So the PLP, in all their glory, came up with the brilliant idea of placing “term limits” on how long those business leaders could stay on the island.

This – combined with the general pissiness of  the PLP towards expatriates and international business – led to a massive exodus from the island.   Voilà, no critical mass.

The PLP’s actions have excoriated our economy.  Bermudians from blue collar to white collar are feeling tight around the collar.  No matter what the spin says, IT’S NOT THE GLOBAL ECONOMY that fuxed Bermuda.  It’s our own weak political leadership that smothered the golden goose.

Back in the days of hubris, the Cayman Islands copied Bermuda’s term limits excess.  They’ve now admitted this was a mistake and also deeply damaged their economy.  They are now moving to undo term limits.

Admitting is the first step to recovery.  The second is voting in a competent Government.

A move in the right direction, but sadly it’s a little late.  Anyone who works in international business can confirm the mass exodus that has occurred from Bermuda in recent years of mid-to-upper management.  Dang, even Bermuda companies have been moving operations out.  This has had a crushing impact on the Bermuda economy, from jobs to rents, from retail to Government revenue.

And among the causes of this migration from Bermuda?

1. The ongoing hostility from members of the rotating PLP Cabinets towards the international business sector, our biggest employers and the heart of our economy.
2. The ethics eruptions and fiscal incontinence under the PLP that have added “political risk” to any meaningful discussion of Bermuda.
3. The Premier’s own “Term Limits” fiasco that drove large numbers of middle managers from Bermuda to other offices … leading to those entire teams eventually being relocated out of Bermuda.

This policy shift acknowledges that they have stubbornly pursued policies that have destroyed huge opportunities for Bermudians, both blue collar and professional.

Much of Bermuda’s current financial distress is due to our own Government’s ineptitude.

This morning Paula Cox tabled the Public Accountability Act in the House.

On the surface, this sounds phenomenal … because we all know our Government needs to be more accountable to the public!  I mean, where did that billion dollars go?

Except that’s not what it’s about.  The new law merely lays the ground work, as required by European directives, for the supervision of accounting firms performing audits of companies that are listed on stock exchanges in the EU.  A more honest title would have been “EU Audit Supervision Act”.

But that’s a lot less exciting isn’t it?

The Premier says “Governance is important.”  Ah indeed.   How about improving our Government’s governance some?  Anti-corruption law.  Campaign finance law.  Actually implement PATI.  Improve responsiveness to your own audits.  The list goes on …

So, it’s refreshing to hear Evan Greenberg, chairman and chief executive officer of ACE, speaking out to the Royal Gazette:

“When you’re an island out in the middle of the North Atlantic, it’s pretty easy to forget that you don’t just live in a world unto yourself. Bermuda should recognise that we [Ace] are competing in a global economy.

“As a company in a market economy we have to constantly remake ourselves. I wake up every day knowing that we have to be relevant or we disappear. Bermuda needs to be informed and should be informed by the same, in order to remain relevant. You need to be attractive to business and that means you’ve got to be competitive.

“And generally that involves an enlightened regulatory environment, an infrastructure that is cost-competitive and a bureaucracy that is not overly burdensome. And that it’s clear in the way it’s organised that it wants to attract and retain business, that business is not a source of evil. I’m not sure that message is always clearly understood.

“There’s a fallacy in looking at a large business and saying, ‘The individual pieces don’t matter, they’re inconsequential’  It’s the sum of the parts that makes the whole.

“All of the parts have to be well-operating and efficient. And a company of the size and the geographic spread of Ace, has more options, more opportunities to imagine efficiency and cross-competitiveness.

“When we look at a place of function we’re going to look at flexibility and efficiency – and included in that is cost.

“I’m mindful that we are a corporate citizen. On the one hand we’re a member of the community and on the other hand we’re a guest. I don’t make the decisions for a country, I don’t make the rules.

