unable to do what it has done in the past.  Today’s middle class Bermuda household and family is really the ‘piggy in the middle’. Stuck whichever way it turns.

            That’s not good and it bodes ill for the future. Perhaps some middle class responses are seeping through now. Perhaps Bermuda is seeing the beginnings of a small exodus of Bermudian professionals and semi-professionals. People who recognize that any upward mobility that they want to achieve is only possible in another economy in another place.

            Bermuda’s economy is a unique economy. It needs uniquely high quality attention. Bermuda’s peculiar national employment profile coupled with Bermuda’s very high per capita and household incomes puts Bermuda in the same sort of expense to income position as General Motors Corporation finds itself in today. And just look at what GM is considering and is actually doing – and is being forced to do.

            I started by saying “Bermuda’s middle class is certainly in the middle”. Perhaps I should have said: “Bermuda’s middle class is certainly being squeezed out of the middle.” 


(PS – Thanks to the many people who wrote in to clear up my befuddlement.) 



Like two snarling beasts, the two parties have bared their fangs, beat their breasts, uttered great roars, and circled one another. All this snarling, roaring, and breast-beating took place inside the divided chamber of Bermuda’s three hundred and eighty-six year old Parliamentary system. The snarling and fang-baring was the annual scrap over the morsel of Bermuda’s annual budget.

            Snarling and breast-beating is now done. The Budget is passed. The two beasts now pad off for an Easter break. Having rested, they’ll come back again. That’s Bermuda’s three hundred and eighty-six year old system working as it was designed to work.

            For three hundred and seventy-eight years it worked against the interests of the majority of Bermuda’s population. For the last eight years it may have worked for the interests of the majority population.  Democracy is all about the good of the majority without doing harm to the minority. For three hundred and forty years, Bermuda’s system clearly and specifically disadvantaged the majority and advantaged the minority. For three hundred and seventy-eighty years, the system was a democracy in reverse.

            With the big annual snarl now over, and after resting, the two beasts will return for more scrapping and posturing. That, again, is how the system works. Through it all, I’m still upset by one important, but admittedly esoteric, issue. Taxation.

            Why does Bermuda still retain the Customs Duty system as a major revenue raiser? Why?

            The basis on which it was first levied and then subsequently maintained, has changed. Using Customs Duty as a primary revenue raiser is now – I believe – both wrong and counter-productive.

            It isn’t just the demise of Trimingham’s and the special hardships visited on Bermuda’s still declining retail segment. Nor is it just the fact that our new-style tourism is not making, and in future will not and can not make, the revenue contribution through customs duty that our old-style tourism certainly did.

            I’ve observed that every time there is a new initiative to do something to enhance the quality of life for Bermudians, or to encourage investment in the tourism industry, the first – the very first – concession offered is an exemption from or reduction in Customs Duty. This has already happened with several other tourism initiatives. It has just happened again with Col Burch’s ‘Loughlands’ middle-income housing project.

            Clearly, very, very, clearly, many people in power see Customs Duties as a barrier or a difficulty or a negative. Why, then, keep the system? Why? Why not consider the obvious alternative of instituting a graduated Corporate Tax on Corporate profits on Bermuda companies?

            REMOVE the Customs Duty Tariff in its entirety. Or reduce it to a much smaller tariff on just some few luxury items. Or put on a small – 5%? – General Sales Tax. REPLACE the revenue from Customs Duty with a graduated Corporate Profits Tax that does not go higher than 8% total on annual profits in excess of $5,000,000. Give the International Business Sector a Tax rebate of 80%. This will mean that the maximum [graduated] tax paid by any IB entity would be 1.6% of their annual profits.

            Just look at the local company numbers. HSBC [Bermuda], declaring Bermuda branch profits of $120,000,000 would pay close to $9,000,000. Butterfield Bank, declaring $100,000,000 would pay about $7,500,000. Argus Insurance, declaring $17,000,000 would pay about $1,300,000. BF&M Insurance?  BTC? BELCO?…  Of course all these entities would first get ‘tax relief’ because they would not have to pay any Customs Duties.  Then there’s all those Accountancy and Legal firms. They would also get tax relief from Customs Duty, but would pay up to 8% on their annual net earnings.

            ‘Arrybody’  people, government, retailers, Tourism, International Business Service Providers, and International Business itself, must surely recognize that our tax system is outdated and needs to shift. So – shift it!

