presented by Fiance Minister Eugene Cox yesterday.

To His Honour the Speaker and Members of the Honourable House of Assembly Mr. Speaker, the Budget for 2001/2002 reflects this Government's continuing efforts to support sustained social and economic progress for the people of Bermuda. This Government's long-held vision of transforming our Country into a land of equal opportunity for all, based on principles of fairness, equity, accountability and full democratic participation is the overarching framework for the 2001/2002 Estimates of Revenue and Expenditure.

Within this framework, the focus is a stable level of economic growth and social development in the Country so that Bermudians may realise their collective and individual potential. As Government, we are committed to building an economy and a community where everyone has the opportunity to participate and share in the benefits of economic progress.

At the outset, this Progressive Labour Party Government committed itself to a capital programme to rebuild vital infrastructure for the delivery of fundamental services in education, housing and transportation. Continued implementation of that capital programme is a central element of the 2001/2002 Budget.

We are also mindful that in a small Island community, issues of sustainable growth and development are best addressed through proper planning and effective policy coordination. This Budget underscores these principles.

Mr. Speaker, since assuming office in November, 1998, this Government has undertaken a series of small -- but vital -- reforms to bring about greater equity in the distribution of the tax burden and to diversify the sources of Government revenue. With this Budget, this effort will continue. The adjustments that we will make this year will re-align the tax base to link it more closely to the growth sectors of the economy and thereby allow for natural increases in the tax yield.

Mr. Speaker, macro-economic stability and safeguarding Bermuda's reputation as a premier international business jurisdiction remain as key policy objectives of this Government. In this regard, Bermuda was able to sustain its high rating during a period when a number of other jurisdictions experienced downgrades. The most recent external review of Bermuda's economy by the international rating agency, Moody's Investors Service, resulted in a continued strong rating outlook of Aa1, a designation that denotes firmly rooted economic and political stability.

External Economic Challenges Mr. Speaker, it is appropriate at this time for me to comment on Bermuda's outcome in major reviews of various aspects of our economy by international entities. During the past year, the Organization for Economic Co-operation and Development (OECD), the Financial Action Task Force (FATF), the Financial Stability Forum (FSF) and the Regulatory Division of KPMG have each issued reports of varying weight and consequence.

In June, 2000, the OECD released its report entitled Towards Global Tax Co-operation. The OECD was concerned about what it entitled "harmful tax competition''. The OECD Committee on Fiscal Affairs, which spearheaded the review, focused on offshore financial centres and preferential tax regimes within OECD member countries. The outcome for countries judged to have harmful tax practices would be coordinated defensive measures. The Bermuda Government worked closely with our partners in the business community to address the OECD challenge and, as documented, the outcome was favourable. The OECD did not list Bermuda as a tax haven. Government has signed an agreement to adhere to the principles of fair tax competition. In making this commitment, Government agreed to continue its exchange of information practices, extend such practices where they are mutually beneficial, to maintain a high standard of transparency in business practices and to provide for a closer integration of Bermuda's domestic economic system with the global economy.

Mr. Speaker, the commitment given to the OECD is recognition of the changing international economic landscape and the new role and responsibilities facing premier international business centres like Bermuda. Countries that understand the new dynamics and are proactive will be successful in the new global economy. In this regard Bermuda has already succeeded in navigating the first crucial steps.

Mr. Speaker, the Financial Action Task Force Review was concerned with serious international criminal activity, including money laundering. Bermuda's legislation and financial regulatory systems were examined and passed scrutiny. As a result, the FATF did not list Bermuda in its June, 2000, report. Fifteen other jurisdictions were listed as non-cooperative and subsequently, the negative business consequences for these jurisdictions have been significant as G7 countries have issued bank advisory notices against some of the non-cooperative jurisdictions.

The widespread global financial crises of the late 1990's led to the creation of the Financial Stability Forum in April 1999, whose purpose is to promote international financial stability through information exchange and international co-operation in financial supervision and surveillance. The FSF tasked a Working Group to produce a report on the role of Offshore Financial Centres (OFCs) in the global financial system, with a particular focus on risk factors for financial instability. The FSF representatives held preliminary discussions with Ministry of Finance and Bermuda Monetary Authority officials in the first quarter of last year. And subsequently, without further consultation, published their preliminary findings in May, 2000, stratifying 42 countries into three subjective groupings.

Mr. Speaker, there was no opportunity for offshore financial centres, including Bermuda, to review the report or to clarify or challenge the initial findings. Bermuda was listed in Group II signifying that it was generally perceived by onshore supervisors as having legal infrastructures and supervisory practices and/or a level of international co-operation that was largely of a higher quality than Group III but lower than Group I.

Government strongly believes that, when Bermuda's supervisory and regulatory regimes are viewed as a whole, they will be classified at the highest level.

This view is supported by the findings of the comprehensive and objective evaluation of Bermuda's financial services regulation conducted by KPMG on behalf of Her Majesty's Government.

Mr. Speaker, the KPMG Review, tabled in this House together with Government's formal response, is perhaps the most rigorous examination to date of our financial regulation.

I will not repeat the details of our response here, however, I will say that Government welcomed the Report. We are pleased with its confirmation that in all of the essential areas, Bermuda's regulation of financial services is already consistent with applicable international standards or with good practice. Steps are being taken to comply with the recommendations in those instances where it is possible to make sensible improvements.

