Speaker Last year at this time I advised Honourable Members of deteriorating conditions in the global economy and warned that the performance of Bermuda's economy for the remainder of the financial year 1991/92, and in 1993, would largely depend on the speed with which the United States, our dominant trading partner, rebounded from the deep and protracted recession in which it was mired.

At that time there was general agreement among economists that sustained economic recovery in the United States would not occur much before the second half of 1992 and that the pace of recovery would be extremely slow. In the event, that prediction has proved to have been highly accurate.

The US economy remained extremely sluggish during the first half of 1992, with industrial production remaining flat and consumer confidence weak. However, by the end of last year there were clear signs of an improvement with gross domestic product estimated to have grown by 1.8 percent following a decline of 1.2 percent in 1991.

The deterioration in the world economy, recognised in previous Budget Statements, hurt Bermuda, and this was compounded by the slow recovery of the US economy.

Tourist arrivals by air in 1992 numbered 375,231, down by 3 percent on 1991, no doubt influenced by heavily discounted domestic airfares within the United States. Cruise ship passengers numbered 131,006, up by 2.2 percent over 1991.

However, overall tourist arrivals at 506,237 represented a very slight decline of 1.7 percent from 1991. Visitor expenditure, measured in current prices, fell by 7.3 percent in 1991, and by a further 4.0 percent in the first nine months of 1992 compared with the same period in 1991.

Reduced income from the tourist sector has had a major impact on local household incomes over the past two years. Many employees received little, if any, pay increase over this period and reduced work weeks have been commonplace, while lay-offs also have occurred.

Consumer expenditure in real terms, i.e. adjusted for inflation, contracted by 3.5 percent in the financial year 1991/92 and, not surprisingly, this had a notable impact on the level of retail sales, already adversely affected by the downturn in tourism.

However, the retail sales index, which recorded steady falls since September, 1990, began to show signs of recovery in the last quarter of 1992.

It is now predicted that Bermuda's nominal GDP will grow by 1 percent in 1992/93. However, real GDP will have contracted by between 1.5 and 2 percent over this period. This follows a contraction of 6 percent in real terms during the previous three financial years.

Nevertheless, the overall picture has not been without some bright spots.

Firstly, the performance of the international business sector has been encouraging. In 1991, international companies spent $340 million in Bermuda, an increase of 7.1 percent over 1990. During 1992, 747 new exempted companies, exempted partnerships and permit companies were registered, resulting in a record number of 7,271 on the register at year-end, a net increase of 182 over 1991.

Secondly, inflation remained at a very low level in 1992. It is expected that for the year as a whole the consumer price index (CPI) will have risen by an average of only 2.7 percent compared with 4.4 percent in 1991.

This figure represents the lowest annual increase in CPI since 1976 and places the rate of increase in consumer prices in Bermuda in 1992 on par with the US.

This fact should help our competitive position and is in sharp contrast to the 1980s when local inflation was consistently above that of the United States.

Mr. Speaker, a far more detailed assessment of the world and local economy is presented in the Economic Review prepared by the Ministry of Finance which is being tabled in the House today. Clearly, it would have been impossible for Bermuda to have escaped the recession which has affected much of the world for the past two years. Nevertheless, as a result of sound economic planning we have managed comparatively well during this trying period.

The strategy of the Government, exemplified by the last two Budgets, and one which will again be followed this year, has been to concentrate on reducing the cost of Government, rather than increasing taxes, while, at the same time, re-directing scarce revenues to support social assistance, housing allowance and job-creation programmes.

In fact, allowing for inflation, the Government has managed to operate the affairs of the country throughout this recession, the deepest and longest since the 1930s, with almost no increase in tax revenues. To have managed this feat without any recourse to borrowing for current account is an enviable achievement.

The Government will continue to steer this steady, sensible course in the financial year ahead -- a year which does not promise quick relief from our economic difficulties, but should be one which will see a gradual improvement in tourism, essential to the long term economic well-being of the Island, and a continued modest growth in the international business sector.

Mr. Speaker, this Budget will provide the financial framework which will allow for the continuation of those Government policies which have cushioned the effects of the recession and, more importantly, it will enable Bermuda to take advantage of new opportunities in tourism and international business as the recovery of the economy of the United States quickens and the global recession lifts.

I shall have more to say later on the specific steps which the Government is taking to ensure a solid recovery of our economy, but it is more appropriate at this point to outline the present financial position of the Government.