            Out with Customs Duty. In with graduated Corporate Profits Tax. Off with ‘tax haven’ sobriquet. On with ‘normal’ tax jurisdiction reality [just that we’d be taxing much lower than our competitor jurisdictions]. Start a real effort to lower some rocketing local costs and put a lid, of some kind, on our steeply rising and globally high local costs.            Instead of one more, and one more, and one more… time, giving concessions on ‘Customs Duty’; be bold and sagacious! Shift taxes! Use a graduated Corporate Profits tax.



Richard Galant of Newsday:  Now, though, Bermuda faces a storm of a different kind. Bermuda-related companies are caught in the web of a wide-ranging investigation by spitzer and the securities and exchange commission.” So, if everything seemed board-room, offshore, and not relevant, just consider these easy-to-see connected realities.

            Guilty pleas. So far, ten executives have entered guilty pleas. Four from AIG

, three from M&M, one from ACE. So 80% of the guilty pleas involve big insurance entities with a major presence in Bermuda.

            Marsh&McLennan, a major player in Bermuda’s insurance world, has already paid a penalty of $850m and cut its global staff. Jeffrey Greenberg [son of Maurice ‘Hank’ Greenberg] was required to ‘step down’ as M&M’s CEO. Insurance broker AON has paid a $190m penalty. That’s $1.04bn, so far, in penalties.

            AIG, the biggest player in Bermuda’s insurance world, is under investigation for questionable accounting practices that may go back fourteen years. AIG has admitted to ‘irregularities’. In its 30th April 10-K, AIG will admit to a new accounting loss of $1.77bn. To avoid harsh legal action, Maurice ‘Hank’ Greenberg [Jeffrey and Evan’s father] had to step down as CEO. Michael Murphy and four other Bermuda based AIG executives have made hasty departures.

            ACE, highly visible in Bermuda’s insurance world, has had 43 subpoenas – so far. ACE’s CEO is Evan Greenberg [Maurice’s son and Jeffrey’s brother]. In connection with Spitzer’s investigation, ACE has fired two top execs and, like AIG, remains under investigation.

            PwC [PricewaterhouseCoopers], the Bermuda-based global accounting and audit firm, profitably audited AIG’s books for thirty years. Accusations of accounting legerdemain, especially if they stick, have the potential to place PwC in the same embarrassing position as Arthur Andersen was with ENRON.

            Finite Risk Insurance. Bermuda leads in the development and sale of this new insurance specialty. However, this particular insurance product, as it is actually applied in the marketplace, is causing accounting headaches and difficulties and is upsetting some investors and oversight agencies.

            Investigations. USA state investigators, the SEC, and the Federal Justice Department, are investigating everything thing I’ve written about. They are now probing deeper and wider, and are questioning even more insurers, transactions, and accounting statements. ‘Hank’ Greenberg, under increasing pressure, invoked his Fifth Amendment rights and was less cooperative than Warren Buffett.

            Ultimately, what does this mean to us – to you – here in our Bermuda?

            It means that pressure on AIG will continue. AIG and its subsidiaries may downsize as they ‘adjust’ and ‘restate’ dollar numbers in order to ‘correctly state’ true values. AIG could slide from its current position as the world’s biggest insurance entity.  The web of inter-connected companies that do huge slices of their business with AIG could all have reduced incomes, lower profitability, and lower levels of employment. Even if, because of the magnitude of difference, AIG remains as the world’s largest insurer, it is still likely to emerge a leaner entity. 

            With ‘finite risk insurance’ taking this major hit, Bermuda’s whole insurance industry could shrink. Bermuda could find that employment of both local and permit workers could fall.

            In the global elephant fight, the Irish are happily knocking back extra Guinnesses as they contemplate a possible flight of ‘insurance’ capital from reputationally damaged Bermuda to ‘cleaner’ Ireland.           

            Already, some Irish websites are touting that Ireland has no term limits on work permits, is “a couple of times cheaper” than Bermuda, has more affordable housing, a good family environment, and more parking. Ireland does admit though, that it doesn’t have Bermuda’s warm and sunny climate.

            Lastly, regulatory agencies in the EU are planning to apply a new set of insurance regulations for all insurers and insurance transactions in the EU. The New York Times reports: “A European Union directive currently under discussion and scheduled to take effect next year [2006] will establish a regulatory framework spanning the 25-country union.”