Bermuda has also been recognised by the United States Government to have satisfactory "Know Your Customer'' rules, a recognition that will enable Bermuda-based financial institutions to obtain Qualified Intermediary (QI) Status from the US Internal Revenue Service. Under the new IRS rules, institutions without QI Status will be required to reveal the identity of all clients with US source income and to automatically deduct a 30 percent withholding tax from such income. Institutions with QI Status will not be impacted in this manner.

Mr. Speaker, this string of positive outcomes for Bermuda leaves our Island community well positioned -- not only to maintain its place as a leading financial services centre -- but also to advance our standing in the world economy at large.

Trends and Prospects for Bermuda's Economy 2000 - 2002 Mr. Speaker, over the last few years, Bermuda's economy grew at a strong and steady rate, above the ten-year trend rate of 2.8 percent. Growth in real GDP was recorded at 3.2 percent in fiscal year 1998/1999, and this change was followed by a 3.3 percent increase in 1999/2000. For the present fiscal year, GDP growth is estimated at 2.9 percent.

Rapid expansions of domestic capital investment and international business expenditure have been the primary engines of Bermuda's economic growth.

Tourism, while suffering a long-term decline, has also been a major contributor. Price levels have been relatively stable and should continue to remain flat, barring any sharp increases in oil prices. Over the next year, these fundamentals are expected to continue to characterise the economy.

International Business Sector Mr. Speaker, International Business remains the most vibrant sector of Bermuda's economy. This dynamism is evident in the growth of registered companies, the expansion in their expenditures and the relative stability in the number of jobs in the industry. In 1999, the number of registered companies rose by 4.9 percent to 11,476. Expenditures by international firms rose by 20.2 percent to $912.1 million in the same year. In reflecting these trends, employment climbed by 13.2 percent year-over-year to a peak of 3,255 jobs in 1999.

Available indicators suggest that the International Business sector continued its strong performance in 2000. The number of registered companies rose 9.5 percent year-over-year to a level of 12,567 in December, 2000, and expenditures are estimated to have risen to $1 billion, an increase of approximately 12 percent from the previous year. An analysis of growth within the International Business sector indicates that the expansion in the telecommunications and e-commerce fields was especially striking. Employment in the sector was marginally below the previous year's peak level, down by one percent to a level of 3,216 jobs.

In the coming fiscal year, it is anticipated that the International Business sector will continue to be the mainspring of Bermuda's economy.

Tourism Industry Mr. Speaker, while Tourism remains the second most important sector of Bermuda's economy, it contracted further last year. In keeping with a downtrend that has been evident for several years, in 2000, the number of foreign visitors to Bermuda decreased by 7,000 to 543,000. This long-term contraction left the total visitor inflow some five percent below the most recent peak set in 1996. On the basis of the number of visitor arrivals in 2000, visitor expenditure for that year is projected at $455 million, a decrease of five per cent from the previous year. In the same year, employment in the hotel and restaurant sectors was recorded at 5,175 jobs, down by 9.3 percent form the previous year.

Overall, the year 2000 was not a good one for Tourism. While visitors arriving on cruise ships rose by 7.8 percent, the number of airline passengers decreased by 6.2 percent. This less than stellar performance of the Tourism industry was due in part to the closure of several of the Island's visitor accommodations.

Government's tourism initiatives in the last year have sparked significant investment proposals, which provide hope that the long decline in Bermuda's tourism will soon be reversed. In particular, the development of Tucker's Point by Bermuda Properties Limited and Rosewood Hotels and major investments planned for Princess properties and other major hotels and cottage colonies will substantially improve hotel facilities in Bermuda. The cruise ship industry continues to grow with arrivals reaching record levels. Moreover, Tourism remains a major employer of Bermudians.

Trends in Other Sectors Mr. Speaker, declining visitor arrivals place pressure on those Bermudian retailers that rely on tourists for a significant component of their annual sales. Domestic retailers also face daunting challenges from overseas competitors with increased access to Bermudian consumers through expanding air travel and innovations such as online shopping. Improvements made to facilitate imports by the Customs Department should help importers improve the efficiency of their businesses.

Bermuda's construction industry turned in a strong performance in 2000. The industry's measure of activity (the "value of work put in place'') was recorded at $73.9 million in the first half of the year. The high level of activity in the construction industry resulted in steady increases in the amount of employment and income generated. With busy construction programmes forecast for both the public and private sectors, this industry is forecast to remain active for some time.

Mr. Speaker, the Government's fiscal position remains strong. Significant revenue growth and restraint on current expenditures is projected to generate a revised current account surplus of $81.2 million in 2000/2001. Large capital expenditure programmes reflected Government's commitment to investment in Bermuda's infrastructure and will require further utilisation of loan facilities in the year to come.

In the meantime, Bermuda's economic strength was recognised by Moody's Investors Service confirmation of Bermuda's senior debt rating of Aa1. This was based on the Island's prudent macro-economic policies, favourable external position and very low debt and debt-servicing ratios. Despite the forecast increase in debt required to finance Bermuda's capital expenditure plan, Moody's is confident that the economy will remain vibrant, based on the strength and growing diversification of Bermuda's international business sector.

Mr. Speaker, the balance of payments current account showed a surplus of $260 million in 1999, and a further substantial surplus was expected for 2000.

Since 1995, Bermuda has been posting surpluses above 7.5 percent of GDP. The growth in international business is the largest contributor to the current account surplus that overcomes a chronic merchandise trade deficit.