Overview of Revenue and Expenditure Total revenue for the present financial year is projected to be $342.4 million, down $12.5 million or 3.5 percent on the original estimate for the year of $354.9 million.

The projected revenue for 1992/93 is $300,000 or 0.1 percent less than the revenue actually raised in 1991/92 and only $2.6 million or 0.8 percent more than was raised in 1990/91. These figures put into perspective the striking effect of the recession on Government revenues over the past two years.

Customs receipts, the largest single source of revenue, are expected to be approximately $8 million, or 6 percent, short of the original estimate of $128 million for 1992/93, reflecting reduced consumer demand.

Furthermore, receipts from hospital levy and from employment tax are projected to be $2 million and $1.1 million respectively short of the original estimate for the current year. These figures represent a decline of 4 percent and basically reflect the rise in unemployment, reduced working hours and the reduced number of work permit holders on the Island. The impact of the latter statistic has been felt in many other areas, bringing home to all of us the importance of the contributions of guest workers to our economy.

Hotel occupancy tax revenue for this financial year is also forecast to be down by $600,000 or 5.6 percent from the original projection for the year, reflecting the relatively weak tourism figures recorded during 1992.

Mr. Speaker, I now turn to expenditure for the current financial year. On the positive side of this equation, I must stress the fact that total current account expenditure for 1992/93 is expected to be $329.9 million, which is only $909,000 or 0.3 percent over the original estimate for the year. The increase is being held to this modest level despite additional expenditures in this financial year of approximately $4 million for social assistance, almost $1 million for temporary work programmes within the Ministry of Works and Engineering, $500,000 for an increase in an insurance premium for Government buildings, and an extra $100,000 for the National Drug Strategy.

The fact that the government has been able to meet these increased demands while at the same time holding overall expenditure so close to budget, is clear evidence of sound financial management.

The current account balance for financial year 1992/93, which makes no provision for servicing and repaying debt, is projected to be approximately $12.5 million. It is here that the effects of revenue shortfalls are most clearly seen as this balance was originally projected to be $26 million.

The importance of maintaining a healthy current account balance cannot be overstated. It is from these monies alone that normal capital development and capital acquisitions, such as equipment and furnishings, are funded.

Additionally, it is from this current account balance that the Government must also service and repay debt, as well as fund emergency expenditures that come forward from time to time.

When one includes interest on debt of $1.9 million, the current account balance at the end of 1992/93 will shrink to $10.6 million. This figure is considered by the Ministry of Finance as an inadequate sum but it is probably the best that can be expected in what has proved to be a very difficult financial year. The small size of this balance has serious implications for Government's capital development programme as well as for Government borrowing and I shall have more to say on both of these subjects in due course.

Mr. Speaker, the sharp deterioration of this current account balance during 1992/93 has, however, been offset by underspending in the capital account of $22.4 million -- $3.2 million of which came from substantial reductions in capital acquisitions made in mid-year following an assessment of poor revenue returns for the first two quarters. These savings are expected to result in the original budget deficit for 1992/93 of $55.9 million shrinking by about $10.3 million, to $45.6 million.

It should therefore be self-evident that distinct progress has been made over the past two years in curtailing the rate of growth in the cost of running the Government. In fact, current account expenditure over the last two years has increased by less than 0.6 percent over the rate of inflation.

Mr. Speaker, I now turn to the coming financial year.

The estimates for 1993/94 indicate total revenue of $352.5 million. It has to be stressed that this figure is $2.4 million less than the figure originally projected for the financial year 1992/93. Clearly, with a depressed economy and revenues weak, the budget emphasis in the coming financial year has had to be on expenditure restraint.

The review of expenditure for 1993/94 which follows will confirm that this course is the one which Government intends to pursue.

The current account expenditure estimate for the coming financial year is approximately $331.7 million, just $2.8 million or only 0.8 percent greater than the original estimate for the current year, 1992/93. This figure represents a reduction in the expenditure estimate in real terms of about 2.5 percent.

Holding expenditure to this level in spite of having had to provide substantial new funding for certain programmes obviously necessitated reductions in some areas.

Personnel costs, including pension provisions, now consume approximately 62 percent or almost two-thirds of all of the Government's current account expenditure. It is therefore essential that every effort be made to effect reductions in this area.