            As a dependent territory of the UK – now the seventh state in the EU – it’s possible that under our current constitutional arrangement, these regulations can be made to apply to us in Bermuda. If there is any kind of dispute in this matter, then, under current constitutional arrangements, resolution may well lie within the EU’s supranational judicial system, and not within our own island system.

            On 19 November 2004, I wrote: “The stronger of Bermuda’s two national pillars is now under attack and the assaulting forces are still forming-up and massing their resources. The main assault is yet to come.”

            Four and a half months later, the main assault has begun.



After 163 years, Trimingham’s disappears. Was it foreseeable? It was. However, I don’t have a multiplicity of letters after my name, and I’m from Pond Hill; so ‘big chiefs’ and ‘captains of industry’ may not pay attention to what I have to say.

            That’s fair. They don’t have to. However, Trimingham’s – and HAE Smith’s – will still close.

            Prior to the 1950’s Bermuda was a small isolated economic unit. Trimingham’s – and HAE Smith’s – were big stores. Big, that is, relative to Bermuda’s market and economy.

            From the 1950’s through the 1980’s, Trimingham’s prospered. Tourists came and shopped by the half-million.  Change came. Tourist numbers declined. A now wealthier Bermudian consumer traveled more and began serious shopping overseas. Then the internet with its portals open to the whole world. By the late 1990’s, retail in Bermuda had changed forever.

            Trimingham’s long and special relationship with the Bank of Bermuda, coupled with Bermuda’s old exclusive style of doing business, meant that some old-established closely-held businesses became overly dependent on bank loans and overdrafts, and may not have regularly re-invested significant proportions of their profit. This wasn’t the best business strategy or wisest funding arrangement.

            It depended on the ability and willingness of the bank to advance funds and carry debt as performing debt. As long as the Bank of Bermuda remained a truly local bank, the Bank would follow local norms and go on funding Trimingham’s.

            The Bank didn’t stay local. The Bank became global. The Bank applied new global standards.

            One look at the relationship between Trimingham’s and the Bank; a second look at the viability of Trimingham’s as an ongoing retail operation; a few moments thought; one or two sums on the back of an envelope; and the answer was clear.

            The Bank should recognize that Trimingham’s would never be able to repay its loans and settle its overdraft. In global banking, there is no sentiment. There is calculation. Just calculation.

            The Bank demanded settlement. Trimingham’s couldn’t settle. The Bank closed in. Trimingham’s would have to go out of business and settle its debts. The rules had changed.

            One hundred sixty-three years of warm handholding in balmy Bermuda breezes passed.  A fresh wind bringing a new reality blew across Bermuda’s still leveling playing field.  The flag of a Bermudian flagship business was stripped from its flagpole. With that went the last of ‘Front Streets’ shrunken power.      

            In a conch shell, that is what happened.

            There are other key issues. One is that Bermuda’s Customs Duty tax system was designed as a source of revenue when tourism was growing and providing 500,000 tourists as consumers. The system was incredibly simple. Half a million tourists buying sweaters and china and meals and booze would pay the bulk of Bermuda’s Customs Duty tariff. Bermudians, at 45,000, wouldn’t.  Bermuda’s tax system had the tourist subsidizing himself as well as paying for us. It was – WAS! – an almost perfect tax system.

            Tourism declined. Global buying patterns shifted. Today, Customs duty hits local retailers hardest.  In some lines, it makes it impossible for them to compete with offshore sellers who sell through the internet. Additionally, Bermudians, now counting an overseas ‘trip’ as a birthright, no longer factor in the cost of travel when they swoop on North American malls and buy three of this and five of that…

            Lastly, the City Fathers, made up of fading old-style businessmen, their thumbs still stuck up their bums, have still not made Hamilton a traffic-free people-attracting shopping area where people just go to hang and chill – and spend more dollars. Every other country has discovered this. Every old town once clogged with traffic saw a marked increase in overall revenue when they created traffic-free shopping areas.

            Trimingham’s departure marks the end of Bermuda’s old style of doing business. Perhaps, now, businesses will raise capital by share offers. Perhaps Bermuda’s methods of imposing and collecting taxes will be rigourously re-examined. Perhaps we will all accept that in 2005 Bermuda is simply a pimple economy in a massive global game. Perhaps we’ll start to think nationally and objectively about how we really fit in the global game.