Bermuda experienced an increase in the rate of inflation since the summer of 1999 primarily due to the steep increase in world oil prices. As a small open economy without significant domestic production, Bermuda is susceptible to the effect foreign inflation has on imported goods. Bermuda is very dependent on petroleum as the energy source for electricity as well as transportation. The rate of inflation in Bermuda in 1999, as measured by the Consumers Price Index, was 2.4 percent. The rate of inflation was slightly higher in the year 2000 and is expected to be 2.7 percent for the year.

Another important measure of economic performance is job creation. The Employment Survey for 1999 revealed an increase of 1,701 jobs, which is a growth rate of 4.9 percent. Preliminary results from the 2000 Employment Survey show that while the number of jobs in Bermuda was largely unchanged, there were significant employment gains in the financial services sector. An increasing number of jobs in a variety of fields offer unprecedented opportunity for Bermudians. As is the case worldwide, many of these jobs are in fields such as accounting and computer science. Therefore, quality education of the Bermudian work force is more important than ever to ensure Bermudians continue to compete successfully for these highly skilled and highly paid positions.

So, as measured by economic growth, inflation, and job creation, Bermuda's economy is currently performing relatively well. Getting the economic fundamentals correct is critically important in creating the environment where the businesses and industries operating in Bermuda can flourish.

Economic Prospects for the 2001/02 Budget Mr. Speaker, continued growth and diversification in the International Business sector will be the primary engine of growth as Bermuda's success in positioning itself internationally as the world's premier international business centre continues to attract reputable companies. Increased expenditures in the domestic economy by international companies will support growth in domestic demand with positive effects for Bermudian businesses and employment. The construction industry will remain buoyant with several large projects proposed in both the public and private sectors. Increased investment in the tourism industry will support construction in the short to medium term, and this will have a positive long-term effect on the Tourism sector.

However, a cautionary note is in order. In both Canada and the United States of America (the main sources for our visitors), national economies are going through a slowdown. As a by-product, Bermuda may experience further decline in tourism in 2001/2002.

Mr. Speaker, after weighing each of these salient factors, Government projects that Bermuda's economy will expand at a slower but nonetheless healthy rate of 2.7 percent in 2001/2002.

In summary, Bermuda's economy performed relatively well in the year 2000 with strong growth supported by excellent fundamentals and prudent Government policies. The record shows that the Government has managed its responsibilities well and the economic prospects are good for the year ahead, even with the risk of a mild recession in the United States.

Part II Review of Revenue and Expenditure Revenue Mr. Speaker, Bermuda's relatively buoyant economy has provided a good foundation for Government revenues. We estimate that the original targeted revenue of $591.8 million will be exceeded by some $6.2 million. Therefore the revised revenue outlook for 2000/2001 is projected to be at the $598 million mark, about one percent above the original estimate for the year.

The increased revenues are expected to come from two primary sources: Payroll Tax which is currently some $11.2 million above estimate and fees from international companies which are roughly $3 million ahead of the original estimate. Land Tax receipts are expected to hold firm at the original estimate of $35.5 million.

The increases have been offset by reduced expectations from Customs Duties, sale of land to non-Bermudians, Passenger Tax, Stamp Duties, Post Office receipts and vehicle licences.

Expenditure Mr. Speaker, the social focus of the Progressive Labour Party Government is demonstrably shown by the increased resources channelled into human service areas such as health, education, housing and social welfare.

In 1997/1998, the last complete year of the United Bermuda Party administration, the combined portfolios of the Ministry of Health and Family Services and the Ministry of Education amounted to $159.3 million and accounted for 35 percent of total current account expenditure. In 2000/2001 the revised estimate of planned expenditure for the two Ministries amounts to $197.4 million and accounts for 37 percent of the total current account budget.

Increased resources have been devoted to education to reduce class sizes and thereby raise the instructional quality of teacher-student interaction.

Libraries have extended their hours to accommodate the needs of a hard-working public, and resources in this area have increased by 50 percent over the period.

Support for public health services, including the hospitals, has risen from $68.2 million in 1997/1998 to $81 million in 2000/2001, an increase of nearly 20 percent over the period. Some of the additional resources were used to help design and develop disease management and prevention programmes for asthma, heart disease and diabetes, all of which are major causes of hospitalisation in Bermuda.

In the area of housing, additional resources were directed to the Bermuda Housing Corporation to assist its programmes of increasing the stock of housing for lower income families. Since this Government took office, 134 residential units have been added to the Corporation's rental stock as a result of the renovation of derelict units, the new building programme and the private sector rental programme.

Mr. Speaker, this Government has also enhanced the protection available to those who are financially vulnerable in our community by increasing the allocation for financial assistance from $10.9 million in 1997/1998 to $15.4 million in 2000/2001.

Mr. Speaker, I spoke earlier of this Government's defence of Bermuda's economic interests in relation to challenges from the OECD, the FATF and the FSF and I have just provided a thumbnail sketch of the progress of our social policy objectives.

I should like now to review for Honourable Members the items of supplementary expenditure that were incurred during 2000/2001. These supplementary estimates are included in the revised estimates of expenditure for 2000/2001, which now stand at $532.3 million.

The supplementary estimates on current account for 2000/2001 totaled $11.2 million. However, $5.7 million of this total are "technical supplementaries'' in that they are simply the reallocation of existing appropriated funds. Such "technical supplementaries'' arise from the reassignment of Ministerial portfolios that took effect from April 1, 2000. The departments affected were Human Affairs, Parks and Works & Engineering. None of the "technical supplementaries'' will cause the total expenditure on current account to be exceeded in 2000/2001.

