Additional expenditure relating to Y2K totalling $201,000 was needed to replace a non-compliant fire alarm system at the Ministry of Health and a telephone system at all Prison facilities. Design fees and development costs for dock facilities for the new ferry system added a further $700,000 to the budget.

Capital Borrowing For 1999/2000 the revenue balance on current account (before debt charges and sinking fund contributions) is estimated to be $67.6 million. The cash in hand at the beginning of the financial year totalled $13.8 million, but the requirement for interest payment and sinking fund contributions totalled $12.9 million. Thus a total of $68.5 million was available to support approved capital expenditures of $67.1 million for the year.

Cumulative debt is estimated to stand at $165 million at the end of March 2000. Applying the Sinking Fund balance of $21.2 million the effective net amount of debt outstanding according to the Government Loans Act 1978 will be $143.8 million, at the end of the fiscal year. Government guarantees will further increase this sum by $6 million to $149.8 million.

Honourable Members will recall that the UBP Government's attempt to reform the education system saw the completion of one high school but only the promise of construction of the second. While in the coming year the legislated debt ceiling will be raised in order to provide the facility for the Government to legally borrow funds for the completion in summer 2003 of the new Berkeley Institute, I wish to stress that we will adhere strictly to the prudent policy of not exceeding an amount equal to 10 percent of the Island's Gross Domestic Product in our total borrowing.

Estimates of Revenue and Expenditure for 2000/2001 Mr. Speaker, I have referred to the unfinished business left for this Government to complete and the fact is that the financial resources required to construct the new Berkeley Institute are considerable and impact significantly on Government's ability to finance other new schemes. However we feel that this project can be delayed no longer. The education of the children of this country is a priority upon which the rest of our plans depend.

While significant efforts have been made to ensure a healthy balance on the current account for the year 2000/01 in order to limit the need to borrow to fund the coming years' capital expenditure plan, there is no doubt that borrowing will be eventually necessary to support the construction of the new Berkeley Institute and the introduction of the new fast ferries.

Capital Expenditure Projections Mr. Speaker, the Government plans to spend $90.5 million on capital account in 2000/01.

We have carefully reviewed the plans for the construction of a new senior secondary facility on the Ridgeway property and the revised TAF required for the completion of the school by September 2003 is $71.2 million, with $18 million to be spent in the coming year. A further $12.5 million will be required between now and 2002/03 for the completion of the conversion of middle schools, with $8.3 million to be spent in the fiscal year 2000/01. Both of these items represent unfinished business but are projects that have been endorsed by this Government.

The initiatives promised by this Government to reduce class sizes in primary schools and improve safety in the Island's schools have been allocated $850,000 in the coming year of the capital plan.

Consistent with our Throne Speech promise, $342,000 is allocated to the completion of the long-awaited Halfway House. The major capital development project in the Ministry of Labour and Home Affairs is the construction of a building to contain a new Hamilton Police Station (also including new a Magistrates Court) with a TAF for the project of $20 million. $3 million is budgeted to be spent in 2000/01, with a completion date set for 2003/04.

Mr. Speaker, the phased introduction of fast ferries to Bermuda involves work on dock facilities as well as the acquisition of new ferries. While $700,000 was allocated in 1999/00 to study the feasibility of such a service, Government intends to spend $6 million in the coming year on facilities and the two ferries needed to begin the service in 2001. The total cost of this capital project is set at $24.5 million.

We are conscious that we must also ensure that the existing land transport network is kept at an efficient operating level and to this end $1.5 million is to be spent on five new buses. This will allow improved maintenance of the existing fleet and a greater degree of integration of bus and ferry schedules.

In keeping with this Government's promise, the National Sports Centre will be completed to the standard expected by the community and some $6.4 million is allocated in this year's Budget for the continuation of the project.

Mr. Speaker, the Ministry of Works and Engineering is allocated $19.4 million in total for projects included in the Government's capital plan. Certain of these items merit comment.

We have taken a careful look at the accommodation of Government departments with a view to accessibility and suitability and have implemented a new cost-efficient policy whereby departments will to the extent possible be housed in premises that are owned directly or indirectly by the Government, thereby reducing rental costs.