Accordingly, the tight control of overtime, instituted in 1990, will continue in the year to come. In addition, a formal staff review process has been initiated to assess carefully the need to fill every civil service post as well as every industrial position as it becomes vacant. This process will reduce the number of employees over time through attrition rather than expensive redundancy. While this step may have some impact on the level of services provided to the public, it is expected that departments will work to minimise these effects through increased efficiency and improved productivity.

to this end, added emphasis is to be placed on recently-launched programmes designed to make Government more efficient and more accountable to the public.

The current economic climate, low rate of inflation, and the fact that there has been real growth in wages and salaries achieved by Government employees in past settlements, will guide Government in its wage and salary negotiations this year. In keeping with this philosophy, it is the view of the Government that now is not the time for salaries of Members of Parliament to be increased. Hence, yet again there will be no change in these emoluments.

Mr. Speaker, I will now comment on capital expenditure. In 1993/94 capital expenditure is expected to total $47.7 million and will be committed almost entirely to those projects which are already underway rather than to new ones.

Government remains committed to a policy of minimising any undue financial burden on future generations of taxpayers. Whereas it has always been, and still remains, the intention of the government to engage in prudent borrowing to finance major capital projects, borrowing for minor capital works or for current account expenditure is considered a vastly different matter, and the Government has no intention of embarking on such a path.

The Government's policy will respect to borrowing represents sound financial management. Small countries, with limited natural resources, whose governments have failed to follow such a policy, probably have placed their people in fiscal bondage for decades. This Government promises the people of Bermuda that it will protect them from such a folly.

The dramatic reduction in Government revenues mentioned earlier and the resulting shrinkage in current account balances have dictated a full review of the Government's capital plans for the next few years.

Until such time as a healthy current account balance is re-established, and while we remain obliged to complete specific major capital projects, borrowing will be relied upon to fund them. However, borrowing for this purpose will be limited to amounts that can be prudently serviced and repaid over time from planned current account balances.

Mr. Speaker, going a step further, legislation will be introduced in this Session to establish a sinking fund into which regular contributions, financed from current account balances, will have to be made. To this end the estimates for 1993/94 include a provision of $1.4 million as a payment to the fund.

The establishment of this sinking fund will assure our creditors of our determination to repay any monies we borrow and will also enhance our creditworthiness. The setting up of this fund will be yet further evidence of this Government's ability to manage the economy while protecting the country's enviable reputation.

The borrowing required over the coming few years for capital development will not breach the Government's stated policy of holding borrowing to not more than 10% of GDP or violate the present legal limit on borrowing of $185 million.

Mr. Speaker, I hasten to point out that the Government's new borrowing will be limited to $26.7 million in the coming financial year. This figure will raise the Government's debt, exclusive of $50 million in guarantees for the Bermuda housing Corporation, to $86.7 million.

It is projected, however, that the amount of borrowing required will rise substantially in the coming five years as other projects, principally those related to the restructuring of the education system, come on line.

Expenditure Projections Mr. Speaker, I will now comment in more detail on the expenditure projections for the financial year 1993/94.

As previously indicated, current account expenditure in the coming financial year is estimated to be $331.7 million. This figure, added to the capital expenditure estimate of $47.7 million, gives a total estimated expenditure of $379.4 million, down $28.1 million or 6.9 percent from the original estimate of total expenditure for 1992/93.

The 1993/94 current account expenditure estimate of $331.7 million was achieved through a rigorous cost cutting exercise carried out throughout all government departments, as well as in all quangos, which realised reductions of almost $18 million.

GOVERNMENT TO ESTABLISH SINKING FUND Mr. Speaker, within the current account estimates for 1993/94, the ten Heads with the largest estimated expenditure, ranked in descending order, are: $m%* Department of Education 43.813.2 Hospitals 41.312.4 Works and Engineering 33.810.2 Department of Tourism 28.38.5 Police 25.07.5 Accountant General 19.65.9 Social Services 14.94.5 Prisons 10.93.3 Health Department 10.23.1 Department of Agriculture, Fisheries and Parks 9.02.7 *% of total current account expenditure.

Although Honourable Members will shortly have an opportunity to see and debate the detailed provisions for these and all other expenditure Heads, presented this year in a new format, a number of expenditure items are worth singling out at this time, especially as most involve new or enhanced programmes.

Funding for the social assistance programme within the Ministry of Health, Social Services and Housing has been increased by $3 million over the original 1992/93 estimate, bringing the total available funding for this programme in 1993/94 to $6 million. The number of people drawing on this programme for help increased substantially during the recession and the additional funding provided should enable all those who need assistance to receive it. In addition, the Housing Allowance Programme which is currently helping almost 800 households, will receive $3.5 million in 1993/94.