The balance of $5.5 million of additional current expenditure is largely accounted for by the following items. The Inquiry into Serious Crimes cost $235,000 and covered fees for the Chairman and Commissioners, travel and accommodation services and legal services. The Office of the Tax Commissioner was reorganised to provide sufficient resources to support the core functions of tax audits and compliance. Four staff was added and one temporary post was created. The cost of the reorganisation in 2000/2001 was $185,000. A sum of $285,000 was required to settle litigation costs arising from a civil suit under the USA - Bermuda Tax Convention Act 1986. The civil action was initiated during the previous United Bermuda Party administration but was only settled in April, 2000. A sum of $447,000 was required by the Department of Education to support the addition of nine teachers and four paraprofessionals for the start of the 2000 school year. A sum of $760,000 was required by Marine and Ports to provide for additional staff at the Registry of Shipping ($370,000), seaport security in Hamilton, Dockyard and St. George's ($160,000), reactivation of the small tug Forceful ($60,000) and the cost of the extended ferry service to the West End ($170,000). The Public Transportation Board required additional funds totaling $1.3 million to cover higher operational costs for the running and maintenance of the bus fleet. The Prisons Service required additional funding of $1.4 million for increased food and health care costs for inmates and overtime.

Mr. Speaker, there was a requirement for supplementary expenditure on the capital account in the amount of $3.36 million. A sum of $166,000 was required to pay for improvements to HM Customs Air Cargo facility. The balance of $3.2 million was essentially a "technical supplementary'' representing the reallocation of the capital development costs for ferry docks and public landings from the Capital Acquisition Account to the Capital Development Account.

Capital Borrowing Mr. Speaker, in June, 2000, Government refinanced its US $110 million five-year syndicated loan facility and replaced it with an US $150 million five-year facility. The new revolving credit facility was led by Bank of America and the senior co-arranger was The Bank of Bermuda Limited. Other banks participating in the syndicate were: BNP Paribas; The Bank of NT Butterfield and Son Limited; Commerzbank Europe (Ireland); Dexia Project and Public Finance International Bank; and the New York Branch of Westdeutsche Landesbank Girozentrale. The additional capacity of $40 million provides Government with the resources to complete its programme of major capital projects.

Looking now at internally provided funds for capital purposes, the revenue balance on current account for 2000/2001 is estimated to be $65.6 million. The cash in hand at the beginning of the financial year was $23.8 million and after deducting debt service and sinking fund contributions of $15.6 million, a total of $89.4 million of internally generated funds were available for approved capital expenditures of $76.9 million.

The cumulative debt position projected to the end of March, 2001, is expected to be $166 million. The net debt position after applying the Sinking Fund balance of $26.6 million will be $139.3 million. Government guarantees of $4 million will raise the total of utilised Government loans and guarantees to $143 million.

Mr. Speaker, with this overall debt position, Government is $107 million below the statutory borrowing limit of $250 million. There are no plans to revise the statutory ceiling and Government will continue to manage its financial affairs in a prudent manner.

Estimates of Revenue and Expenditure 2001/2002 Mr. Speaker, I began by stating that the capital programme would feature as a highlight of the Budget for 2001/2002. The Government's commitment to education is firm and resolute. We are keeping the promise of a second new state of the art senior secondary facility for the education of our young people and site preparation for the new Berkeley Institute has now commenced.

A number of other projects have been scaled back or re-phased in order to focus on the top priorities. In addition to the new Berkeley campus, other priority projects or capital acquisitions include new accommodation for the Hamilton Police Station and Magistrates Court and the purchase of the new ferries.

The current account is projected to generate a reasonable surplus to assist in funding the capital works programme but there will be a residual borrowing requirement of $50 million in 2001/2002.

Capital Expenditure Projections Mr. Speaker, the Capital Expenditure Plan has been thoroughly reviewed and pruned to include only essential projects. For these, Government plans to invest a total of $112.3 million in educational plant, transport infrastructure, new office accommodation and other forms of social infrastructure in 2001/2002.

Investment in public education facilities will amount to $35.3 million in 2001/2002. The new Berkeley Institute is the major project in this sphere and $26 million in capital outlays is planned for the coming year. The Total Authorized Figure (TAF) for the new senior secondary school remains at $71.2 million. The TAF to complete the work on middle schools has been increased by $1.4 million to $43.6 million and an investment of $7 million is planned for 2001/2002. The TAFs for school safety and primary school class size reductions have also increased, from a combined total of $1.4 million to a new total of $2.6 million. An investment of $1.7 million is required to complete these two initiatives in the coming year.

The construction of the new purpose built facility to house the Magistrates Court and the Hamilton Police Station is scheduled to commence in 2001/2002 and an allocation of $6.3 million is provided for this project. In addition, $1 million will be invested to outfit the St. George's Police Station in a new location at Southside. This work is scheduled for completion in the coming year and the newly equipped station will be the hub for the policing services and operations in the eastern parishes.

Mr. Speaker, Government's commitment to the preservation and enhancement of open spaces is demonstrated by the allocation of funds for the upgrade of parks and environmental improvements in 2001/2002. A total of $1.5 million is allocated for this purpose. In addition, $2.2 million is set aside for the work on the new Education and Administration Building at the Aquarium in Flatts. This project is expected to be fully completed in 2002/2003.