            The City Fathers need to unstick their thumbs and ‘just do it’.  We need to start revamping our tax system.  Businesses still struggling with bank loans need to broaden their ownership.

            As with Fabian’s winds, we are seeing strong winds causing more change. We Bermudians need to reach back into our long mutual heritage and sail, tacking and gybing together, in this new and stronger global wind.


Bermuda Ltd has about 37,000 employees. General Motors is downsizing by eliminating 30,000 jobs. Meanwhile Toyota Motors is expanding.

            Bermuda Ltd once had 11,000 hotel beds. Bermuda Ltd now has about 5,000.  Half a world away, in the Seychelles and Maldives, and closer to home in the Caribbean, they’re still adding hotel beds.

            Whether we like it or not; whether it’s considered politically correct or not; whether we talk about it or not; those car manufacturing and tourism realities are still realities.

            Bermuda’s tax system is still set up on the premises that were true for Bermuda in the period 1950 – 1980. Since 1980, the revenue streams flowing into Bermuda’s total national economy have shifted. 

            Revenue from on-island purchases of goods and services by tourists has dried up. Absolutely and relatively.  Revenue from working residents and on-island purchases of services – but not goods – by international business has increased. Absolutely and relatively. 

            Rents, house, and real estate prices have risen by huge amounts.  Across the board, wages paid to Bermuda residents have not risen as high as have rents and house prices. Restaurant meals, enabled by employment practices that allow Bermudians to be replaced by ‘global workers’, have not  risen as fast as house prices.

            In many areas – landscaping, building, retail… – real economic competition exists because the ability to employ global workers keeps costs and thus prices down.

            However, Bermuda Ltd is still stuck on the horns of its past. The old ‘Bermuda Inc’ was heavily involved in retail in a market where 600,000 tourists came ashore and where ACE and XL and HSBC didn’t figure. Bermuda Ltd is now actually operating its primary shopping mall – the City of Hamilton – with only one of it’s three ‘anchor shops’ still operating. 

            Bermuda Ltd now has a huge income stream from ‘executive residence’ and ‘office’ rents. This new and different income stream has replaced much of the retail activity source for Bermuda Inc’s consumption taxes.

            Bermuda’s rapidly expanding intellectual service providers – accountancy firms, legal firms, fund managers, research analysts, et al… – do not consume vast cartons of Shetland sweaters and Wedgwood and Royal Doulton. Anyway, all these items are now available in any decent shopping mall in any US or Canadian town or can be bought on-line – from any computer anywhere in the world.

            So here we are, in 2005, in Bermuda Ltd. Getting it wrong with our taxes. Still trying to extract tax revenue from a drying-up stream. Still using a consumption tax system that only ever puts additional high cost into an economy that is already dangerously close to being the world’s highest cost economy.

            About fifteen years ago, the bright and experienced men who ran General Motors and Ford Motors decided that they would concentrate production on high profit SUV’s. They ignored the reality that their high profit gas-guzzling products were being pushed out into a world where there was – and there would continue to be – increased and stiffening price competition for finite resources such as fuel.

            The thousands of ordinary Janes and Joes who work at General Motors and Ford Motors are now paying the price for their boss’s past strategic errors. The whole of the US economy is undergoing the same kind of change that we – on our 13,000 acre plot – have already undergone. We were hit by a change of industry. The USA is being hit by a transfer of its old manufacturing capacity to new non-USA manufacturers who are just as good – frequently better – and certainly much cheaper.

            The USA’s tax system is already adjusting to this by seeking to tax US corporations on their ‘worldwide’ profits or revenue. Here, at 65W32N, we seem determined to stick with our past tax system – as though it were divinely ordained. Bermuda Ltd, with a mere 37,000 employees cannot play this game much longer.

            There are four main reasons for a tax shift:

            ONE – It will enable some of our very high yet still rising costs to be brought down and kept down.

            TWO – Bermuda will be able to position itself, in the global economy, as a ‘normal’ tax environment – instead of a ‘tax free environment’.

            THREE – It will provide a short one-time windfall enabling some short-term investment in public education changes so as to enable a much faster catch-up in standards.

            FOURTH – Sustainable development and protection, especially of the human fabric that is the ultimate under-pinning of Bermuda’s economy, will be better enabled.

            It’s time to shift tax gears.