“Governments have to decide, based on their own priorities what those rules should be. Then we, as businesses will decide whether those rules work for us, or not. Business is going to go where the environment is the friendliest and the most predictable.

“A well educated, motivated, hungry, ambitious workforce is always an attraction to business.  The societies that I observe, where business thrives and economies are growing, they are those where there is a premium placed, starting in the family, on education. There is a work ethic, pride, ambition and a level of skill that is admirable. That’s a winning combination.”

He’s making his points politely but hits all the points where Bermuda falls down:

• Education, education, education
• Bad Government attitude towards their largest employer and tax contributor
• Burdensome tax structure

The media today reports that the number of work permits declined 24% between 2007 and 2009.  You can bet they are down even further in 2010 … and I hear murmurs that more jobs will slide away this winter.

Bermuda must change its approach to this important economic sector – and fast.  The momentum has turned against us, and only sustained effort to listen and rebuild the goodwill can make a difference.

What will Bermuda do to prove that we’ve turned the corner and will stop taking business for granted … how can we again prove our relevance and stability?

And Government today has at last been honest.  The whole programme is xenophobic window dressing.  In 70% of cases they have extended the limit or waived it.   But it is a very unpredictable threat: 30% of the people get the heave ho.  Try your luck!

Sorry, most businesses don’t work that way.  If you can’t count on the tenure of your senior executives in Bermuda, it means you can’t count on Bermuda.  You make other plans.  And they have.  The number of work permits has dipped steeply in the past two years – taking with them untold millions in taxes, rent, and money flowing through our local economy.  These jobs were not cut;  they were transferred to Switzerland, Dublin, etc.  They were lost to Bermuda.

Remember, the 70% only applies to the cases where the employers fight.  In most cases, they say aw screw it, let’s build up Plan B in a friendlier or cheaper jurisdiction.

That’s just incredible.  Idiotic.  The policy is a failure.  Scrap it.

Every PLP speech is prefaced now by the effects of the global recession.  That is a red herring: more damage has been wrought on the Bermuda economy by the direction actions of two PLP policies 1) term limits and 2) the increase in payroll/social taxes needed to fund the orgy of public sector “leakage.”  Full stop.

This is all good stuff (although in the interests of transparency, they should provide more information on who is receiving EEZ benefits).

There is now talk of creating EEZ in the East and West ends of Bermuda.  And this is where I start to lose the plot.

In an island as small as Bermuda, why are these small business development programmes getting hung up on location?

The EEZ concept is normally used overseas to help lure business back into a blighted area – bringing with them the corresponding jobs, foot traffic, and local tax base.

It’s not like we have a surplus of blighted neighborhoods or much virgin territory seeking brave new colonists.

I think Government should stay clear about its goal:  helping more small businesses start up and grow.  You don’t need a “zone” for that.

This is a mistake.  These companies depend on longevity of their senior people.  If they can’t retain them here, then they will retain them elsewhere … with the resulting shift of emphasis away from Bermuda.

This sentiment was strongly reiterated at a big insurance symposium last week (prompted by the large number of recent defections from Bermuda) where speaker after speaker downplayed the importance of domicile and underscored the “ability to freely hire talent from around the world”.

They are making their point very clearly … will Bermuda keep being bullheaded?

This is certainly the case of Bermuda under the PLP, and even more so under the combative rule of Ewart Brown.  The clear instruction given to many Bermudians is “YOUR OPINIONS DON’T COUNT.”

But Bermuda differs from many countries in one respect.  In addition to the “chattering classes” and the “silent majority” we have the “whispering guest workers”.

They make up a significant proportion of our population but have NO political voice.  They drive the island’s prosperity but are excluded from much of its policy making, and indeed are abused by the PLP for cheap short term political gains.

The resentment caused by this official malbehaviour is one important reason that Bermuda’s international sector is yearning for the clear air – and straight-forward attitude – of yonder alps.