Mr. Speaker, the site search for a new St. George's Parish Rest Home is in the final stages and $458,000 is included in the 2001/2002 capital budget to cover design fees and preliminary drawings. Construction of the long awaited purpose designed Residential Care Facility for at risk adolescents is planned to commence in the coming year and $4.2 million is provided for this development.

The total investment for this new Youth Village is estimated at $9 million and the target completion year is 2003/2004.

Work on the National Sports Centre has been progressing steadily and the latest phase of the new facility is scheduled for completion in the coming year. An amount of $6 million is included in the capital budget as a grant to the Trustees. This grant represents the final instalment of $19 million in capital grants that the Government has invested in the Centre. The sporting community and the general public have waited patiently for this project to conclude and the Trustees have taken measures to ensure that the facility is completed to international competition standards.

Mr. Speaker, the Bermuda International Airport is our lifeline to the rest of the world and Government plans to invest some $4 million in runway upgrades, new approach lighting, apron replacements, associated works, and improvements to the terminal building in 2001/2002. This work is required to maintain international standards and to ensure the highest level of safety and security for visitors, residents and airport workers. The apron replacement programme is a new addition to the Capital Expenditure Plan and has a TAF of $7 million.

The work undertaken in 2001/2002 will allow for the major replacement of concrete aprons to be phased in from 2005/2006.

The Ministry of Works and Engineering is allocated $22.4 million for an array of capital projects that include: the refurbishment of ferry docks and public landings for the new ferries ($7.8 million); capital refurbishment of the Causeway and the Swing Bridge ($2.4 million); further work on the Pembroke Marsh ($1 million); and $6 million for office redevelopment and relocations for public sector workers. The last mentioned project is a continuation of Government's efforts to provide efficient and healthy work environments for our dedicated and hardworking employees.

The Bermuda Land Development Company is allocated $6 million in 2001/2002 for its ongoing development work at Southside.

Mr. Speaker, turning briefly to major capital acquisitions, Government will complete its initial programme to upgrade computers in public schools by investing a further $1 million in this area in 2001/2002. Similarly, $2.6 million is to be invested in technology to support administrative, managerial and planning functions carried out by Government officers. $3.8 million is allocated for replacements in the bus fleet and $4 million is included in the 2001/2002 capital budget for the first pair of new ferries.

Current Expenditure Projections Mr. Speaker, Government's total planned expenditure on current account for fiscal year 2001/2002 is $570.8 million including Sinking Fund contributions and debt service. This is an increase of $38.5 million or 7.2 percent over the Revised Budget Estimates of $532.3 million for 2000/2001.

For ease of reference, all Government Ministries with planned aggregate expenditure exceeding $5 million in 2001/2002 are ranked below in descending order.

Estimated revised expenditures for 2000/2001 are given for comparison.

2001/2002 2000/2001 1. Ministry of Health & Family Services 124.2 million $111.7 million 2. Ministry of Education $91.7 million $85.7 million 3. Ministry of Finance $80.1 million $76.0 million 4. Ministry of Labour, Home Affairs & Public Safety $74.3 million $68.8 million 5. Ministry of Transport $46.8 million $46.4 million 6. Ministry of Works & Engineering $46.2 million $43.3 million 7. Ministry of Tourism $37.6 million $36.8 million 8. Ministry of Environment, Development & Opportunity $26.9 million $24.6 million 9. Ministry of Youth, Sport & Recreation $6.6 million $5.9 million 10.Ministry of Telecommunications & E-Commerce $5.7 million $5.0 million Mr. Speaker, Government has responded to the demands of the community to address issues of educational standards, health care, public safety, housing and inmate rehabilitation within the prison system. I shall highlight those Ministries whose programmes and services are designed to address these issues.

Mr. Speaker, the overall budget for the Ministry of Health and Family Services will rise to $124.2 million in 2001/2002 from $111.7 million in the current year. This is a gain of 11.2 percent, well above the 7.2 percent rise in Government total current account expenditure. This Ministry ranks as Government's largest provider of public goods and services to the community.

Hospitals are allocated an additional $7.2 million, of which nearly $6 million represents an increase to inpatient and outpatient subsidies at King Edward VII Memorial Hospital. The balance is largely absorbed by increased operating costs at St. Brendan's Hospital. The Department of Health is allocated an additional $818,000 to fund the cost of additional posts, job regrades, increased operational costs at the Orange Valley School and the Opportunity Workshop. The new posts include one Public Health Nurse, two Community Health Nurses, a Team Co-ordinator and a Co-ordinator of Speech and Language Services. There is also provision for a consultant to Environmental Health.

The Bermuda Housing Corporation receives a non-recurring increase of $1.2 million in its grant to stabilise its cash flow position until the Corporation begins to receive rental income from its new additions to the housing rental stock. Once the rental revenue streams from these units begin, it is anticipated that the Corporation's grant will revert to its former level of approximately $2.5 million. Government's support of the Bermuda Housing Corporation underlines our commitment to provide adequate housing for low income families in Bermuda.

The Department of Financial Assistance is allocated new funding of $695,000 in 2001/2002. The welfare and well-being of our senior citizens is of paramount importance and accordingly $400,000 of the new funding is directed to higher levels of financial support for the Parish Rest Homes. An additional $250,000 was added to the social assistance budget.