As part of this new accommodation policy, the Ministry of Works and Engineering is being allocated $5.2 million specifically for office redevelopment, and $2 million to provide for office relocation and alterations. The maintenance of existing offices is moving into the third year of a five-year programme and $3 million is allocated for building upgrades.

Residents close to Pembroke Marsh will be pleased to learn that as part of the ongoing plan to rehabilitate the area, a further $1.25 million is in this Budget. We recognise that work is necessary on the Causeway, the Swing Bridge and on Long Bird Bridge and a total of $2.29 million has been allocated for these three projects. Work will commence on the St. George's sewage plant with $200,000 allocated in the capital plan for this purpose in the coming year.

Mr. Speaker it is Government's policy to ensure that departments are able to take advantage of modern technology to improve efficiency. Accordingly $1.95 million is specifically allocated to the acquisition of computers and other infrastructure improvements while $3.58 million is provided for departmental computer development projects. An additional $750,000 is provided for major upgrades to computers under the control of the Department of Education.

The Bermuda Land Development Company is allocated $6.5 million in the coming year to continue its rehabilitative work on the former Bases property.

Details of Current Expenditure Projections Mr. Speaker, Government's total anticipated expenditure on current account for the fiscal year 2000/01 is $528.67 million, including sinking fund contributions and debt charges. This is an increase of $17.66 million or 3.46 percent over the estimated figures for 1999/2000.

For the information of Honourable Members, I will focus on the ten Heads with the largest current account expenditure budgets for the coming year, ranked in descending order and with the 1999/2000 estimated expenditures for comparison.

They are as follows: 2000-2001 1999-2000 1. Education $69.0 million$68.6 million 2. Hospitals $64.4 million$61.5 million 3. Works $42.9 million$42.9 million 4. Police $37.6 million$35.7 million 5. Tourism $36.9 million$35.7 million 6. Accountant General $31.3 million$29.8 million 7. Health $17.1 million$14.4 million 8. Airport Operations $15.5 million$17.2 million 9. Financial Assistance $15.4 million$16.0 million 10. Prisons $14.4 million$13.1 million Departments have been given support for certain programmes begun during the past year and carried forward into the new, and also for new initiatives to be funded for the first time in this Budget. However all Departments were called upon to make cuts in their requests for additional funding on current account, and while I will now focus on some of the major increases in expenditure being funded for the coming year, I must point out that in many cases these additional costs have been offset by those departmental reductions.

Government is committed to the public education system and I have already identified the single largest item of expenditure in this budget as the commencement of construction of the new Berkeley Institute. However in addition to that item of capital expenditure, the Department of Education will receive a further $1.4 million in new funding on current account. The largest portion of this amount will support staffing, with $574,900 for ten new teachers at the CedarBridge Academy. An additional four learning support substitute teachers at the Berkeley Institute will cost $229,900 and five additional paraprofessionals also at Berkeley will cost $185,000. As Berkeley expands its curriculum to match its position as the parallel senior secondary school to CedarBridge Academy a further five new subject teachers are to be provided at a cost of $298,300.

Overall however, expenditure will be reduced as a result of an examination of departmental priorities.

School attendance officers commenced work last September and included in this budget is an amount of $265,000 to fund six attendance officers and a coordinator for the full academic year.

The Department of Human Affairs and Training is allocated $290,000. While $1.3 million is provided to fund the National Training Board, a further $120,000 is to be appropriated in the coming year for the student summer employment programme. $91,000 is provided for monitoring compliance with the recently implemented Code of Practice on Equal Opportunity.

Within the Department of Personnel Services emphasis is being placed on training with the appointment of a new senior training manager, additional funding for more training courses, and $156,000 for an increase in the number of trainees and supernumeraries in the Civil Service. This initiative within the Civil Service is consistent with Government's commitment to train people and improve the efficiency of the Service.

The Bermuda Housing Corporation will receive an increase in their grant of $461,000 towards the operation of their "100 houses project''. This increase will be used to help finance the cost of renovating and constructing housing units until rental income begins to flow in to replace the Government funding, and to aid those tenants who are unable to afford market level rents.

