Bermuda in 2017 Convergence of the Offshore World An Emerging Common Economic Model?
Real GDP 115 Japan’s “Lost Decade” 1991-99
110 105
US Great Depression 1929-37
100
Spain 2008-16
95 90 85
Bermuda 2008-16
80 Greece 2008-16
75 70
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Greece Is Not the Only Economic Basket Case in the Western World – Our Long Term Jobs Record Is Even Worse Than Greece 145 140
But the Greeks have the Germans and the arrested development of pan-European institutional integration to account for their economic catastrophe.
Greece - Total Jobs
135 130
Bermuda - Bermudian Jobs
125 120 115
In Bermuda, we have nothing but ourselves to blame.
110 105 100 95
1978
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
Offshore Real GDP 2008-2016
130
Isle of Man 127
125 120 115 110
Guernsey 109
105
Cayman 102
100 95
Jersey 94
90
Andorra 90
85 80 2008
Bermuda 83 2009
2010
2011
2012
2013
2014
2015
2016
Changes in Government Revenues As a Share of GDP 35% 30% 25%
2007 2014
20% 15% 10% 5% 0%
Bermuda
Andorra
Cayman
BVI
BVI Annual Incorporations $180 mln.
200,000
$ 184 mln.
$ 192 mln.
$ 197 mln.
$ 200 mln.
175,000 150,000 125,000 100,000 75,000 50,000 25,000 0
47,000
2009
60,000
2010
2011
Number of Incorporations Incorporation Fees (in US$ 000's)
65,000
2012
64,000
54,000
2013
BVI Incorporation Fees As a Share of Total Government Revenues 70%
62%
60% 50% 40%
36%
60%
44%
30% 20% 10% 0% 1994
2000
2007
2014
BVI Government Revenue As a Share of GDP
35% 30% 25%
26%
29%
32%
20%
20% 15% 10%
13%
5% 0% 1994
2000
Other Government Revenues Incorporation Fees
2007
2014
Britain never granted Cayman the same degree of self-governance as Bermuda. By Caymanian law, Cayman must adhere to the following Principles of Responsible Financial Management: Operating Surplus Should Be Positive
Net Worth Should Be Positive
Debt Servicing < 10% Core Gov’t Revenues
Net Debt < 80% Core Gov’t Revenues
Cash Reserves > 90 days Expenses
Prudent Financial Risk Management
These principles are closely monitored and their values reported annually in Cayman’s Budget. Prior to 2008, Cayman’s government debt had been creeping higher, but the Global Financial Crisis triggered multiple financial alarms in Cayman…....
Cayman’s Compliance with the Principles of Responsible Financial Management 2009/10
2015/16
Operating Surplus Should Be Positive
Does Not Comply Deficit = C$ 30 mln.
Complies Surplus = C$ 128 mln.
Net Worth Should Be Positive
Complies C$ 512 mln.
Complies C$ 1.1 bln.
Debt Servicing < 10% Core Gov’t Revenues
Does Not Comply Debt Servicing = 12.9%
Complies Debt Servicing = 9.7%
Net Debt < 80% Core Gov’t Revenues
Does Not Comply Net Debt = 126.8%
Complies Net Debt = 33.3%
Cash Reserves > 90 days Expenses
Does Not Comply Cash Reserves = 48 days
Complies Cash Reserves = 113 days
Prudent Financial Risk Management
Complies
Complies
Debt Servicing as a Share of Government Revenues 20% 18% 16% 14%
In Cayman’s Principles of Responsible Financial Management Debt Servicing/Gov’t Revenues is required to be less than 10%
18.3%
12.9%
12% 10% 8% 6% 4% 2% 0%
Cayman 2009/10
Bermuda 2016/17
Bermuda Debt Servicing/Gov’t Revenues – almost twice Cayman’s responsible limit
Net Debt as a Share of Government Revenues 300% 250% 200% 150%
In Cayman’s Principles of Responsible Financial Management Net Debt/Gov’t Revenues is required to be less than 80%
243.4%
126.8%
100% 50% 0%
Cayman 2009/10
Bermuda 2016/17
Bermuda’s Net Debt/Gov’t Revenues = 3X Cayman’s Responsible Limit
In 2009, Britain responded to Cayman’s deteriorating finances by exercising greater control over Caymanian financial affairs.
Since 2009, Cayman must receive Britain’s approval of their annual government revenue and expenditure plans prior to the passage of Cayman’s Budget in their Legislative Assembly.