The Ministry of Education is allocated a total of $91.7 million in 2001/2002, a seven percent increase over the previous year. Of this amount, $1.3 million is new funding in the Department of Education for additional staff in the public school system at the preschool, primary, middle and senior secondary levels. New funding in the amount of $694,000 is allocated for the restructuring of the primary school curriculum. The new staff at the primary school level will support the reduction in class size at P3 levels, which will improve the student-teacher ratios in P1, P2 and P3 to 15:1. The smaller class sizes will allow primary school teachers to provide enhanced individualised instruction and to cater to different learning styles. A sound primary school education provides the foundation for later learning and this Government is committed to ensuring that the standards achieved will be of life-long benefit to our young people.

Mr. Speaker, respect for the law and the safety and security of our community is another high priority for this Government. Accordingly, the Ministry of Labour, Home Affairs and Public Safety is allocated $74.3 million in 2001/2002, an amount that is eight percent above the 2000/2001 level. New funding in the amount of $2.2 million is needed to launch the Alternatives to Incarceration (ATI) initiative, a new programme approved by Government last year. The ATI programme will reduce the number of people sentenced to terms of imprisonment by providing the Judiciary with viable and effective alternatives that include accredited drug rehabilitation programmes, counselling services and other support programmes. This initiative is not intended to provide a soft option to prison, rather it focuses on rehabilitation and restorative justice while retaining prison as an option of last resort with tough and mandated remedial programmes for inmates.

Police services in the eastern parishes will be enhanced with the relocation of the newly equipped Police Station at Southside. In addition to the $1 million investment in plant and equipment, $451,000 of new money is allocated for operations including a Police barracks for the residential accommodation of Police officers.

New funding is allocated for an increase in the number of Reserve Police Officers, training of Reserves and payment for their services. The new funding for this purpose is $395,000.

Government's commitment to training is also reflected in new money for the Police budget in 2001/2002 with $105,000 allocated for succession planning and executive development, and $124,000 for local and overseas training.

Mr. Speaker, Government is allocating new funding to the Prisons Service in 2001/2002. Altogether, $1.4 million of new money is provided. Fifty percent of this amount is for additional staff including 12 Prison Officers and four Case Workers. The sum of $384,000 or 28 percent of the new funding is directed toward rehabilitation programmes within the Prisons and in the community to provide follow-up for inmates after release.

While on the subject of law enforcement, I should like to note that the Judiciary is allocated new funding in the amount of $830,000 in 2001/2002. Two Assistant Justices will be added to the Supreme Court at a cost of $234,000 and Phase II of the Court Reporting modernisation will be implemented.

The Ministry of Finance is allocated $80.1 million in 2001/2002, an increase of 5.4 percent. The Ministry will continue the implementation of the zero-based budgeting initiative that was announced by this Government one year ago. To lay the groundwork for this initiative, the Ministry has this year assisted in placing Financial Controllers in strategic areas of Government.

Two departments were chosen to pilot the process and prepare their 2001/2002 estimates on the basis of zero-based budgeting principles. The full effect of zero-based budgeting will materialise over the next few budget cycles.

Mr. Speaker, in the Ministry of Transport, the budget of $46.7 million is essentially unchanged from the previous year. Moreover, I wish to note savings in the amount of $393,000 due to reduction in contractor costs for meteorology and crash fire rescue. These savings in Airport Operations helped to limit the overall increase in the Ministry's current account allocation for 2001/2002 to less than one percent.

The Ministry of Tourism is allocated $37.6 million in 2001/2002, an increase of only two percent. This allocation includes $4 million of new funding for a range of programmes and new promotional services. Some of the significant items included in the new funding are: incentive awards for travel agents ($612,500); media support programmes for the new air service strategy ($1.1 million); a niche marketing programme ($500,000); on Island project initiatives in association with the Bermuda Experience Network ($150,000); and continued support for overseas appearances by the Bermuda Regiment and local entertainers ($304,000). The Department of Tourism is also sponsoring the Society of American Travel Writers Annual Convention at a cost of $500,000.

Existing Tourism expenditures were trimmed by $3.3 million to accommodate the new programme funding requirements -- a result of the zero-based budgeting principles that have helped to shape this year's overall budget.

Mr. Speaker, the new programme funding in the Tourism budget for 2001/2002 reinforces the Government's commitment to help our vital tourism industry reposition itself as a dynamic sector in the global tourism market. With the implementation of the Hotel Concession Act 2000, our efforts are bearing fruit and we will continue to work to maintain the "buzz'' that Bermuda is back in business as a premier tourism destination.

The Ministry of Environment, Development and Opportunity is allocated $26.9 million in 2001/2002. Within the Ministry, the Department of Cultural Affairs is allocated $648,000 in new funding. Just over 50 percent of this amount, or $336,000, is directed to Bermuda's participation in the Smithsonian Folklife Festival during July, 2001, in Washington DC. Many aspects of Bermuda's living culture and traditions will be showcased to more than one million people from around the world at this prestigious event. The full cost of our participation is estimated at $750,000. In addition, Government's grant to the Bermuda Arts Council is to be increased by $40,000. Government will also provide a grant to the Millennium Fund in the amount of $132,000 in respect of Customs Duty on the imported elements of the Millennium Fountain. Government prefers to show duty relief in this manner as it provides concrete evidence of the Government's support of worthy and positive programmes in the community.

