2023/24 Bermuda Budget Snapshot

"A sustainable economic recovery"

The 2023/24 budget highlights the Government’s goal of achieving balanced and sustainable economic growth, which projects a balanced budget
in 2024/25 and a $29.0m surplus in 2025/26. Growth is anticipated to come from increasing our workforce in Bermuda and increased investment
in capital expenditure for critical infrastructure such as education, housing and our tourism sector, including bold plans to repurpose the Morgan’s
Point development.
The Government’s budgeted increase in revenues is heavily reliant on increased payroll taxes, much of which will be borne by those earning higher
incomes over $132,000. Concern has been expressed over the impact this may have on international business, many of which pay this tax on
behalf of employees. Our national debt combined with the rising costs of doing business and increasing pension liability also require significant
consideration. Macroeconomic factors such as inflation, international conflicts and global minimum tax will also have implications which are not
yet fully known. The longer-term picture is likely to be one of significant change including climate change which the budget did not address as a
potential enabler of sustainable economic growth. In this snapshot, we share the key points from the budget and our perspectives on the impact
of this budget.

TOTAL TOTAL TOTAL CAPITAL BUDGET

DEBT REVENUES EXPENDITURES EXPENDITURES DEFICIT

$3.29b
for 2023/24
$1.16b
for 2023/24
$1.20b
for 2023/24
$96.0mfor 2023/24
$43.5mfor 2023/24

-1.5% 4.0% 3.8% 21.0% -43.8%

$512.5m $71.6m
44.4% 6.2% $972.6m $130.4m
Payroll Company 80.3% 11.8%
tax fees Current account Interest on
$227.3m expenditures debt
19.7% $87.2 $257.0m
Customs 7.5% 22.2%
$96.0m
duties Land Other fees 7.9%
taxes and taxes Capital
expenditures

Bermuda's 2022/23 results at a glance

Value of new International New
construction work business registrations
for the first three
quarters of 2022 +5.2% | 230 812
+20.6% | $100.6m new jobs 934 in 2021/2022

Additional number GDP increase Inflation rate

of jobs filled estimate
3.8%
1.3% | 402 +3.4 to 3.9% 12 month average rate
as measured by CPI