Amongst other reforms, Britain pressured Cayman to adopt the Framework for Fiscal Responsibility. Passed into Caymanian law in 2012, the Framework commits the Cayman Government to adhere to the following four policy principles: • Improving Medium Term Planning • Delivering Value for Money in Government Services • Effective Management of Risks such as Government Debt and Pension & Health Liabilities • Delivering Improved Accountability at All Levels of Government
Cayman Government Debt
C$ Millions
900 800 700 600 500 400 300 200 100 0
2009
2010
2011
2012
2013
2014
2015
2016
Current Tax Structure in Cayman Cayman derives its government revenues almost entirely from corporate fees, corporate licenses, custom duties and stamp duties. Corporate Fees – Annual fees are paid by all companies based on share capital. Corporate Licenses – Banks, insurers, fund managers and fund administrators also pay annual licensing fees ranging from C$5,000 to C$1,000,000 depending on size of business. All local businesses also pay annual licensing fees. Custom Duties – Duty on imported goods averages 22%. Stamp Duties – Taxes are paid on issuing various legal documents including: Real estate sales – 7.5%. Leases – Between 5% to 20% depending on term of lease. Conveyances – From 4% to 6%. Mortgages – From 1% to 1.5%.
Cayman Government Revenues by Type 2013/14 Stamp Duties & Other 13%
Customs Duties 25%
Corporate Licences & Fees 62%
Corporate Revenue Categories in Cayman’s 2016/17 Budget Greater Than C$10 Mln. C$ Mln. Annual Permanent Resident Work Permit Fee…....................... 20.4 Banks & Trust Licenses…............................................................. 31.2 Cruise Ship Departure Charges….............................................. 13.9 Information & Communications Authority License................ 11.4 Insurance Licenses….................................................................... 10.1 Mutual Fund Administrators….................................................. 47.6 Other Company Fees – Exempt….............................................. 110.9 Other Company Fees – Resident, Non-Resident & Foreign... 14.4 Partnership Fees…........................................................................ 52.4 Security Investment Business Licenses….................................. 17.6 Tax & Trust Undertakings…........................................................ 15.6 Tourist Accommodation Charges…........................................... 24.8 Work Permit Fees…...................................................................... 99.8
Total: C$ 470.1
These accounts comprise 51.7% of the C$908.5 mln. in Total Revenue budgeted for 2016/17.
Cayman Chose to Tap the Corporate Sector to Balance its Books While these major categories of corporate revenue for the Cayman Government comprise 51.7% of Total Revenue today, in 2006 these same accounts contributed only 27.5% of Caymanâ&#x20AC;&#x2122;s revenue.
35%
Revenues as a Share of Total Government Revenues
30%
Bermuda
25%
Cayman
20% 15% 10% 5% 0%
International & Local Company Licenses & Fees
Work Permits
Bermuda Government Revenues 2015/16 Telecommunication Licences (1.3%) Aircraft & Shipping Registry (3.4%) Hotel & Cruise Ship Taxes (5.4%) International & Local Company Licences & Fees (6.9%) All Other (7.3%)
Work Permits (1.1%) Corporate Service Tax (0.6%)
Payroll Tax (37.8%)
Non-Bermudian Real Estate Sales (1.1%) (2.2%) Stamp Duties (2.5%) Vehicle Licenses (2.9%)
(6.8%)
Customs Duties (20.7%)
Distribution of Tax Burden by Economic Function in 2014 100%
Stocks of Capital
90% 80%
Capital & Business Income
70% 60%
Labour Taxes
50% 40% 30%
Consumption Taxes
20% 10% 0%
Bermuda
Cayman
UK
Ireland
Luxembourg Germany
EU-28
Economic Policymaking Matrix in 2014
Cayman
Consumption Taxes
Gov't Revenues/GDP
✽Neither Bermuda nor
10 9 8 7 6 5 4 3 2 1 0
EU-28
Labour Taxes
✽
Cayman publish tax incidence analyses.
