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Sunday, Sep 20, 2020

Update on Ministry of Finance COVID-19 Fiscal Plan

Update on Ministry of Finance COVID-19 Fiscal Plan

Bermuda has made considerable progress over the past few months fighting COVID-19. The island has seen fewer positive cases, the economy is beginning to open up, people are going back to work, and lives are slowly transitioning to ‘a new normal’.

Our diligence is paying off, and while this is encouraging, we must remember that the pandemic has not gone away and people are still adversely impacted by it and require our support, said Finance Minister Dickinson.

On May 28th, Finance Minister Dickinson provided an update to the general public on the continuing actions being taken as part of the Ministry of Finance COVID-19 - Fiscal Plan. That update covered three specific areas: the unemployment benefits; the Economic Advisory Committee; and the National Pension Scheme.

"Today, I am pleased to provide a further update on the Ministry of Finance COVID-19 - Fiscal Plan as Bermuda continues to ease restrictions relating to the COVID-19 pandemic," said the minister.

Since the onset of the pandemic, the Ministry of Finance has continuously stepped up efforts to provide support to deal with health emergency needs and assist individuals and businesses. As additional sectors of the economy are now opening, and with Phase 4 pending, the ministry continue to assess and implement additional measures as part of the plan to bring further strength and stability to our economy in a fair and equitable manner that appropriately takes into account the needs of the people of Bermuda.

The Ministry of Finance COVID-19 - Fiscal Plan has provided a fiscal stimulus to various components of Bermuda economy. Public resources have been directed to strengthen the healthcare sector and to support affected workers and economic sectors.

Overall fiscal measures

We have quickly taken appropriate steps to ensure the availability of emergency financing to supplement reduced revenues and COVID-19 related expenditures. Actions taken in this regard include: Executing agreements for $170 million of credit facilities with local financial institutions;

Further, preparations have already commenced to issue long-term government debt in the global capital markets, which will allow for the refinancing of these and other facilities, as well as effective management of the economic fallout from this crisis. Subject to market conditions, this transaction may also involve the refinancing of current government bonds at a more favorable interest rate.

Income support to individuals and Households:

Recognising that helping individuals in our community during this challenging time was a key priority, the Government quickly introduced an unemployment benefit, to assist people who lost their jobs due to restrictions imposed as a result of the pandemic.

The Ministry of Finance has played a key role in this scheme and we have paid benefits to over 9,700 persons for a total cost to date of approximately $38 million.

With the mandatory shelter in place restrictions being lifted, I can advise you that more than 3,500 persons have already gone back to work and are now off the programme.

However, to further assist those still not yet employed, the Government has decided to extend the unemployment benefit program for another 4 weeks with the maximum benefit now being 16 weeks. The cost to extend this benefit is estimated between $6-$10 million.

The National Pension Scheme (Occupational Pensions) Act 1998 was amended to permit a person under the age of 65, and has not retired, who participates in a private, defined contribution pension plan or local retirement product, to voluntarily withdraw up to $12,000, from the period that the Act was brought into force on June 1st until 30th June, 2021. To date the following applications have been made and approved:

Total Applications Received: 4,807

Total Number Approved: 972

Total Value of Applications Approved: $10,955,501

The National Pension Scheme (Occupational Pensions) Act 1998 was also amended to permit a person who has reached the normal age of 65 and has retired to withdraw up to 25% of their pension account balances. To date the following applications have been made and approved:

Total Applications Received: 40

Total Number Approved: 38

Total Value of Applications Approved: $857,292

New Fiscal Measures to further assist individuals

Following numerous requests from the public received by the Ministry of Finance and the Pension Commission, I am pleased to advise that additional amendments will be made to the National Pension Scheme (Occupational Pensions) Act 1998 and respective regulations to increase the scope of coverage and provide additional access to plan members as follows:

by removing the requirement for a member not to be retired for those seeking a $12,000 refund;
by removing the requirement for persons to be retired for those seeking a 25% refund; and
by removing the requirement for persons to be retired for those seeking a small pension refund.
The Government recognizes persons with financial need should not be restricted based upon whether they have retired or not. The main criteria in the types of refunds I have just mentioned should be whether they have met the age requirement or not. It is intended that these legislative amendments will be made in the current legislative session.