The grant to King Edward Memorial Hospital and St. Brendan's Hospital in 1993/94 has been increased by approximately $2.8 million over the 1992/93 figure. King Edward Memorial Hospital in particular has been severely constrained in 1992/93 following reductions in its subsidy to comply with Government-wide expenditure reductions. The additional grant aid in 1993/94 restores this grant to an appropriate level for the categories of patients subsidised by the Government, i.e. youth, seniors and the indigent.

Additionally, funding is provided for St. Brendan's for the introduction in 1993/94 of the first community-based group home scheme.

Throughout the recession, the Government has provided support for the needy through social assistance and housing allowance programmes while at the same time spending heavily on capital projects, thus providing employment in the construction industry. In addition, the Ministry of works and Engineering has provided temporary work for the unemployed. To date, well over $1 million has been spent on this programme and although it is assumed that the need will wane in the coming year, a sum of $100,000 has been provided in 1993/94 to offer some additional support.

Tourism offers the biggest long-term employment opportunity for Bermuda and the Government is committed to investing in this area. The announced increase in airlift between Britain and Bermuda provides an opportunity for expanding our tourist business with Britain and continental Europe. To maximise this opportunity, an additional $500,000 has been earmarked in the Department of Tourism budget for the promotion of Bermuda in Europe.

A start has been made in 1992/93 on reducing the actuarially-projected pension liability of the Superannuation Fund. Despite the drop in Government revenues approximately $1.5 million over and above the Government's presently required contributions as employer will be made available to supplement the Fund in 1993/94.

Implementation of the National Drug Strategy began in 1992/93. The Government places a high priority on this Strategy and accordingly an additional $750,000 has been provided for this purpose thus giving approximately $1.1 million for the programme in the coming financial year.

Mr. Speaker, Government spending on major capital projects in 1993/94 will amount to $27 million which will provide many jobs in the depressed construction industry.

It is expected that the new prison will be completed in September, 1993 at a total cost of $40.5 million, the final $5.2 million of which will be provided in the coming financial year.

Construction on the mass burn incinerator is progressing well. It is expected that $19.3 million will be spent on this project in 1993/94 generating employment for as many as 100 Bermudians.

The capital works component of the restructuring of the education system, aside from the administrative and educational aspects, is a mammoth task which will take some years to bring to fruition. To this end, the Government's five-year capital plan currently projects costs in excess of $100 million for this programme. As design work continues and some site preparation begins in the coming year $3 million has been provided for these specific purposes.

A sum of $1.5 million will also be provided for a start on the next phase of the National Stadium which will include much needed changing facilities. Mr.

Speaker, this concludes my comments on the expenditure projections for 1993/94.

Revenue Projections Mr. Speaker, I now turn to the detailed revenue projections for 1993/94 which anticipate total Government revenue of $352.5 million. In framing these projections, the following assumptions have been made: (1) the number of regular and cruise ship visitors will increase by 3 percemt on the total achieved in calendar 1992, but there will be no growth in tourist per capita expenditure in real terms; (2) the foreign currency generated by the international business sector will increase by 1 percent in real terms; (3) there will be a modest recovery in gross domestic fixed capital formation primarily reflecting new building projects in the private sector as work on the new prison finishes and the mass burn incinerator nears completion; (4) based on the above, it is anticipated that there will be a slight increase in household incomes as employment prospects improve and the number of hours worked increases; (5) there will be a modest growth in the volume of imports; and (6) the rate of inflation will increase only slightly over the 2.7 percent average for calendar 1992.

On the basis of these assumptions, Bermuda's external balance of payments on current account, which is expected to be roughly in balance in 1992/93, may move into a very modest surplus in the coming financial year. Reflecting this mild recovery, Bermuda's GDP is forecast to grow by approximately 1 percent in real terms in 1993/94.

Mr. Speaker, while talking about the modest recovery forecast for the Bermuda economy, it is appropriate to draw attention to the important contribution that the military bases have made to our economy over the years. By the end of 1993, the Canadian Forces Station at Daniel's Head will close. It is also assumed that during the course of this year there will be a further re-examination by US authorities of their facilities on the Island. Direct expenditure by the Canadian Forces Station in 1991 amounted to $3.2 million, excluding that proportion of salaries and allowances Canadian forces; personnel spent in Bermuda. This sum amounted to 0.2 percent of GDP, a slight reduction from the level in 1987, the last time an analysis was conducted on the impact of military bases on our economy.

