Business developments: rising employment costs, inflation and retail slump point to tough year

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by Jonathan Kent

The cost of employment is rising again. In October, the House of Assembly and the Senate approved an increase of $45, or 13.6 per cent in the Standard Premium Rate, the monthly cost of the minimum package that health insurers can offer. This followed an expensive year for the Bermuda Hospitals Board, which has been heavily impacted by the pandemic, and an increase in unemployment that has left fewer paying into the system. Social insurance rates could soon rise too, after an actuarial review recommended that contributions should rise at more than 4 per cent per year to extend the life of the Contributory Pension Fund and that the retirement age should go up over time to 70. 


A number of empty retail spaces have popped up in recent months and a downward trend in takings at the till is reflecting that. A retail sales winning streak of 12 months that started in June 2020 and was driven in part by post-lockdown, pent-up demand and a fall in the number of residents travelling, came to an abrupt halt last July when sales volume slumped 6.7 per cent. The three months reported by Department of Statistics’ Retail Sales Index since then have all been negative, the latest being a 6.6 per cent decline in October. Building materials sales bucked the trend, reflecting strong demand for home improvements, while a continuing rise in the value of goods shipped in from overseas indicated the growing popularity of online shopping with e-tailers like Amazon.  


 Inflation steadily gathered pace, though the latest 2.5 per cent print from Bermuda’s Consumer Price Index, for October 2021, was still showing little indication of the rocketing prices afflicting our largest trading partner, the US, where inflation hit a 40-year high of 7.5 per cent in January. Anchor Investment Management published a report questioning the accuracy of the CPI last October, suggesting inflation could reach about 6 per cent. Economist Craig Simmons advised the Government to undertake a consumer spending survey to update the CPI with information on modern spending habits.


Last year 137 countries reached agreement on the idea of a global minimum tax of 15 per cent for large multinational companies under Pillar 2 of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting. This year we are seeing evidence of the difficulty of putting it into practice. In the US, the Biden administration tied its legislative changes to its Build Back Better infrastructure bill, which failed to get Senate approval. In the EU, the European Commission has plans for a directive to make it happen. But with the bloc requiring unanimous support from all 27 member states for implementation of new tax rules, objections in January from Hungary, Poland and Estonia over the speed of planned implementation suggest that passage will not be smooth. Elsewhere, the campaign for carve-outs is well under way, most notably from the UK, which wants to exempt the City of London’s financial services companies. The OECD’s target implementation date of 2023 is already looking very ambitious. Meanwhile Bermuda will monitor developments in the rest of the world before determining its own course of action.

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