A short while ago I suggested: “Bermuda can shift taxes from Customs duty to corporate profits, give International Business an 80% profit tax rebate, take a national average corporate tax ‘bite’ of less than 2%, and still maintain – even improve – the standard of governance and provision that now exists.”

            Bermuda currently raises – seeks to raise – roughly a quarter, that’s about $190m, of its total budget through Customs Duties. What happens if revenue from a tax on corporate profits replaces revenue from Custom’s Duties?

            First, consider a graduated corporate tax on local companies. Four percent on profits from $100,000 – $5,000,000.  Six percent on profits from $5,000,001 to $10,000,000. Eight percent on profits from $10,000,001 up.

            Argus Insurance last declared $16,600,000 in ‘net profit’. Their total ‘tax bite’ would be $200,000 + $300,000 + $528,000 = $1,028,000 total tax, a little over six percent [6.2%] overall.

            BOB/HSBC? Last year they reported $120,000,000 ‘net profit’. Their total tax bite would be $9,300,000 or just 7.8% overall. BELCO?  Reporting $17,300,000 ‘net’, the ‘bite’ would be $1,084,000 or just 6.3%.

            These aren’t the only companies. There’s BCB, Capital G, BF&M, Key Tech, BNTB, Law firms, Accountancy firms, Construction companies, Shell, ESSO, etc, etc….

            Considering all local companies and given a total national ‘net’ profit of  [conservatively] $340,000,000 in a typical year, the total tax ‘uptake’ would be about $23,000,000 a year.  This would come only from local companies.

            This total $23m tax uptake is just 6.8% of the overall $340m aggregate. It is way below the tax rates of the USA and EU, where effective corporate tax rates are up to five times higher.

            What about locally based companies doing ‘international business’? From their reported annual revenues and net incomes, the aggregated ‘net income’ or profits declared by the companies that are incorporated in or said to be based in Bermuda surpasses [conservatively] six billion dollars [$6,000,000,000]. 

            If these companies declared their profits in Bermuda and paid taxes in the same way as Bermudian companies, they’d pay at the ridiculously low rates of 0.8%, 1.2%, and 1.6% – if they were given an eighty percent [80%] tax rebate.

            Aggregate declarations of $400,000,000 in the lowest 0.8% tax band would produce $3,200,000. Aggregate declarations of $1,600,000,000 in the next 1.2% tax band would produce $19,200,000. Aggregate declarations of $4,000,000,000 in the highest 1.6% tax band would produce $64,000,000.

            On aggregated profits of six billion dollars [$6,000,000,000], the total tax uptake would be a mere $86,400,000 or 1.4% overall.

            That’s an incredibly low tax rate when compared to Ireland’s effective low of 8%, the EU’s lowest corporate tax rate. Corporate tax rates in the UK, USA, Canada, etc… are ten to twenty times higher.

            Tax collectors in the US and EU are on an unrelenting quest to grab all the tax dollars they can. These national tax collectors have to feed gargantuan gobbling governments that have ever-growing appetites for dollars. These national tax collectors have a growing interest in choking-off  ‘tax havens’.  

            Put the two proposed tax uptakes together.  $23,000,000 [that’s 6.8% overall] from local companies plus $86,400,000 [that’s 1.4% overall] from ‘international business’ companies = a tax on corporate profits $109,400,000 altogether [that’s 1.7% of the total national tax base].

            Use this new revenue stream as a partial replacement tax. Eliminate those 22.25% customs duties.  Insert a new five percent [5%] ‘sales tax’ collectable and payable at the time of sale.

            The overall result?

            *          NO CHANGE in government’s total revenue.

            *          A  REDUCTION in the cost of goods sold that the retailer passes on to the customer – no more 22.25% customs duty.

            *          A REDUCTION in the cost of living because the cost of all consumer items in Bermuda would come down –  5% sales tax instead of 22.25% customs duty.

            *          HOLDING DOWN Bermuda prices as Bermuda retail prices actually drop – all prices down by an overall five to ten percent.

            This last point is nationally and strategically important. It would enable Bermuda to put a temporary lid on the high and rising cost of doing business in and from Bermuda.

            The ultimate payoff would be that Bermuda would actually be levying a genuine corporate tax. Admittedly a low tax.  Still, though, a tax on corporate profits.

