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Budget likely to reduce subsidies

Changes to taxes for personal imports, a modest increase in “sin taxes” and removal or reduction of subsidies and tax relief are almost certain to feature in the Budget Statement to be delivered on Friday.

Government will likely also take advantage of the opportunity to increase a host of Government fees for the coming fiscal year.

But Premier Paula Cox's second budget as Premier, and the last before the general election, will not contain any structural adjustments, such as privatisation of certain Government services, as suggested by some observers and critics.

Still, Government aims to bring the Budget back into a surplus position over the next few years, while reducing long term debt.

According to the pre Budget Report which formed the basis for public discussions about the upcoming Budget, the 2012-2013 Budget will be based on pessimistic revenue scenarios. And this is the Budget that will establish total annual Government spending locked in for the next three fiscal years. The pre-Budget Report sets the spending freeze at around $923 million.

A big part of Government's financial strategy going forward is to force Ministries to adhere to a programme of “efficiency savings” since there's otherwise little room to manoeuvre in an environment of relatively high debt levels and what it sees as unpredictable revenues and locked in spending on some of the major items.

But the pre Budget Report makes clear some of the policy options being considered.

Harmonising duty rates for personal imports is one such policy which could see the current and unpopular 35 percent duty charged at the airport be reduced and other forms of importation be increased.

The Premier has already hinted at a town hall meeting that duty harmonisation may leave everyone a “little unhappy”.

Those who rely on public transport may be left a little more unhappy as Government is likely to try to close the subsidy gap with higher fares on buses and ferries.

Smokers and drinkers may feel the pinch when taxes are increased on cigarettes and alcohol. Sin tax increases may be relatively modest, however, as Government is also concerned about the impact too high a rise may have on the hospitality industry.

But in a bid to stimulate more Bermuda based betting transactions, the betting tax could see a reduction from the currently high 18 percent.

Increases in Government fees, which take place every two years, are due this year.

And the 2012-2013 Budget should see a “revenue neutral” restructuring of vehicle licensing fees so that they are based on vehicle fuel efficiency as opposed to size.

Government has also been floating the idea of reducing or ending a host of tax breaks.

One, which will not find favour with the hospitality industry, is cutting payroll tax relief for hotels and restaurants.

According to the Government, the policy has leaked some $20 million from the national finances over the last couple of years.

But payroll tax relief is essential to the survival of a number of restaurants, says the Restaurant division of the Chamber of Commerce.

“The economy and recession has been the most trying that operators can remember in living memory,” the statement reads.

“The payroll tax relief has probably been the only thing keeping some restaurants open. This initiative is imperative to keep in place until we see an improvement in the economy.”

Government's best guess is that the economy will likely begin a “modest recovery” by the end of 2012 or early 2013.

Senior citizens could find themselves with less privileges as far as taxes are concerned as Government is seeking ways to claw back some of the $6 million in foregone annual revenue from a land tax exemption in place since 2005.

It could also put the brakes on a $17 million haemorrhage since 2007 by ending the policy of not requiring seniors to pay annual vehicle licensing fees.

Premier Paula Cox arriving at the House of Assembly with the Budget last year. She will present this year?s Budget on Friday.

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Published February 22, 2012 at 8:00 am (Updated February 22, 2012 at 8:57 am)

Budget likely to reduce subsidies

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