Progressivity
Bermuda
Capital Taxes
Percentage Change
Andorra Real GDP
3 1 -1 -3 -5 -7 -9
2008
2009
2010
2011
2012
2013
2014
2015
Percent
Andorra Government Surplus/Deficit % of GDP
2 1 0 -1 -2 -3 -4
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Percent
Andorra Government Debt % of GDP
45 40 35 30 25 20 15 10 5 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Percentage Change 0.0
World's Fastest Declining Populations 2008-2014
-2.0 -4.0
Serbia Romania
Bulgaria
-6.0
Croatia Puerto Rico Sint Maarten
-8.0
Lithuania -10.0
Latvia
-12.0 -14.0
Andorra
-16.0 -18.0
Bermuda
Source: World Bank Bermuda Data:
1.5 X Total 2008-14 Job Losses / Bermuda 2010 Census (1.5 X 6,738) / 64,319 = 15.7%
2008-2013 Change in Andorran Population by Nationality Total
-9.9%
Andorran
+11.6%
Foreign
-22.6%
Source: Commune Parish Census/Department of Statistics, Government of Andorra
Annual Change in Andorran Population by Nationality 4% 2% 0% -2%
2009
2010
2011
2012
2013
-4% -6% -8% -10% -12% -14% -16%
Andorrans Foreigners Total
2014
2015
2015
2008 Foreigners 63%
Andorrans 37%
Foreigners 54%
Andorrans 46%
Current Tax Structure in Andorra Personal Income Tax – Since 2015, residents of Andorra pay a tax of 10% on their world-wide income and capital gains. A personal allowance of EUR 24,000 is exempt. Corporate Profit Tax – Profits are taxed at 10% although international service providers can apply for a reduction of 80% of the tax base. VAT Tax – A tax on the sale of all goods and services is paid at a standard rate of 4.5%. Banking and other financial services are taxed at 9.5%. Social Security Tax – Employers pay 14.5% of gross salaries to social security of which 5.5% is deducted from employees.
In some ways Jersey’s problems are similar to Bermuda’s – collapsing tourism and a failure to diversify their finance industry (overreliance on offshore banking.) 1979 Tourist Arrivals – 1.5 million 2015 Arrivals < 400,000 That’s where our similarities end…..
Jersey’s Shameful Banking History Their Customers Have Included Some of the World’s Most Corrupt Politicians & Businessmen • South Africa’s Apartheid Regime • The Soviet Communist Party • Nigeria’s dictator General Sani Abacha • Enron • HBOS • Northern Rock Source: The Guardian
In the 1990’s, governments and supranational or multilateral organisations such as the EU and OECD began pressuring Jersey and other “tax havens” to adopt significant reforms in two areas: • Bank Secrecy (exchange of information agreements) • Harmful Tax Competition (changing their tax structures)
In 1997, the EU adopted a new Code of Conduct requiring all member states to subject local and foreign companies to the same taxation. Countries who wanted access to the EU market were expected to comply with these “harmful tax competition” measures. Guernsey, Jersey & Isle of Man had a problem. Domestic company profits were taxed at 20% while international companies paid no tax on profits. In response to the EU’s pressure, Britain’s Crown Dependencies developed a new “Zero-ten” corporate tax structure.
Jersey’s economy in particular has been adversely affected. Number of Jersey Banks in 2000 - 73 Banks in 2015 - 33 With the contraction of Jersey’s banking industry since the turn of the millennium, they lost a number of high paying jobs and the island’s income suffered commensurately. Jersey is working to diversify their economy, however, and in many ways they are adapting to a fast changing world much more successfully than Bermuda. Jersey’s job creation over this difficult period stands in stark contrast to our own.
Offshore Employment 120 115
Jersey 115
110 105 100 95 90 85 2001
2003
2005
2007
Bermuda 89 2009
2011
2013
2015
Jersey Economic Growth by Sector 120 110 100
Non-Finance 108
90
Total GDP 97
80 70 1998 2000
2002
2004
Finance 78
2006
2008
2010
2012
2014 As in Bermuda, Jerseyâ&#x20AC;&#x2122;s economy experienced a significant divergence between the financial and non-financial sectorsâ&#x20AC;Ś....
Bermuda Economic Growth by Sector 250.0 230.0 210.0 190.0
Finance 211
170.0 150.0 130.0 110.0
Total GDP 119
90.0 1998
2000
2002
2004
2006
2008 â&#x20AC;Ś..in Bermuda, however, the roles were reversed.