Government's support for the Housing Corporation's initiative demonstrates our determination that new housing stock be made available and help given to those in need to meet the cost of rentals.

Mr. Speaker, this Government is committed to supporting improved health care in Bermuda and accordingly $4.3 million of new money is allocated to the Ministry of Health and to the Hospitals. Of $3.5 million provided to the Hospitals, $2.5 million will be spent on the in-patient subsidy at King Edward VII Memorial Hospital, while $477,000 will go towards increased operating costs at St. Brendan's. Internal reallocation by the Ministry will provide for allotments to programmes in excess of total new funding.

Staffing costs for the in-patient detoxification unit at St. Brendan's to service the drugs court will total $385,000.

Consistent with our concern for children is the provision of $68,000 for a resident psychiatric doctor to support childcare as well as to work with substance abusers. Based on experience over recent years, $250,000 is provided as a grant to the LCCA to assist that organisation to give help to Bermudians in emergency situations. $437,000 is also allocated to the Department of Prisons to bolster their medical programme.

In addition to this, $444,000 is added to the Prisons' budget for twelve prison officers and $174,000 for four caseworkers, as the Government emphasises rehabilitation for inmates. The net new funding to the Prisons following their cuts is $684,000.

Mr. Speaker a total of $153,000 in new money is included in the budget of the Department of Social Services, of which $73,000 is to provide increased funding for the foster care programme.

Government's commitment to the environment is not limited to the flora and fauna of Bermuda. Residents want to feel safe as they move about the community and an adequate police service supplies that requirement. A total of $766,000 of new money is allocated to the police service to support the implementation of the police service tribunal award of a revised combined allowance.

The judiciary also receives attention, as promised in the Throne Speech, with $219,000 being provided for an assistant justice and support staff. Capital and current account funding in the amount of $257,000 is provided to permit the phased introduction of a reporting system in the Supreme Court.

I have already described the work being done by the Ministry of Finance to address international initiatives. $330,000 is needed for legal consultancy, in part to assist in negotiating a Mutual Legal Assistance Treaty with the United States to further bolster our international reputation. The allocation of $834,000 to the Accountant General's Department includes an obligatory $575,000 to meet Government's overheads as an employer, in the way of contributions to pensions and insurance.

Mr. Speaker it is important to note that the year 2000 is a census year.

Therefore the Department of Statistics requires an allocation of $1.59 million in the coming year, much of it devoted to the preparation for and conduct of the census in May. This covers temporary staff, training and accommodation.

Mr. Speaker Government has been working hard during the past year to turn tourism around. We have spent additional sums in the market place to create a "buzz'' that Bermuda is back in the tourism business. We will continue that process in the coming financial year. New entertainment services will be provided to cruise ships at a cost of $150,000, to mirror the welcome currently given to passengers arriving at our Airport. $411,000 is also provided for the continuing involvement of the Freeman Group as it encourages the improvement of on-island service standards. The largest item of new money, however, is an allocation of $2 million, to enable media support for new airline services to Bermuda. The Tourism Ministry's budget includes $423,000 for a new incentive scheme whereby travel agents supplying increased numbers of tourists to Bermuda will receive awards. Additional promotional events in North America will be made possible through an extra $300,000 allocation and a co-operative advertising programme will begin in the mid-West at a cost of $275,000.

The total net new money allocated to the Ministry of Tourism in this Budget is $2.43 million, money we consider a necessary investment in the tourism recovery programme for Bermuda. The Ministry has also made internal budgetary reallocations in order to support the initiatives set out above.

Looking further to our future, the Ministry of Telecommunications and E.

Commerce has been significantly strengthened as new posts have been created and funded. Directors of both Telecommunications and E. Commerce have been provided for to assist with the development and marketing functions of this Ministry, and the technical side has been strengthened with the transfer of the Department of Computer Systems and Services from the Ministry of Finance during 1999. Support staff to both Directors and to the Minister have also been provided and a total of $569,000 of new money allocated to the Ministry.