The implications: KPMG's perspective

• Tax reforms and cost of doing business: While most international and • Economic Recovery Plan and Economic Development Strategy:
local businesses are pleased to see that the increases in payroll tax are KPMG is pleased to the Government has included metrics of
not as significant as originally proposed in the Pre-Budget report, there implementation rate regarding the Economic Recovery Plan (80.0%).
will still be a significant impact on international businesses, particularly Now that two years have passed since the original launch of the
those that pay both the employer and the employee portions of this tax. Plan, KPMG believes a holistic review of the performance of all of the
underlying initiatives in this Plan could help assess the extent to which
• The 2023/24 budget includes a series of changes to the payroll tax they are contributing to Bermuda’s continued economic growth. We also
marginal rates. While the decrease in employer payroll tax should act look forward to the unveiling of the Economic Development Strategy and
as a stimulus for economic activity, it is noted that exempt companies an update on the ongoing work regarding pension reform as these are
will not see a reduction in employer payroll tax, while the majority of intrinsically linked.
employee payroll tax in the international business sector will increase
under the new marginal bands. • Climate change and sustainability: The impact and opportunities
associated with climate change were not addressed in this year’s
• Other reforms such as the 5.0% fees on a range of business budget. We believe the Government should position climate change
activities, the introduction of a regulatory fee for corporate and sustainability at the center of its economic growth strategy for the
compliance, as well as the upcoming 5.0% increase in immigration following reasons:
costs and the ending of COVID-19 payroll tax concessions will all
increase the cost of doing business in Bermuda. • Governments all over the world, in particular in island jurisdictions,
are investing and prioritising climate change adaptation and
These factors will likely impact on our competitiveness with other mitigation, rooting their economic recovery strategies in strong
jurisdictions for growing our workforce and attracting talent to commitments towards environmental and social sustainability, as
the island. they represent a once-in-a-lifetime opportunity to create growth and
employment while shifting to a more resilient and cleaner future.
• Infrastructure investment for sustained economic growth:
KPMG commends the Government for prioritising critical infrastructure • Small island states are most affected by climate change, with
projects which will work as stimuli for economic growth and job economic impacts estimated at average annual losses of 5.0%
creation. The Government reiterated its commitment to fulfilling of GDP by 2025, escalating to 20.0% by 2100 (compared to
its investment promises regarding the Morgan’s Point Project and -0.5% globally)1.
proposed a new redevelopment vision and investment plans for the
first development phase, which includes a range of residential rental • There is a real economic growth opportunity: The World Bank has
apartments with a component for senior’s housing, commercial retail identified climate finance and impact finance as fundamental tools in
and restaurant opportunities. There is risk associated with this strategy the fight against climate change. As stated in our Net Zero Readiness
with an additional $130m of new investment and further Government Report – The Rise of Small Island Economies2, the gross value added
guarantees, but if successful will allow Bermuda to recoup some of by the sustainable blue economy amounted to $1.5tr in 2010, a figure
the $165m plus additional costs already incurred on the original project. that is likely to double by 2030. As a global financial sector leader
The residential component is also welcomed in a context of the acute looking to diversify and innovate, Bermuda is uniquely positioned
housing shortage on the island and the need to provide capacity to to benefit from the ongoing global asset reallocation towards
support the strategic growth of our workforce. sustainable products. Moreover, mitigating the risks of climate
change holds opportunities for Bermuda’s reinsurance industry with
• Attracting Foreign Direct Investment and talents: KPMG welcomes experience in climate related catastrophe risk.
the Government’s openness to reevaluating the inward investment rules
later this year. KPMG would be supportive of further opportunities similar • Global minimum tax: The OECD global minimum tax provisions
to the Digital Nomad and Economic Investment Certificates, which represent a fundamental shift in how large multinationals are taxed,
provide a much-needed boost to the economy, in a context of aging and particularly with respect to income earned in jurisdictions with low
declining population and job creation in the last 15 years. We are also (or no) headline corporate tax rates. KPMG is supportive of the
pleased with the Government’s position to consider options for different Government’s efforts to analyse potential jurisdictional responses to
financing models for important infrastructure projects. these evolving provisions in order to maintain Bermuda’s competitive
position on the global stage.
1 Climate Analytics. Thomas, A. and al, https://bit.ly/3klhryb
2 Net Zero Readiness Spotlight: Islands – The rise of small island economies – beyond net zero, attracting private capital. For full report: https://bit.ly/3kr5Dun

FY 2023/24 Budget Estimates

ORIGINAL ESTIMATE REVISED ESTIMATE BUDGET ESTIMATE
2022/23 2022/23 2023/24
$000 $000 $000
Revenue and Expenditure Estimates

Revenue 1,077,802 1,111,036 1,155,525

Current Account Expenditure (excluding debt service) 945,065 932,625 972,632

Economic Relief/Additional Expenditures - 8,000 -

Emergency BHB Grant - 15,000 -
COVID-19 - 10,026 -

Current Account Balance (excluding debt service) 132,737 145,385 182,893

Interest on Debt/Guarantee Management 129,750 143,411 130,400

Surplus (Deficit) Available for Capital Expenditure 2,987 1,974 52,493

Capital Expenditure 72,987 79,338 96,007

Budget Surplus (Deficit) (70,000) (77,364) (43,514)

Revenues
Total revenues Key changes in revenues
• Total revenues forecast for 2022/23 are $1.1b which is 3.1% higher than the • Employer payroll taxes will either stay the same or decrease compared
original forecast, driven by increased in tourism revenues, payroll taxes and with last year, depending on tax band size and sector. The temporary payroll
stamp duty. These increases have offset the loss of revenue from the aircraft tax concessions introduced during the COVID-19 pandemic will also end in
register owing to the Russia/Ukraine conflict, the freeze of fuel prices and the March 2024.
elimination of duty on essential goods.

• The revenue budgeted for 2023/24 is $1.16b, an increase of 4.0% from

the revised estimate for 2022/23. This increase is due to payroll tax
changes, increases in certain government fees and passenger fees from
tourism growth.