Last week Ace announced that 17 jobs were being cut from its Bermuda office.  It caused a lot of jagged nerves on the island … and I assume the only reason the announcement was made is because the job losses primarily affected Bermudians.  The dirty little secret is that expat management jobs are also leaking away from many companies at an alarming rate … but these don’t make the headlines.  They just quietly leave.

The BDA raised an interesting point last month when they asked why, if payroll tax was raised 15%, were recent payroll tax returns only up 8%.  The reason is straightforward.  I am told that the number of active work permits in Bermuda has declined by several thousand over the last year.

This has obvious implications.  Fewer taxes are being paid.  Fewer homes are being rented, and less money is flowing through the economy.  Fewer associated jobs are available to Bermudians.  Worst of all, most of these executives are not being laid off: they are being transferred to their companies’ other locations … shifting commitment away from Bermuda.

The next Premier of Bermuda has a hell of a task to undo the damage done to Bermuda’s international sector by Dr. Poison Pill and Colonel Tantrum.  Combined with the extended soft insurance market and redomiciles, the rough relationship will lead to more and more jobs sliding away over the coming quarters.

With our official spending habits, we can’t afford that.

We talk all the time about Bermuda’s commitment to KYC/Know Your Customer standards.   I suggest that we also start trying to get to know our customers a little better.

And to start treating them with a little respect.

But everything’s OK here.  Really.

This exodus began in 2007.  And the PLP has tried suuuuper hard not to be antagonistic since then.

At least in part, we have ourselves to blame.

Sooooo, presumably Government is up to speed on the following proposal, which is being floated by DC City Council Council chairman Vincent Gray and others.

Namely, they propose that the US Congress help turn DC into an insurance centre:

Currently, about $60 billion of American insurance companies’ reserves for natural disasters is sitting in banks in Bermuda and the Cayman Islands— in the United States, federal law holds that it must be taxed as income, so companies save a bundle by keeping it offshore (and meanwhile, Bermuda has pretty near the highest per capita GDP in the world). If Congress created similar tax conditions for insurance companies in the District, some of those funds would certainly come here, creating a significant number of new jobs.

A proponet of the idea says:

The idea should gain traction in Congress because lawmakers are starting to worry about hurricane season—and the fact that all of America’s insurance reserves are sitting in another country not subject to U.S. regulation. The District is a perfect place to relocate them, since Congress could only create such favorable tax conditions in a jurisdiction where it has total oversight. (In the 1970s, the Feds did a similar favor for Puerto Rico, making the protectorate a tax haven for pharmaceutical companies.)

This is a new threat to Bermuda – and it certainly shows some original thinking from a local government.

The odds of this effort succeeding are slim – both through being accepted by Congress or being broadly attractive to the insurance community.  However, it is more murk in the water in which Bermuda swims and underlines the importance of our Government working positively with our international customers to ensure their needs are met and that they “feel the love”.

More after the jump.

A PROPOSAL TO AMEND THE U.S. TAX CODE TO EXCLUDE FROM TAXABLE INCOME CATASTROPHE RESERVES
MAINTAINED BY INSURANCE COMPANIES DOMICILED IN THE DISTRICT OF COLUMBIA

Summary of Proposal:

It is proposed that Congress amend the U.S. tax code to exempt from federal taxation money that is set aside in designated “catastrophe reserve funds” by qualified insurance companies located in the District of Columbia.  A “qualified insurer” would be any insurance company that is domiciled in D.C. and meets the standards for doing business as an insurer in that jurisdiction.
The proposal would allow the U.S. to compete with off-shore jurisdictions to keep insurance company catastrophe reserves in the U.S., by providing tax incentives for such funds to be maintained  in the District of Columbia, where Congress has exclusive legislative authority.  These reserves will provide additional economic security for U.S. jurisdictions that are subject to natural catastrophes, as well as providing revenue and jobs to the District of Columbia and the surrounding region.