Details of Revenue Projections Mr. Speaker, Government's commitment to its capital plan for 2000/2001 requires a total of $90.5 million to be allocated to capital works programmes.

While traditionally the revenue balance on current account has been applied to implement the capital plan, the extent of capital works in the coming year requires that balance to be supplemented by other measures.

Accordingly, measures have been taken internally to reduce departmental current expenditure by some $14 million in order to improve the current account balance for 2000/01. In addition, Government's borrowing ability will be extended by raising the ceiling on borrowing under the Government Loans Act from $185 million to $250 million, still within the policy guideline of 10 percent of GDP.

Continuing economic growth is anticipated to generate some $10 million in revenue, however we have found it necessary to make changes to various taxes and fees, based on principles set out in the PLP platform and the review of Bermuda's tax system. These changes reflect a fairer distribution of the tax burden, improve the overall efficiency of tax collection and will raise an additional $11.7 million to help minimise the growth of the national debt.

Mr. Speaker, total estimated revenue for the financial year 2000/01 is $591.83 million. The current account balance available to place against capital works expenditure is forecast to be some $63.16 million, leaving approximately $28.0 million to be found by borrowing.

The hotel and retail sectors of the economy are recognised by Government to have been under considerable stress during the past decade. Together with restaurants, bars and nightclubs they represent important elements of our tourist industry and provide important areas of employment for Bermudians.

They require support.

All three sectors will benefit from changes to the payroll tax as changes are made to address several important issues.

For those taxpayers with payrolls in excess of $200,000 per annum, and who (apart from hotels and restaurants) do not enjoy the benefit of any special tax rates, a payroll credit will be given of $2,400 per annum per full-time employee. This amount may be deducted from the employer's payroll prior to his tax calculation. However at the same time the employer's payroll tax rate will rise by three-quarters of one percent. The employer will be able to recover one-quarter of one percent from his employees' remuneration in order to assist with meeting his liability.

The employer's ability to recover the additional one-quarter of one percent will apply to all other categories of employer, but only those entitled to the payroll credit will experience the tax rate increase of three-quarters of one percent. All other employers will experience a tax rate increase of one-quarter of one percent, equal to their ability to recover the amount from their employees.

The new employee withholding rate therefore rises from 4.5 percent to 4.75 percent for all categories of employer. Tax rates charged on categories of employer will continue to vary however, according to their circumstances.

Payroll tax rises, but small business gets relief Government has recognised the problem of the "tax cliff'' that faces small businesses on moving from the $100,000 payroll band to the $200,000 payroll band. In future, tax will increase from the new 7.25 percent rate to the new 9.25 percent rate only on the actual amount of payroll that exceeds $100,000, thereby removing the "cliff'' and smoothing the transition between tax bands.

When employers exceed the $200,000 payroll threshold, they will become liable to the new tax rate of 12.75 percent on their full payroll, but will also receive the payroll credit of $2,400 per employee.

Hotels and restaurants will continue to enjoy a preferential tax rate of 9.75 percent year round, and hotels will be charged 7.75 percent for the three months of December, January and February.

Employers that remain unaffected by the payroll credit are non-profit institutions, taxi drivers, farmers, fishermen and horticulturists, aided and private schools and Government. These employers will face an increase in the tax rate of one-quarter of one per cent but will be able to make a corresponding increase in the recovery from their employees. Self-employed persons will face an increase of three-quarters of one percent unless they are in one of the categories enjoying a preferential rate.

The combined effect of all these changes will be to improve the tax position of small businesses that at present face a sharp increase in liability as their payrolls increase and cross critical tax thresholds. This has been a disincentive to the growth of small businesses and is being corrected. The proposal will give employers $360,000 of immediate tax relief on the basis of current payroll sizes.

The combination of the tax rate changes together with the employers' ability to withhold more from payroll, and the payroll credit on each employee, provides relief to those employers with larger numbers of lower paid employees. Thus relief is given to the retail sector ($415,000), to hotels ($420,000) and restaurants, bars and nightclubs ($65,000), based on recent payroll returns.