2010
Non-Finance 93
2012
2014
Jersey 1998 Non-Financial 43%
2015 Finance 57%
Non-Financial 51%
Finance 49%
Bermuda 1998 Non-Financial 76%
2015 Finance 24%
Non-Financial 59%
Finance 41%
Bermudaâ&#x20AC;&#x2122;s Economy by Sector in 2015 Eduction, Health & Social (10%) Public Administration (6%)
Financial
Business (9%)
(41%)
Real Estate & Renting (17%) Agriculture & Fishing
Transportation & Communications Hotels/Restaurants
Manufacturing
Wholesale & Retail Trade
Electricity, Gas & Water Construction
45%
Relative Growth of Bermuda International Company Fees versus Financial Sector Share of Total GDP
40% 35% 30%
International Company Fees/Total Gov't Revenues Financial Sector Share of Total GDP
25% 20% 15% 10% 5% 0%
1998
2015
Jersey Income Taxes Paid in 2007 Pre ‘Zero-Ten’ Total = GBP 430 Mln.
Companies 196 Mln.
Salary & Wage Earners 196 Mln.
Self Employed 38 Mln.
Guernsey's Taxes as a Percentage of Government Revenues
Percent
70 60 50
Pre 'Zero-Ten'
Post 'Zero-Ten'
Personal Taxes Corporate Taxes
40 30 20 10 0
2006
2007
2008
2009
2010
Sterling Millions
50
Guernsey's Budget Surplus/Deficit ‘Zero-Ten’ Corporate Tax
40 30 20 10 0 -10 -20 -30 -40 -50
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Current Tax Structure in Jersey Personal Income Tax – Residents pay tax on their world-wide income at a rate of 20%. Individuals deemed “high net worth” pay only 1% on amounts in excess of GBP 625,000 excluding Jersey property income. Corporate Profit Tax – As in Guernsey, a 10% tax on profits is paid by companies meeting the definition of “financial services.” Utilities pay tax on profits at a rate of 20%. Other companies are “charged” a tax of 0%. G&S Tax – A sales tax on most goods and services is applied at a standard rate of 5%. Social Security – Employees pay 6% of gross earnings towards social security contributions while employers pay 2%.
Current Tax Structure in Guernsey Personal Income Tax – Residents pay tax on their world-wide income at a rate of 20%, although total payment in any one year is capped at GBP 220,000. Corporate Profit Tax – A 10% tax on profits is payable by banking, domestic insurance and custody businesses and retail businesses when profits exceed GBP 500,000 annually. Utilities pay tax on profits at a rate of 20%. Rental income from land and property is taxed at 20%. VAT Tax – Guernsey has no VAT or sales tax. Social Security – Employees pay 6% of gross earnings towards social security.
Current Tax Structure in Isle of Man Personal Income Tax – Residents pay tax on their world-wide income at a rate of 20%, although total payment in any one year is capped at GBP 125,000. Corporate Profit Tax – A 10% tax on profits is payable by banking and retail businesses when profits exceed GBP 500,000 annually. Rental income from land and property is taxed at 20%. VAT Tax – VAT is applied on the same basis as in the UK. Sales of most goods and services are taxed at the standard rate of 20%. National Insurance – National Insurance contributions are payable by employers at rates comparable to those in the UK.
Change in Jersey Government Revenues by Category 2007-2015 Total Increase = GBP 132.7 Mln. Other Revenues 44.5 Mln.
Income Taxes 27.6 Mln.
Customs Duties .1 Mln. Goods & Services Tax 85.0 Mln.
GBP Mln.
Change in Guernsey's Government Revenues By Category 2007-2015 Total Increase = GBP 27.4 Mln.
20 15 10 5 0 -5 -10 -15
Income Taxes
Other Revenues
Stamp Duties Customs Duties
Property Taxes
Company Fees
Department Operating Incomes
30% 25%
Changes in Government Revenues As a Share of GDP 2007 2014
20% 15% 10% 5% 0%
Jersey
Isle of Man
Guernsey
70%
Change in Government Revenues 2007-14
60% 50% 40% 30% 20% 10% 0% -10%
Bermuda Cayman
BVI
Andorra Guernsey
Jersey
Isle of Man
35%
30%
25%
Changes in Government Revenues As a Share of GDP
2007 2014
20%
15%
10%
Bermuda Andorra
Jersey
Cayman
Isle of Man
Guernsey
BVI
Government Revenues As a Share of GDP in 2014 35%
The New Normal? 30%
25%
20%
15%
10%
Bermuda Andorra
Jersey
Cayman
Isle of Guernsey Man
BVI
Trading Places Offshore Employment 2001-2015 41,000 Cayman 39,138
39,000 37,000 35,000 33,000
Bermuda 33,319 Guernsey 31,230
31,000 29,000 27,000 25,000 2001 2002
2003 2004
2005 2006
2007 2008 2009 2010 2011 2012 2013 2014 2015
The Cayman Islands is now the largest British Overseas Territory.