The National Pension Scheme (Occupational Pensions) Act 1998, will be further amended to allow for a suspension of employee and employer contributions for a twelve-month period commencing 1st July 2020 and ending on 30th June 2021. The Bill will be debated on Friday, June 19th in the House of Assembly. Participating employees will benefit from a 5% increase in their take-home pay.

Amendments to the Contributory Pensions Act 1970 will also be made to allow for employees, employers, and self-employed persons to suspend payment of their social insurance contributions for the whole of the suspension period (July 1st 2020 – June 30th 2021). This proposal will provide further relief to employees ($35.92 per week / $143.68/month). The Bill will be also be debated on Friday, June 19th in the House of Assembly.

Measures to assist businesses:

Deferral or temporary reduction of taxes/fees/penalties:

The Government has implemented further emergency measures to assist businesses that have a pressing need for financial relief as a result of this pandemic.

The Payroll Tax filing deadline was extended from April 15th, 2020 until May 15th, 2020. Approximately 1,250 businesses took advantage of this extension.

Penalties and fees that would normally apply for that period were waived.

For local companies and permit companies that were not able to facilitate their legislative filings and payments electronically, the deadline for filings and fees in relation to corporate reporting and taxes was extended to 30 June 2020. 1,040 companies took advantage of this concession; $850,000 in fees were deferred.

Current penalties and fees that would normally apply for that period are also being waived.

On May 21st 2020 Government announced further short-term relief from payroll tax to assist the restaurant and bar sector. During this quarter ending 30th June 2020, payroll tax has been set at a zero rate for the restaurant and bar sectors and these businesses have ceased deducting payroll tax from employees during this period.

The fiscal implications of these actions will be a reduction of Government revenue (estimated at $750,000 to $1 million). However, we anticipate that this relief will ease some of the pressure on restaurants and bars, and especially lessen the pain being experienced by many Bermudians who work in this sector.

Customs Duty Relief:

To assist with preparations for the threat of COVID-19, the Customs Tariff was amended during the budget session to provide duty relief for personal protective equipment and supplies.

Since 11 March 2020, when this amendment was brought into force, $1.5 million in Customs Duty relief has been forgiven.

On May 20th the Government announced that the Customs Department will, with immediate effect, allow retailers and other commercial importers to apply for duty deferment for up to six months on imported business goods subject to a minimal surcharge.

Import duty is normally payable at the time each import declaration is made to Customs; We recognised that upfront duty payment can place a strain on a business’ cash flow and that buyer demand is likely to be significantly impacted by the fallout from COVID–19. Duty deferment will allow customs traders, in particular retailers and Customs Clearing Agents, to increase the efficiency of payment handling and the management of their cash flow.

Long term duty payment deferral (more than six months) is also now available in certain circumstances.

Further relief for employers:

Employers who take up the benefit allowed by the amendments to the National Pension Scheme (Occupational Pensions) Act 1998, which were previously highlighted in relation to its impact on employees, will have a reduction in operating expenses (5% of payroll).

Total NPS Contributions are approximately $250 million per year.

Participating employers will also benefit from a reduction in operating expenses of $35.92 per employee per week. ($143.68/month), in relation to the amendment to the Contributory Pensions Act that was also previously highlighted for its impact on employees.

Total CPF Contributions are approximately $113 million per year.

It should be noted that if the suspension of contributions is taken up across the public and private sector, it will provide both relief and stimulus to families and businesses. The stimulus to the economy will be generated if some of the saving is converted to consumer spending in the local economy and business investment in infrastructure and improvements.

