The following continues Saturday's summary of UBP Shadow Finance Minister Grant Gibbon's reply to Government's 2001/2002 Budget *** Estimates of Revenue and Expenditure for 2001/02 Mr. Speaker. The widening gap between budgeted expenditure and revenue continues in the PLP Government's third budget. The $570.8 million budgeted for current account expenditure in 2001/02 represents a 7.2 percent increase over the revised figure for the previous year, and amounts to a multiple of nearly three times the rate of inflation and nearly three times projected GDP growth.

The expenditure estimates for 2001/02 contain some dramatic comparisons with prior years. For example, between 1998/99 and 2001/02, the Government travel budget is projected to double from $2.2 million to $4.4 million, while Cabinet Office expenditure is budgeted to increase by more than 60 percent over the same period to some $3 million.

This latter increase does not even include the consolidation of Statistics, Personnel Services and Management Services under the Cabinet Office.

For the second year in a row, the PLP Government is budgeting a massive increase in capital expenditure. The record $112.2 million capital allocation represents a 46 percent increase over the 2000/01 revised estimates. When this capital allocation is combined with the budgeted current account expenditure of $570.8 million, total expenditure increases by $73.9 million, or 12.1 percent, over the prior year's Budget.

It is worth noting that such a large capital allocation will likely overheat the construction industry. It is already difficult to get construction work done; if Government spends $112.2 million in the coming fiscal year, it will be near impossible.

The large demand for construction will also have an inflationary impact on housing costs, making affordable housing an even more remote possibility for many Bermudians.

Mr. Speaker. To put the 12.1 percent increase in total expenditure in perspective, let's look at the record of the UK Labour government. Over the life of the current UK Parliament, Chancellor Gordon Brown has raised government expenditure at an average rate of 1.2 percent per year. This is less than half the GDP growth rate of the UK economy.

In contrast, Bermuda's PLP Government is raising total expenditure by four times the projected GDP growth rate of 2.7 percent in 2001/02.

An expansionary budget of this magnitude might be appropriate in a severe downturn, when government spending could provide additional jobs and support beleaguered areas such as the construction industry. Indeed, in the early 1990s the UBP Government accelerated capital projects and encouraged the private sector to inject needed spending into the depressed economy. However, the Minister himself describes Bermuda's economy as `relatively buoyant'.

To increase total expenditure to the degree seen here is potentially inflationary, and increasing taxes and debt unnecessarily could put individuals, businesses and government in a weakened position should the current growth cycle deteriorate.

Interest payments in this budget are slated to rise by an additional $2 million to $13.5 in 2001/02. The PLP Government is putting Bermuda's future on the line for short-term political gains.

Revenue Projections Mr. Speaker. As we have heard, in the real world someone has to pay. In Bermuda, the PLP Government has decided that the $73.9 million increase in expenditure will be shouldered by the people through a broad range of tax increases, plus a $50 million increase in our national debt.

Most of the tax increases are on everyday items that will impact individuals and businesses alike. These new taxes are potentially inflationary, especially the duty increase on fuel imports. We find it curious that the Minister has chosen to hike the price of fuel when he has several times attributed rises in Bermuda's rate of inflation to higher oil prices. Let's take a look at how these tax increases will play out.

If you use a car or motorcycle, a new surcharge will bump the cost by $100 for larger cars, $50 for smaller ones and $10 for motorbikes.

An additional 5 percent increase in licensing fees will make driving even more expensive. This cannot seriously be intended as part of a plan to reduce traffic congestion.

An additional 5 percent duty on fuel imports will increase the cost of filling the tank. It will also add to your electricity bill and potentially increase the cost of local goods and services because most businesses on the island depend on transportation and power to operate.

If you travel abroad, expect a 25 percent increase in your departure tax to $25 per person. A family of four heading to Disneyworld will now leave $100 behind at the airport.

If you're a self-employed professional-let's say an architect, lawyer, doctor, dentist, surveyor or engineer-be prepared for your payroll tax to increase from 40 percent to 115 percent, based on a realignment of notional remuneration.

If you're a taxi operator, you've been singled out for special attention.

After you've paid $1,800 for your global positioning system, expect your payroll tax to triple on average, your gasoline expense to rise and your licensing fee to climb.

If you're buying or selling a piece of the rock, your stamp duties on the sale or purchase of property will increase.

If you chat on a cell phone, the new license fee will be $24 per year.

The duty on beer, wine and spirits will go up by 5 percent, impacting both residents and visitors.

The sin tax on cigarettes will add $6 to a carton, and for those who indulge, the duty rate on cigars will increase to 33.5 percent.

Mr. Speaker. In last year's budget, as a consequence of commitments made to the OECD, the Minister removed the option for exempted companies to pay payroll tax on the basis of assumed remuneration.

At the same time he introduced a payroll tax cap of $250,000 on an individual's remuneration. At the time, we noted the cap, for reasons of both fairness and OECD considerations, should have been extended to individuals in local companies as well. The Minister miscalculated the change in the payroll tax burden on exempted companies, and the cap has now been reduced to $225,000.

Whether this decrease is more than a token remains to be seen. Nevertheless, we do welcome the extension to local companies, which should have been done at the outset.

Economic Diplomacy Mr. Speaker. In the past year it has been unusual to pick up a newspaper without seeing stories about the OECD, the Financial Action Task Force and other international bodies targeting tax havens and offshore financial centres.

The debate centres on the concern by the G7 and other onshore governments that the low-tax and no-tax regimes of offshore jurisdictions present unfair tax competition and facilitate tax evasion and money laundering. The concern by the G7 has no doubt been increased by the growth of the Internet and e-commerce, which make it easier for companies, individuals and criminals to take advantage of the services offered by offshore jurisdictions.