Mr. Speaker, in December, 2000, the United Nations Educational, Scientific and Cultural Organization's World Heritage Committee confirmed that the Town of St. George and its related fortifications would be inscribed on the World Heritage List. In recognition of this historic achievement and to assist the Town in the vital planning and high level management entailed by the designation, Government has provided funding for a World Heritage Site Management Officer in the Department of Planning in 2001/2002.

The Ministry of Youth, Sport and Recreation is allocated $6.6 million in 2001/2002, an 11.9 percent increase from the previous year. The new funding amounts to $404,600. Virtually all of the new funding will go toward providing substantive support for special needs children in the Afterschool Programme.

Approximately 27 paraprofessionals will be hired in the programme to provide a support staff ratio of 1:1 for special needs children.

Mr. Speaker, the new industry of e-commerce is important to Bermuda's future economic success. Accordingly, $200,000 in new money is allocated to the Department of E-Commerce for marketing and business development in 2001/2002.

Amongst non-Ministry Departments, the Cabinet Office is allocated $348,000 in new funding for the Central Policy Unit. The Central Policy Unit will ensure that cross-Ministry policies and programmes are effectively coordinated for maximum results. A cadre of policy analysts drawn from Government-wide staff resources will assist the Central Policy Unit in its work.

The Personnel Services Department is allocated $527,000 in new funding.

Approximately 75 percent of this funding is directed to training initiatives, including $300,000 for 12 additional supernumerary posts. Government hosted a well-attended Student Reception in August, 2000. A number of bright, young Bermudians were identified as having executive potential. These new posts will allow such students to be placed in structured training and development programmes with clear fast tracks to senior management positions in the public service.

The Statistics Department is allocated $970,000 of new money in 2001/2002, the largest slice of which is to underscore Project Literacy ($700,000). The National Literacy Project is a part of the OECD initiative to determine literacy standards worldwide.

In addition, the Statistics Department proposes to conduct an Economic Activity Survey in 2001/2002 and additional staff resources are needed for this purpose. The Economic Activity Survey provides important source data for estimates of GDP by industry sector.

Revenue Projections Mr. Speaker, for the coming year, the Government proposes to generate revenues of $627.3 million. With a combined current and capital budget of $683.1 million, there will be a residual deficit or borrowing requirement of $50 million after taking account of cash on hand at the beginning of the new financial year.

The Budget Deficit has risen partly because revenue growth has been outstripped by previously embarked on large scale and necessary capital expenditures. Government proposes to address this development by making a number of minor changes to reposition the revenue base on firmer ground and link it more closely to dynamic and growing sectors of the economy. In so doing Government will seek to ensure that all segments of the community contribute a fair and equitable portion of total tax revenue.

Mr. Speaker, the Payroll Tax is one of the few taxes that responds automatically to changes in the level of economic activity. The economy is expected to remain relatively buoyant in 2001/2002 and thus the Government does not propose to increase the rate of the Payroll Tax from its present level of 12.75 percent.

Last year, the Government introduced a number of modifications in order to provide relief to small businesses and to remove the option for exempted companies to pay the Payroll Tax on the basis of "assumed'' remuneration. The objective of these changes was to improve the equity of the overall tax system. These modifications will remain in place, except for a reduction in the cap of $250,000 on an individual's remuneration declaration to $225,000.

It was estimated a year ago that setting the cap at $250,000 would limit the impact of removing the "assumed'' remuneration option on total tax paid by exempted companies. Lowering the cap to $225,000 will help to establish a lower -- but more equitable -- equilibrium point for exempted companies in respect of the Payroll Tax.

Government also proposes to extend the $225,000 cap to local companies in order to remove any distinction between local and exempted companies in the Payroll Tax. This further adjustment reinforces Bermuda's position as a jurisdiction that taxes local and international companies on generally the same basis. Both local and international companies compete for local resources under similar market conditions, and therefore it is appropriate that they should be taxed on the same basis so as not to introduce tax advantages for either group.

Mr. Speaker, there is another area of the Payroll Tax that Government is addressing in this Budget. The Tax Commissioner is currently engaged in a thorough review of the "notional remuneration'' that currently provides the basis upon which self-employed persons calculate their Payroll Tax obligations. Preliminary analyses have shown that some groups who pay on the basis of notional remuneration make a disproportionately low contribution to the total tax yield. These groups include architects, physicians, lawyers, dentists, surveyors, engineers and taxi operators. In recent years, the gap between actual remuneration and notional remuneration has been widening with the result of reducing the optimum yield from the Payroll Tax.

The review of the notional base that is underway will lead to a change in the way the Payroll Tax is applied to self-employed professionals. This is expected to generate additional revenue of $3 million. Currently, the reported average annual notional remuneration for this group of taxpayers is about $70,000 in contrast to an actual market range of $100,000 to $150,000 for salaried professionals in the private sector. Using comparable market compensation as the basis for the Payroll Tax will also improve equity.

It is proposed to establish a flat fee of $1,500 per annum for taxi operators that will be payable in quarterly instalments of $375. Even with this increase, the fee for taxi operators will remain well below the average quarterly tax payment of $1,260 in respect of Payroll Tax. The introduction of this flat fee will generate an additional $600,000 per annum.

Mr. Speaker, Land Tax has been significantly increased over the last two Budgets and Government understands the community's general desire for no increase during the coming year. Therefore, while there will not be an across the board increase in 2001/2002, Government does however propose to introduce a new tax band at the higher end of Annual Rental Values (ARVs) with a corresponding adjustment in the marginal tax rate. This adjustment will impact only those tax payers whose residential units have ARVs of $90,000 or higher (the top two percent of ARVs) and is expected to generate an additional $1.6 million. This change will make the tax system fairer.