One of the significant criteria for the identification of a jurisdiction as a tax haven is that a company owned by non-residents is treated more favourably for tax purposes in that jurisdiction than a local company. In Bermuda, companies face the same taxes, whether they are local or exempted. However exempted companies have been allowed to choose whether to report actual wages and salaries for payroll tax purposes, or to report an assumed figure. This option will be removed to eliminate the distinction. However in order that this change not prove damaging to the prospects of companies engaging the best staff by causing a potential for significant double taxation, a cap of $250,000 will be placed on any individual's remuneration declaration.

The amount of tax actually paid by exempted companies under these tax proposals is estimated to change very little, since they will not be eligible for the small business relief, but may claim the payroll credit. Overall, while correcting the problem faced by small businesses and providing reduced tax liability for employers in critical sectors of the economy, the proposal also generates additional revenue to Government totalling $2.2 million.

Commercial properties were most affected by the increase in annual rental values in 1999. They absorbed the full extent of the resulting tax increase as the commercial tax rate remained unchanged at 6 percent. This has added to the pressures on business and hence employment and accordingly it is proposed to lower this rate to 5.5 percent, thus lowering taxes by $1 million. Estimates place the benefit to hotels at $196,000 and to retailers at $470,000 on an annual basis.

On the introduction of the revised domestic land tax rates in 1999, the percentage of tax payable was 40 percent. It was made clear that in the following year this figure would be revisited to moderate the burden of the increase. Accordingly, while we move to adjust the percentage to 60 percent in the coming year, the increase in revenue will be significantly tempered through a combination of the broadening of the tax bands and a further lowering of the tax rates, such that an anticipated $3.7 million will be raised in the full tax year commencing in July.

While the senior citizen exemption was raised from $20,000 to $30,000 in 1999, this did not prevent hardship to persons in that category. Accordingly the exemption will be raised to $40,000 in the coming year; that is twice the level it was before the 1999 revaluation. The Tax Commissioner has calculated that this move will result in 407 less pensioners paying land tax. The amount collected from them will fall by $660,000 over the full tax year.

Mr. Speaker, significant changes are in process of being made to the Customs Tariff. The Customs Department is moving to adopt the international standard of the Harmonised Tariff and this requires a renumbering and reclassification of the local tariff. These changes will be introduced to this House in the Summer session. Generally rates will not be changed as a result of that exercise, which is needed to blend with the new Customs Automated Processing System (CAPS) currently being installed to improve clearance procedures.

However I am pleased to announce a change today that will benefit the retail trade. With effect from this morning, the existing tariffs that provide the 2.5 percent rate on the import of natural fibre clothing and the 22.25 percent rate on the import of artificial fibre clothing will be blended into one 10 percent rate for all adult and children's clothing. Based on the amount of imports in 1998, clothing importers will pay some $920,000 less in customs duties in the coming year.

The duty on cut flowers will be reduced, at a loss to the revenue of $140,000.

The duty on cigarettes has not been increased since the 1996/97 Budget. At the same time competition in the market place has reduced the price of cigarettes.

Believing that a lower price has the tendency to encourage consumption, an increase in duty will tend to raise prices, reduce consumption and improve health, while also raising revenue.

Duty on cigarettes is currently charged on the weight of the tobacco they contain. Distributors have tended to ignore this and have often added an average duty to the price of each carton, regardless of the tobacco. I propose to change the basis of charging duty by charging per cigarette and raising the duty by 2.3 cents per cigarette to 10 cents per cigarette. The effect will be that a carton of 200 cigarettes will attract approximately $4.60 in additional duty, resulting in an estimated increase of $1.1 million in revenue.

Historically, user fees for Government services are reviewed every two years and adjusted upwards to reflect the effects of inflation. We believe that it is important to adjust the fees on a regular basis so that the size of any required increase is kept reasonably small. This year user fees will be adjusted upwards by five percent to reflect the last two years' inflation, resulting in some additional $2 million in revenue.

Company fees are also traditionally examined every two years with a view to modification in concert with inflation. These fees will also rise by 5 percent across the board and will generate an increase of $1.7 million in revenue. The basic annual company fee for a Bermuda exempted investment holding company will now be $1,780.