By contrast, the direct expenditure by the US Naval Air Station and Annex amounted to $36.0 million in 1991. A further $9.7 million was spent on services, such as runway maintenance, air traffic control, meteorological services and maintenance and repair of Longbird Bridge. This total represented 2.8 percent of GDP compared with 2.0 percent in 1987.

These figures, significant as they are, exclude any assessment of the secondary impact of these monies as they are re-spent and circulated throughout the economy. In preparing this Budget, the Government is ever mindful of the probability that the US bases may be scaled down further over the next few years, thus resulting in a significant loss of income to the Island. The Government is therefore factoring such an eventuality into its long-term financial planning.

Mr. Speaker, notwithstanding the fact that the economy appears to be beginning a modest recovery from the worst recession to have hit Bermuda since the 1930s, now is not the time for Government to increase the rate or level of taxation. It is felt that any move to increase taxes this year would certainly undermine the anticipated growth in household incomes and weaken the economic recovery.

The simple fact is that at this time the Government and the private sector alike have to concentrate on keeping costs down in order that the country as a whole can achieve a higher level of competitiveness in the world markets of tourism and international business.

The Government is therefore prepared to take bold steps in the firm belief that it is this type of leadership which will ensure Bermuda's long-term economic future.

To this end, although it has been the practice to adjust specific customs duties annually in line with inflation this will not be done in this Budget.

It is estimated that as a result of this decision the Government will forego $1.9 million in revenue over the next twelve months. However, this step is being taken in the belief that it will have a dampening effect both on inflation and on subsequent wage demands in the community which, in turn, should help strengthen Bermuda's competitive position.

Over the years the Customs Tariff has become increasingly complex and at the same time it must be admitted that the Tariff has become somewhat bureaucratic to administer. Therefore, during the course of 1993, it is proposed that staff of the Ministry of Finance meet with the business community to undertake a major review of the Tariff with the objective of simplifying it and also making it more "user friendly''.

In the meantime, a few minor amendments are to be made to the tariff which will have a minimal effect upon Government revenues but will have the immediate effect of making a start on clarifying and simplifying procedures.

One such change will be in the area of clothing and textile fabrics. All goods consisting of pure natural fibre will henceforth attract one rate of duty, 8.5%, while all other items of clothing and material will be subject to duty at 22.25%. Children's clothing, however, will still continue to attract duty of only 11.25%. This interim step brings the number of clothing tariff rates down from five to three.

Certain printed materials and associated audio and video tapes used for religious instruction by local churches currently attract duty at 22.25 percent. This seems to be an anomaly when compared with other instructional materials which carry no duty. Accordingly, it is proposed to exempt such materials from duty where they are imported for teaching purposes only and not intended for re-sale.

The Customs Tariff Act 1970 will be further amended in order that registered charities and the government may import, free of duty, works of art for public exhibition in Bermuda. At the same time it is proposed to exempt from duty goods imported by the Bermuda Zoological society for use in the development of exhibits within the Aquarium, Museum and Zoo. Both of these measures should encourage the enhancement of public attractions that are visited by residents and tourists alike.

Recent developments in the field of electric transportation have resulted in electric vehicles becoming more attractive as alternative vehicles for Bermuda. These types of vehicles hold considerable potential for energy conservation, particularly when recharged by solar panels, and could also assist significantly in reducing exhaust and noise pollution. To encourage Bermudians to experiment with this form of transport, it has been decided to exempt from duty the import of passenger motor vehicles powered by electricity.

The Tariff states that passenger motor cars having a value of $10,000 or less attract a rate of duty of 75 percent. Cars of greater than $10,000 value attract a duty of 75 percent on the first $10,000 and 150% on the value in excess of $10,000. The rate of inflation and the appreciation of the yen, the currency used in the purchase of the great majority of our vehicles, has meant that an increasing number of ordinary family cars are now attracting some element of duty at the higher rate.

This result was never the intention of the change made in 1991 and, accordingly, the $10,000 threshold is to be raised to $12,000. This step will assist in containing the cost of new cars. Mr. Speaker, no-one should under-estimate the important contribution that the hotels make to the Island's economy whether it be in terms of direct and indirect employment, foreign currency earnings or simply the maintenance of our airlift capacity. although the hotels are making strenuous efforts to cut their costs, it has to be recognised that the cost of doing business in Bermuda is higher than in the jurisdictions of many of their competitors.