            This ultimate point should be the main driver for Bermuda’s strategic tax thinking. Bermuda does not need more revenue. Bermuda does need to protect its future. Changing the tax stream will do just that – with many positive side effects

Jack and the Beanstalk Part ll

Reality? Bermuda’s long-term national economic interest lies in Bermuda’s ability to continue as a platform for International Business.

            This requires two successes. One – attracting and holding enough operations on its business platform so that 47,000 Bermudians are kept employed – or at least kept sufficiently economically active – and able to satisfy their needs within Bermuda’s economic environment.  Two – defeating the just-over-the-horizon threat that, like a slow tsunami, is heading towards us.

            The threat? Using still developing control, oversight, and investigative powers spawned by computers, the Internet, the greater ease-of-passage and interchange of information, money, and accounting value; big economies will choke-off companies seeking to recognize revenues in far-off ‘tax free’ jurisdictions. In time, Bermuda, as a ‘tax-free tax haven’ can expect to be choked off.

            Though slivers of global business will always manage to avoid significant taxation; these bits may not have enough economic mass to allow business platform Bermuda to benefit as it now benefits from the current activity of International Business.

            From this comes a need for Bermuda to re-position itself as a non tax haven country that does levy corporate taxes just like every other advanced economy.

            A critical difference! Bermuda’s current taxes support a national economy that is small but efficient. Other jurisdictions might need billion dollar revenues from corporate taxes. However, smaller and more efficient, Bermuda requires less than $200m annually from a levy on all corporate profits.

            Reality? Bermuda can shift taxes from Customs duty to corporate profits, give International Business an 80% profit tax rebate, take a national average corporate tax ‘bite’ of less than 2%, and still maintain – even improve – the standard of governance and provision that now exists. Such a shift would also enable material reductions in the cost-of-living and thus the real cost-of-doing-business in Bermuda.

            Using real typical numbers, the spreadsheet shows how this tax can work and what real revenues can come from such a low tax rate.

            With a national profits tax adjusted to meet Bermuda’s national needs, and with the growing influence of WTO global policies and guidelines, Bermuda can withstand the increasing pressures that the EU and the USA will bring to bear.

            Right now, the world’s smaller economies are tackling the bigger economies.  As these esoteric economic battles grind on, the global marketplace is becoming a fairer marketplace. Tax-free ‘havens’ are economic artifices that are inherently unfair.  Tax-free ‘havens’ will – must – eventually go the same way as special tariffs, preferential quotas, and agricultural subsidies.

            Around the globe, investigators and legislators digging into the huge corporate disasters like Enron [USA], Parmaalat [EU], BICC [Middle East], HIH [Australia], have not missed a common denominator. These corporate disasters are all linked to, and connected by, the ability to hide critical transactions in the global undergrowth – Spitzer’s ‘black holes’ – created by unregulated or lightly regulated ‘tax havens’. 

            Bermuda must anticipate, therefore, a global tightening of a global noose about the economic necks of jurisdictions involved in ‘hiding’ transactions.

            Increased openness – the USA’s Sarbanes-Oxley Act is one such result – is an important and new global reality flowing from global efforts to counter these corporate shenanigans.  If Bermuda imposes a profits tax on International Business, Bermuda will help provide more openness.

            Formally reporting profits – for tax purposes – will enable Bermuda authorities to spot business activities that are likely to bring Bermuda into disrepute and thus incur the hostility of bigger economies. Bermuda will be able to keep its own house clean, and, incidentally, offer clearer tax and accounting performance guidelines to businesses that choose to operate out of – and declare their profits in – Bermuda.

            This strategic tax choice also means that under still developing WTO guidelines, Bermuda will be able use its national autonomy as the primary protection for businesses operating from Bermuda. Bermuda will be taxing in exactly the same way as the USA and EU – just at a much lower level.  Bermuda will thus no longer be a tax free ‘haven’ – where corporations come to actually avoid paying any taxes whatsoever.

            Eliminating the ‘tax haven’ tag is in Bermuda’s best long-term strategic interest. Moving beyond that unfortunate catchword will take a vigorous global campaign emphasizing that, like every other ‘developed economy’, Bermuda taxes all corporate profits.

            If Bermuda makes this strategic tax shift now, Bermuda can avoid inevitable strangulation as the bigger economies and the WTO tighten their grips around the necks of those countries that they declare to be ‘tax havens’.