Details of the proposed legislation

•    Qualified insurers would be entitled to (i) a deduction for contributions to catastrophic loss reserves, and (ii) an exemption from gross income for income, gain, and other investment earnings on catastrophic reserve funds.  Qualified insurers could engage in any lawful and authorized insurance business and would otherwise be subject to the same Federal income tax as other domestic property and casualty insurance companies.  That is, after the deduction for contributions to their catastrophic reserves, they would be taxable on their investment earnings other than investment earnings on catastrophic reserve funds.

•    Qualified insurers could underwrite all lines of property and casualty risks, either directly or indirectly through reinsurance.  The proposed Federal tax benefits to qualified insurers, however, would apply only to contributions to catastrophic reserves and the investment earnings on those reserves.

•    Eligible catastrophes would include windstorms (hurricanes and tornados), earthquakes, fire, floods, and other named perils.  The bill might also be written to include terrorism risks that are not covered by TRIA.

•    The proposal would create a backstop of private, insurance company funds held in reserve against future natural catastrophic losses, instead of putting the U.S. taxpayer on the hook for potentially vast sums through some kind of Federal Government backstop as was done with terrorism risk through the Terrorism Risk Insurance Act.  Since little of this money is currently taxable, because it is held in non-U.S. jurisdictions where it is not taxed, the loss to the U.S. Treasury of allowing the funds to be kept tax free in the District of Columbia would be negligible.

•    Congress has direct legislative authority over the District of Columbia.  The proposal would avoid the need to deal with the separate laws and authority of state insurance regulators.  It would also provide the District of Columbia with a source of earned revenue, through jobs and local taxes, thereby reducing or eliminating the need for a federal payment to make up for the District’s constricted tax base due to its limited land area and inability to tax the Federal Government, international activities and the earnings of non-residents.

Sadly, he said these were issues that Bermudians would have to resolve themselves.  For the corporations’ own part, he said, the work and the jobs would gradually move elsewhere where there is less friction.  No grand statements or slamming doors, he said, we’ll just explain it away as a commercial restructuring and keep our options open.

So, I have to sigh a little when I see in today’s paper:

In an interview yesterday, Amlin Bermuda’s managing director Stuart MacKellar said the restructuring was purely a commercial decision and in no way reflected any negative notions about Bermuda as a jurisdiction.

We’ve been hearing that a lot lately haven’t we?

This is kind of like the ole breakup line, when the exiting lover says “the problem isn’t you, it’s me” when they actually mean “the problem is you and I’m so outta here.”

The rule of the schoolyard is that if you keep saying fack you to someone, eventually they will believe you mean it.  Then they’ll say fack you back and go find another group of kids to play with.

You don’t believe Bermuda’s immigration policies are a risk factor?  Funny, virtually every major international company in Bermuda does:

RISK FACTORS
Certain of our senior executives who work in our Bermuda operations are not Bermudian and our success in such operations may depend in part on the continued services of key employees working in Bermuda. Under Bermuda law, non-Bermudians (other than spouses of Bermudians and holders of permanent resident certificates) may not engage in any gainful occupation in Bermuda without an appropriate governmental work permit. A work permit may be granted or renewed by the Bermuda government for a specific period of time, upon showing that, after proper public advertisement, no Bermudian (or spouse of a Bermudian or holder of a permanent resident certificate) is available who meets the minimum standards reasonably required by an employer with respect to a certain position. The government of Bermuda places a six-year term limit on individuals with work permits, subject to certain exemptions for key employees. No assurances can be given that any work permit will be issued or, if issued, renewed upon the expiration of the relevant term or that key employee status will be granted or revoked.

UPDATE:  Huge crowd, couldn’t get in.  Denis is tweeting it at http://twitter.com/21Square.  The large turnout is a rarity for Bermuda – showing the importance of this issue.  It appears that Government is willing to extend term limits to 10-15 years, and even extend it further in some cases.  Which bears the question:  why do we need term limits at all?