Passenger Taxes have not been reviewed for more than five years in respect of air passengers and it has been ten years since the cruise passenger tax was last reviewed. The air passenger tax will be increased by $5 to $25 in the coming year. The full year yield is expected to be an additional $2 million.

For the cruise passengers tax, Government plans to formally notify operators of cruise ships that the tax will be restructured and the new rates will take effect in 2002. The new structure of the tax will be based on seasonal factors and demand for Bermuda's three ports. It will also provide a discount incentive, similar to the Cabin Tax, to extend the cruise season beyond the peak period of May to August.

Mr. Speaker, when the new Customs Tariff was introduced in November, 2000, the rates of duty remained the same, except for a few tariff items. In particular, Honourable Members may recall that the rate of duty on children's clothing was reduced from ten percent to 6.5 per cent. Government proposes to change certain other rates of duty with immediate effect and to streamline some tariff classifications to reduce administrative burden on importers.

The duty on fuel imports including crude oil, gasoline, kerosene, diesel and fuel oil will be increased by five per cent and is expected to generate additional revenue of $2.7 million.

The duty on cigarettes and tobacco products and on alcoholic beverages is to be increased. The new rate for cigarettes is $0.13 cents per cigarette with an expected yield of $1.8 million in additional revenue. This duty increase will add $6 to the existing retail price of a carton of cigarettes. The duty rate on cigars will be increased to 33.5 percent with an expected incremental yield of $70,000. The duty on beer, wines and spirits will be increased by five percent with an expected incremental yield of $500,000 in tax revenue.

Mr. Speaker, traffic congestion is a major problem in our community. The success of our economy with generally high household income levels has given rise to a strong and sustained demand for private motor vehicles. The Government proposes to tackle the problem by improving the quality of the public transportation system and by realigning economic incentives. Ferry and bus fares will not be increased in 2001/2002. All motor vehicle licences will see a five percent increase with effect from April, 2001. In addition to this increase, Government proposes an increase of $50 for cars in Classes A to D and an increase of $100 for cars in Classes E to G. The licence fee for all classes of motor bikes will be increased by $10. The additional revenue from these increases is expected to be $2.8 million.

Mr. Speaker, Government proposes to introduce a refuse disposal charge of $35 per metric ton for commercial waste delivered to the Tynes Bay Waste Treatment Facility. This user charge will help to offset the growing repair and maintenance costs for operating the aging facility. In the near future, it will be necessary to start building a fund to replace the incinerator -- whose remaining useful life is fairly short. About $1.5 million is expected from this source.

In the telecommunications sphere, Government proposes to introduce annual licences for cellular telephones. Existing three-year licences will be able to run to maturity and will be renewable annually thereafter. The annual licence will be set at $24 in the first instance. The incremental yield anticipated from this source in 2001/2002 is $200,000.

Changes to certain rates of Stamp Duty are expected to yield an additional $1.5 million in 2001/2002. Adjustments will be made to the rate of tax applicable to conveyance or transfer of real property and the rate applicable to settlements. In respect of Heads 14, 15 and 17 of the Stamp Duties Act 1976, the rate of tax on the first $100,000 of value will be increased from two percent to 2.5 percent. In respect of Head 40, the upper limit on the third band of value will be reduced from $800,000 to $500,000. The effect will be that Stamp Duty of 15 percent will be charged on that portion of the value of a settlement that exceeds $700,000 compared to the previous threshold of $1 million.

Company fees were reviewed last year and no further changes are proposed for the coming year. However, bank licence fees will be amended to yield an additional $1 million. Bank licence fees have not been reviewed for six years.

*** Mr. Speaker, in my opening remarks I indicated that Government's vision for the future was to maintain a strong economy while assisting the transformation of our community into a land of equal opportunity for all of our people.

This Budget speaks to how this Government will continue to address the issues of education, health, housing, law enforcement and rehabilitation with enlightened policies and programmes.

Government has heard the plea of those families who need affordable housing or the chance to own their own homes. We have heard parents and teachers concerns about standards in our public education system. We have heard the pleas of returning college graduates for job opportunities in their own Country. We have heard the cry of local companies for a level playing field. We have heard the concerns of senior citizens for dignified elder care and homes with proper care facilities. We have heard the comments of the international business community about the costs of doing business in Bermuda and reassessed the impact of certain taxes.

Mr. Speaker, we listened, we heard and we responded. In raising the revenue to address the heartfelt concerns of this community, Government has also made minor changes to assure more fairness and equity in the distribution of the tax burden.

In summary Mr. Speaker , since November 9, 1998, when this Government assumed responsibility for the affairs of our Island community, we have been focused and resolute in our efforts to support continuing progress for the people of Bermuda. We have nurtured the economy, and by carefully addressing the external economic challenges ensured a sound basis for future economic growth and development.

Mr. Speaker, I wish to conclude by giving a special vote of thanks to the dedicated and hardworking staff in the Ministry of Finance for their help and support in the preparation of the Budget for 2001/2002. I also wish to thank my Cabinet colleagues and the dedicated staff in their Ministries. In addition, I wish to acknowledge many others in the community who have offered thoughtful suggestions. This Budget process has truly been a collaborative effort for the benefit of the people of Bermuda.