Following a review of Stamp Duties it has been determined that changes will be made to certain heads of duty. A complete schedule of changes in duty will be available shortly but I wish now to draw attention to proposed changes to duty payable on conveyances. In respect of Head 14, conveyance or transfer on sale of land, the current maximum rate of 5 percent is capped to create a band of $500,000 of value and a new maximum rate is introduced at 6 percent. In respect of Head 15, also dealing with the conveyance or transfer of property, a similar $500,000 band of value replaces the current maximum and a new maximum rate of 6 percent is introduced for Bermuda property while the rate on property that is not Bermuda property increases from 0.5 percent to 1 percent.

The duty under Head 25, charged on lease agreements, is also modified.

These changes are made consistent with increases in the values of property and property-related transactions and are expected to generate some $750,000 in revenue.

The Ministry of Finance has requested the Post Office to operate as near to self-sufficiency as possible. The labour intensive nature of this service means that employee costs account for 90 percent of total Post Office expenditure. Operational costs have increased in line with other expenditure in Bermuda, while revenues are experiencing a downturn. Postal rates were last increased in Bermuda in August 1996 and it is therefore intended to increase them as of August 2000. The annual rental charge for postboxes will also rise as of 1st January 2001.

These changes are expected to raise $660,000 in 2000/01.

My colleague, the Minister of Transport, will bring before you legislation to adjust bus and ferry fares and raise charges on the aircraft registry.

Combined, these changes are expected to produce some $1.7 million in new revenue.

Mr. Speaker, the Government commissioned a review of the Bermuda Civil Service by the Civil Service College of the United Kingdom. Structural changes to the Service have been recommended. The report has also highlighted comments made over a number of years by the Auditor. It is therefore an appropriate time to announce Government's acceptance of the concept of zero-based budgeting to be introduced to the 2001/2002 Budget process. This technique requires that each Department analyse its entire budget request in detail, both current and new activities. The Ministry of Finance will begin work with the Department of Management Services on this exercise which includes an analysis of each Departmental programme, the establishment of measures of performance, the consequences of not performing an activity, and the benefits of its performance. The analysis then has to be ranked against other current and new activities. A minimum level of spending has to be identified for the performance of the activity before examining the costs and benefits of additional levels of spending for that activity. The level of spending for each activity can thus be reduced, eliminated or increased and substantial budget reductions or shifts in funding achieved among programmes or activities. In this way Government will both improve the budgeting process and bolster the responsiveness of the Civil Service to the needs of the public, thereby fulfilling an election pledge to the electorate.

Bermuda has evolved from a country whose attractions focused on its physical attributes. It now offers the appeal of a sophisticated community with a strong infrastructure and a workforce that contains the highest calibre of professional services available. Government and the community are working together to create the climate in which the hospitality industry can heal itself, to the benefit of all.

Mr. Speaker, I believe that Bermuda has all the components for a successful future. We have the right combination of innovation and invention, coupled with a sound regulatory base, for our international business. We have community-friendly legislation and business-sensitive policies, coupled with a regard for the physical environment in which we live. Education and training are priorities for our people, as we go forward to create a community which places emphasis on the rule of law and the need for law and good order while recognising individuals' human rights.

Mr. Speaker it is on that basis that I focus on innovation and change in this millennium budget. The challenge internationally is to remain competitive; the challenge domestically is to restructure our society and strengthen our communities, encouraging them to maximise their potential. Government will enable, entitle and empower the people to benefit from opportunities that are generated by these policies. However both Government and people have to deliver to their local and international clientele. Much is expected from those to whom much is given.

Government has sought to provide for several necessary projects to go forward this year. This is the real world however and someone has to pay. Accordingly all Ministries and departments have been required to cut back their current account expenditures. I want to commend Ministers, their Permanent Secretaries and their ministry staff for their efforts in achieving this objective. It is incumbent upon all of us in Government to deliver value for money and continue to improve service standards as we do so. In conclusion, Mr. Speaker, I wish to give a special vote of thanks to the staff of the Ministry of Finance for their help and support, given in the best tradition of the Civil Service, in the preparation of this Budget for the year 2000/2001.