In what Finance Minister Eugene Cox himself conceded could be described as a "sweetheart budget", if not an election budget, residents have been spared an onslaught of tax increases for the coming fiscal year.

In fact yesterday's Budget, while providing for $75 million in additional borrowing to keep priority capital projects on stream, does not dole out any new taxes or increases in existing taxes.

Even "sin taxes" are spared.

Instead payroll tax relief for businesses hardest hit by the economic downturn has been extended another six months and $22.8 million in new money will be spent on education, training and development, health care, housing, transport and law enforcement.

"We shall exclude no one; We shall leave no one behind," said Mr. Cox in the opening remarks of his Budget statement.

The goal is two-fold, he continued. "To help stabilise and rejuvenate businesses that have been hardest hit by the recession and to strengthen social cohesion in our community."

The biggest news, perhaps, is the beginning of an Unemployment Insurance Fund (UIF). This year's Budget allows for $1 million to be provided from the Consolidated Fund as seed money for the UIF. Over the next year, Mr. Cox said, the details will be worked out in consultation with the labour unions and employers.

"This longstanding omission in Bermuda's social policy framework must be addressed as a priority," the Finance Minister said.

"A labour government could not fail to address such a glaring gap in Bermuda's social safety net."

But while the UIF is seen as an important safety net in the event of the recession lasting longer than anticipated, Government is expecting stronger growth of the United States economy for the second half of the year.

Visitor arrivals are expected to decline resulting in 1.5 percent contraction of GDP. But the construction sector is expected to be fairly active and continued growth is expected in the international business sector.

While a zero-based budgeting approach will see funding for the Tourism department decrease by more than five percent, this year's Budget aims to give a boost to the hospitality industry with tax concessions for restaurants designed along the lines of a 1991 law which gave temporary customs duty relief to hotels which refurbish their premises.

"Restaurateurs argue that because restaurants in hotels qualify for relief under the Act, they thereby receive an unfair advantage," Mr. Cox explained. "Government found their argument persuasive. Accordingly we plan to table new legislation to provide temporary Customs Duty relief for restaurant operators who renovate and refurbish their premises."

The legislation will be retroactive to the start of this year, he promised.

Government is planning on total revenue of $609.2 million - some $18 million down from last year's estimate - and current account expenditures of $585.5 million which would leave a current account surplus of $23.7 million. But it also plans to spend $109.1 million on capital projects - to be financed by $75 million in borrowing with the rest made up by the surplus.

The additional borrowing would bring Government debt to $199 million or 65 percent of the maximum - $250 million, or ten percent of Gross Domestic Product (GDP) - allowed by law.

Mr. Cox justified the additional borrowing by stressing that the funds will be spent on capital projects. At just seven percent of GDP, he added, the level of debt was sustainable. He said there were no plans to increase the borrowing limit.

And, at a press conference later, he said investment in Bermuda's social infrastructure was a necessity. He also cited a strong credit rating (Aa1) by ratings agency Moody's.

He said past practice of balancing the Budget by putting off capital spending served only as a delaying tactic that catches up with Government later.

"We'll balance our Budget or we'll have our surplus but down the road you're going to pay for that."

Of the $109.1 million capital spending, 40 percent is earmarked for investment in educational plant. And $104 million represents work in progress.

Other highlights of the Budget are a three percent increase in pension benefit payments for the elderly and a drastic reduction - from 30 percent to six percent - in land tax payable for properties valued at over $90,000 annual rental value.

Mr. Cox also announced a review of salaries paid to civil servants in order to compete more effectively with the private sector. The review, which continues Government's programme of modernising the public sector, will focus on linking pay to performance. And he announced an increase in subsidies for patient care for the indigent, seniors and young people - to the tune of $4.2 million.

New money has also been allocated for the Transportation Ministry - $3.8 million, the bulk of which will go towards the launch of new ferries - and the Alternatives to Incarceration Inititiative ($1.8 million).

The Bermuda College is to get a one-off grant of $2.2 million to cover losses incurred by Stonington Beach Hotel.

Asked if the Budget was an "election Budget", Mr. Cox said it sounded like a compliment. "If it's an election Budget, it's great because it sounds to me you're paying us a compliment.

"It's got to be good to be an election Budget - a sweetheart Budget. So it must be a sweetheart Budget... I'm glad to hear that. No, we are looking at how can we adjust things in the economic climate we're in so that we make sure there's equity, people are working...

"We crafted the Budget to meet the circumstances so that Bermudians and all people who live here will benefit and hopefully will be able to apportion the benefits in such a way that so that there's fairness, transparency and all the rest of it. In doing that if it so happens to be a sweetheart Budget, as you want to call it, then that's great."