Public Sector loans/guarantees or Government loans/guarantees – Assistance to Small and Medium Enterprises

With respect to direct financial support to small and medium-sized enterprises (SMEs), the Bermuda Government, together with the Bermuda Economic Development Corporation (BEDC) developed the Business Sustainability & Continuity Funding Programme in response to the impact of COVID-19 on Bermuda’s SMEs. The programme, which will be in place until the end of 2020 (or until the funds are fully deployed), totals $24 million funded by a $12 million grant from the Bermuda Government and $12 million by BEDC from its allocated funding. The relief funding programme consists of a range of financing products for businesses to take advantage of such as:

- BEDC direct micro loans as well as relief micro grants;
- BEDC guarantees for overdrafts from Banks;
- BEDC guarantees for loans from external entities (such as Banks; Credit Unions; Private Companies; and Individuals).

At this time Government has provided the BEDC with $4 million of the $12 million grant that was mentioned previously. The BEDC has directly assisted 54 businesses with funding over the last 8 weeks and are actively processing more applications.

As has been stated many times during this crisis, the unprecedented nature of this pandemic has resulted in significant national economic challenge for countries globally, including Bermuda. Thus, as part of the process for development and implementation of our plan for economic strengthening and stability, we are utilising the strong public/private partnerships which exist in Bermuda, and the well-established networks we have with overseas persons and entities.

I have received valuable input from individuals, agencies such as the Bermuda Development Agency and the Bermuda Monetary Authority, as well as the wider business community within our island. In addition, I have also been able to draw on the expertise and long-standing knowledge of members of the Fiscal Responsibility Panel and the Financial Policy Council. These entities have provided input on matters relating to the impact that COVID-19 has had on fiscal policy and financial stability, and have also provided strategic initiatives for future growth and development in Bermuda.

Getting ongoing input from all of these sources, which include persons with extensive experience and expertise in Bermuda and/or overseas, has been and continues to be very beneficial to me, and to Bermuda. I would like to express my sincere thanks to those persons who have provided support in that regard.

In previous press conferences reporting on COVID–19 matters, I have highlighted the Economic Advisory Committee, which was specifically formed to provide advice on actions that will assist Bermuda businesses negatively impacted by this global crisis, and also provide input on initiatives to develop more opportunities for employment and create increased economic activity and government revenue.

At its most recent meeting held last week, the EAC (as it is referred to) focused on “quick wins” which could stabilize and or grow the international business sector, a significant contributor to public and private sector income in Bermuda. Also, the EAC has focused on additional proposals which could assist the hospitality and retail sector, which employs a significant number of employees and whose short term prospects are still quite dire.

As stated previously, we have taken a significant number of emergency and short term actions to provide relief to individuals, households and businesses which have been hard-hit by the economic fallout from COVID-19. However, we recognize that our strategies have to include all sectors that contribute to Bermuda’s economy and that more is still required in sectors where some support has already been provided.

The input provided at that meeting, among other things, provided additional perspectives on matters that were already being considered or needing consideration; and allowed me to have further constructive dialogue with my team and with other Cabinet Ministers for timely progression of key initiatives.

In our next meeting, it is intended that the focus will be on additional actions to support small and medium size enterprises. It is also proposed that there will be discussion on the work that is being done, to refine our economic modeling.

During this period the Ministry has had interaction with the rating agencies and we are pleased that both Moody's Investors Service (Moody’s) in May and S&P back in April, have affirmed Bermuda’s ratings. These ratings actions serve as an independent endorsement of the actions we are taking to mitigate the impact of COVID-19, however, we realize there is far more work to do in addressing the unprecedented challenges posed COVID-19.

The Ministry of Finance stands ready to take further measures as needed, and as developments unfold.

"In closing, I will once again thank our essential workers, everyone who is on the front line to ensure our health and well-being, and all those persons who are involved in the work to assist persons and businesses dealing with the challenges caused by this pandemic," said Minister Dickinson.

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