Mr. Speaker. Bermuda to date has come through this intense scrutiny in relatively good shape compared with many other offshore jurisdictions. This is due in part to the recent efforts of the private sector, senior members of the civil service and current and former governments.

However, we must recognise that Bermuda has done well because it has been a responsible member of the global financial community and has kept in step with international standards for many years.

The BMA and the Insurance Advisory Committee have been operating toward this end for some time. Much of the legislative infrastructure-from Basle banking requirements to insurance, investment business and money-laundering and international-cooperation protocols-had been in place well before the 1998 OECD report.

Established `know your customer' rules and the substantive nature of business done here have developed over a long period and reflect the strong partnership developed between former governments and the private sector.

Nevertheless, Bermuda must continue to address the proposed changes and, indeed, commitments coming out of the various reviews. We feel these must be addressed openly and with full disclosure and discussion among the stakeholders.

Unfortunately, the Minister has yet to release the Annex to his commitment letter to the OECD. While we understand that financial service companies must comply by 2003 with the `ring fencing' aspects of harmful taxation and all other companies by 2005, it is not at all clear how the Minister intends to protect small business or indeed businesses that are of strategic importance to Bermuda.

We don't understand what he is trying to hide, as this information is essential to the affected businesses for planning and strategic purposes.

More recently, following the release of the KPMG Report response by Bermuda and other Overseas Territories, Melanie Johnson, Economic Secretary to the UK Treasury, stated: `These overdue measures need to be in place by the end of September 2001. The Overseas Territories themselves agreed when the review was published that these three priorities should substantively be in place by then, and I expect full delivery of their promises.' Once again, the Minister must tell the community what promises he made on our behalf. Mr. Speaker. One might well ask, what is in store for Bermuda? Clues come from the G7 finance ministers' report, `Actions Against Abuse of the Global Financial System', released in July 2000. In the report, the G7 pledge to intensify their cooperation and strengthen international frameworks to effectively combat money laundering and harmful tax competition and to improve the observance of international standards and good governance.

The G7 finance ministers clearly state that they are prepared to act together to implement countermeasures against those jurisdictions that are uncooperative and don't take steps to reform their systems. Early examples of sanctions in the form of US and UK treasury advisories have already been used against Antigua with significant impact on its offshore banking sector.

It is clear from this report that offshore jurisdictions, including Bermuda, will be under continuing pressure to open up the financial dealings of individuals, companies, trusts and other financial vehicles.

Other offshore jurisdictions will be forced to raise their standards and improve their regulatory infrastructure. These moves will enhance their reputations. They will challenge Bermuda directly on the basis of high standards and lower costs.

Many tourism observers would say that a similar progression occurred in the hospitality sector as islands to the south of us improved their infrastructure and service, which allowed them to provide four- and five-star quality at a very competitive cost.

Tourism Mr. Speaker. How much longer can Bermuda's tourism industry afford a throw-money-at-it PLP Government? In 1999, a new Tourism Minister and a new advertising agency and a troupe of Gombeys set out on a whirlwind, 100-day mission to rescue tourism. Two years and $72 million dollars later, the state of Bermuda's tourism industry is dismal, much worse than before the PLP Government began its misguided efforts at revitalisation.

In what surely is understatement, the Minister of Finance says, `While tourism remains the second most important sector of Bermuda's economy, it contracted further last year.' While the Minister of Tourism spins his way through `contracting' statistics, we believe it is worthwhile to highlight the key indicators from last year.

Air arrivals to the end of November 2000 are down by 7 percent to their lowest level in 20 years. This represents the second straight year of decline under the PLP Government. Even worse, during the same period air arrivals from the United States, where the bulk of our marketing dollars are spent, are down 9 percent.

Bed nights are down by 12.5 percent to the end of November 2000, the first year of double-digit declines in recent memory.

Air-visitor expenditure for just the first three quarters of 2000 is down by $21.3 million, the first significant decline in 3 years.

Employment in hotels and restaurants is down by 9.3 percent from the previous year. Since tourism remains the major employer of Bermudians, this drop is significant.

Hotel occupancy figures are up slightly, from 59.6 percent in 1999 to 61.6 percent in 2000, and the Minister claims that this is encouraging. But last year, there were 428 fewer hotel rooms to fill. Would the Tourism Minister still claim success if occupancy levels continued to climb and the number of hotel rooms continued to drop? Cruise arrivals reached a record 208,000 in 2000, a 6.5 percent increase, which brings their overall percentage to nearly 40 percent of overall visitor arrivals. Apparent efforts by the Tourism Minister to replace lost air arrivals with cruise passengers can only be detrimental in the long run, as cruise visitors spend only one-sixth as much as air visitors.

Mr. Speaker. Recently the Dockyard cruise ship Crown Dynasty was cancelled.

The TWA flight from St. Louis was cancelled. Delta's second seasonal flight from Atlanta was cancelled. After two years, there is no cruise-ship policy.

After two years, there is no air-service strategy. After two years, there is no marketing plan.

There is no replacement yet for Club Med or the Belmont, and there is no movement on Morgan's Point or Hotel de Ville. The 2000 Visitors' Survey shows that `the overall rating of Bermuda as a vacation spot has continued to decline. It is at its lowest level to date.' That's the customer speaking, our most important critic.

Mr. Speaker. How long can the tourism industry survive on hope and unfulfilled promises? Hope doesn't translate into jobs and upward mobility for Bermudians.

Against this bleak backdrop, the current budget contains numerous taxes that work directly against a turnaround in tourism.

The departure tax was raised 25 percent; it is now one of the highest in the world and a clear disincentive for group and family business. The increased duties on fuel and alcoholic beverages will negatively impact a struggling hospitality industry; those properties applying for concessions have just had them neutralised.

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