Business Tax Bands Previous Rate New rate Change %

Annual payroll < $200,000 1.75% 1.00% -0.75%

$200,000 ≤ Annual payroll ≤ $350,000 3.50% 2.50% -1.00%
$350,000 ≤ Annual payroll ≤ $500,000 6.50% 5.25% -1.25%
$500,000 < Annual payroll ≤ $1,000,000 9.00% 7.50% -1.50%
Annual payroll > $1,000,000 10.25% 10.00% -0.25%
Exempt Undertakings 10.25% 10.25% 0.00%
Self Employed Farm, Fish 1.75% 0.00% -1.75%
Education, Sport, and Science Institute 1.75% 1.00% -0.75%
Qualifying Retail 7.00% 6.00% -1.00%
Hotels & Rest. with annual payroll ≥ $350,000 6.00% 5.00% -1.00%

Employee payroll taxes

• Employee payroll taxes will be lower for those earning less than $132,000 which is 86.0% of Bermuda’s workforce. The Government has introduced a fifth tax
bracket and allowed employers to be exempt from paying employer payroll tax for employees on maternity and paternity leave.

FY2022/23
Previous Income Bands New income bands FY23/24 Marginal rates
Marginal rates
$0 - $48,000 1.5% $0 - $48,000 0.50%

$48,000 - $96,000 9.0% $48,000 - $96,000 9.25%

$96,000 - $235,000 9.0% $96,000 - $200,000 10.00%

$235,000 - $900,000 9.5% $200,000 - $500,000 11.50%

$500,0000 - $1,000,000 12.50%

Expenditures Other taxes

2022/23: • Extension of customs duty exemption for investments in plant and

equipment to the personal care and personal fitness sectors (currently
• Current expenditure: Total current account expenditure (excluding debt
only for restaurants and retailers).
service and guarantee management) is expected to reach $965.7m and
be 2.2% higher than originally budgeted for in 2022/23. This is due to an • Revisions to the Sugar Tax (this will now only apply to high
unbudgeted emergency grant of $15.0m to Bermuda Hospitals Board, sugar consumables).
$10.0m in COVID-19 related expenses and the Government’s $8.0m
• Elimination of taxes on aggregate imports used to manufacture concrete
economic relief package (support to families and additional funding to
and concrete blocks.
the Bermuda Police Service, Fire and Rescue Service, as well as mental
health services). • 5.0% increase fees for: stamp duty, trademark fees, fines, solid waste
dumping fees, immigration fees (with the exception of passport fees),
• Interest on debt: Owing to a one-time cost associated with government
planning fees, seaborne shipping fees.
debt refinancing, debt servicing costs are projected to be $143.4m or
10.5% higher than initially budgeted. • 5.0% increase in the top two bands of Land Tax.

• Capital Expenditure: Capital expenditure is projected to be $79.3m or • Introduction of a regulatory fee for corporate compliance by the Registrar
9.0% more than initially budgeted for 2022/23 (due to additional funding of Companies.
approved to Tynes Bay and funding for additional affordable housing).
• Introduction of a fee to register properties as vacation rentals (based on the
2023/24: ARV of the property).

• Total expenditure is projected to reach $1.2b, which is 3.8% higher • Introduction of fees to access government information through the Public
than in 2022/23 and driven by an increase in capital expenditure to $96.0m Access to Information Regime (PATI).
(highest budgeted capital spending in 13 years) to revitalise Bermuda’s
• Increase in court fees.
infrastructure including the Hamilton floating dock, Tynes Bay and Parish
primary school education facilities.

Future changes

• Phase 2 of the Mortgage Guarantee Programme, which removes the age • Measures will be implemented to increase tax compliance (no announced
restriction so that any Bermudian applying for a new mortgage is eligible and policy or programme yet).
allows for public officers to apply.
• Payroll tax relief for new hires will come to an end in March 2024 but the
• Amendments to the Tourism Investment Act to allow the Government greater Government expects to be able to reduce employer payroll tax rates further
discretion in the granting of relief under the act to developers and investors in next year to compensate for this.
the tourism economy.
• Government reforms to the public sector to complete reviews and establish
• $15.0m committed over three years to build more affordable housing units. cost savings opportunities (no announced policy or programme yet).

Contact us

James Berry Mark Allitt Gary Pickering Will McCallum

CEO Head of Advisory Head of Audit Head of Tax
jamesberry@kpmg.bm markallitt@kpmg.bm garypickering@kpmg.bm willmccallum@kpmg.bm
+1 441 294 2643 +1 441 294 2669 +1 441 294 2713 +1 441 294 2645

Steve Woodward Vicky Hitch

Partner, Sector Lead Senior Manager, Charlotte Reboul
KPMG Enterprise Advisory Manager, Advisory
stevewoodward@kpmg.bm vickyhitch@kpmg.bm charlottereboul@kpmg.bm
+1 441 294 2675 +1 441 294 2710 +1 441 294 2648

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