Mr. Speaker, in order to assist the hotel industry as it strives for greater competitiveness, the rate of duty on diesel oil supplied to hotels is to be reduced from the present 23 cents per litre to 9.5 cents per litre, the same rate of duty which applies to diesel oil imported by Belco.

The Hotel Refurbishment (Temporary Customs Duty Relief) Act 1990 has already been extended by Order until 30th November, 1993. There can be no doubt that the hotels have found this legislation extremely useful in defraying part of their costs of refurbishment. However, the Act came into effect at a time when reduced cash flow unquestionably inhibited the hotels in the up-grading of facilities to the level desired.

It is vital to the future well-being of the Bermuda economy that our hotel facilities continue to be modernised. Accordingly, the Government will be bringing a Bill to the House to amend the Hotel Refurbishment (Temporary Customs Duty Relief) Act to continue the existing rate of duty relief until 30 November, 1994. At the same time, administrative steps will be taken to make the claims process easier for everyone. To assist tourism development further, two changes are proposed to the Passenger Tax Act 1972.

The 1990/91 budget raised the tax on passengers arriving by pleasure craft from $20 to $30.

Contrary to some reports, arrivals of passengers on such vessels over the last two years have been increasing: in 1992 there were 4,630 passengers compared with 3,742 in 1991. Notwithstanding this fact, it is now proposed to reduce the tax to $15 per passenger, with effect from 1st April, 1993.

TOURISM INDUSTRY GIVEN BUDGET BOOST This step is being taken to put regular air visitors and passengers arriving by pleasure craft on the same level. At the same time it is expected that this reduction in the tax will encourage even more yachting visitors, especially to St. George which depends heavily on this trade.

Few cruise ships visit Bermuda during the fall and winter months despite the fact that there are no restrictions on such visits and that the Island can have some very reasonable weather during this period, especially in November and March. In order to provide a fiscal incentive to boost the off-season cruise business, it is proposed to remove the passenger arrival tax altogether between the beginning of November and the end of March, with effect from November 1993.

Mr. Speaker, Land Tax has increased sharply in the last few years, making up for the erosion that occurred during the 1980s. The five-year reassessment of properties will take place in 1994 and hence it is proposed that any further consideration of adjustment in land tax be postponed until this review is completed.

It has been customary to adjust government fees every two years to avoid erosion through inflation. Inasmuch as there was a general adjustment to fees last year, most fees will remain unchanged in the coming financial year.

The Minister of Transport has carefully reviewed the vehicle licence fees currently in place and has determined that in light of the very modest increase in the rate of inflation which has prevailed since last February and the fact that any increase would have a direct impact on a recession-weary public these fees will not be increased in the coming financial year.

A fee is currently charged by the Ministry of Transport for a permit to use a truck on Sundays and public holidays. Water tank wagons and funeral coaches are exempt from this fee. Since farmers and fishermen frequently need to operate their trucks on Sundays the Government has decided that these vehicles also should be exempt from a fee.

The fees charged for registration of trade marks under the Government Fees (Trade Marks) Regulations 1975 are currently under review and consideration is also being given to an appropriate fee to be charged for registering service marks. The Government's intention is to place these fees in the Government Fees Regulations in the future and an appropriate amendment will be brought forward in due course.

Mr. Speaker, stamp duties remain an important source of Government revenue.

Whereas there is no intention to make major changes in the Stamp Duties Act 1976, some minor adjustments are considered appropriate not only to keep the legislation current, but also to make sure that these provisions remain fair and reasonable. There is at present a duty exemption under Head 2 for the first $20,000 of value of estates, having been raised to this level in 1990 from $10,000 where it had been for many years. In order to assist the beneficiaries of small estates in these difficult economic times, the tax-free band will be further raised to $30,000 as of today.

In a similar vein, it is proposed to remove stamp duty on instruments which convey Bermuda property, excluding real property, to registered pension trusts. It is felt that this step will encourage local employers to set up pension trust funds for their employees. Exemption from duty on such instruments already exists for non-resident pension trusts.

Exempted trust companies benefit from the Stamp Duties (International Business) Relief Act 1990, which dictates that no duty is chargeable on instruments conveying foreign property to trusts set up and managed by them.

Local trust companies, whose numbers have grown considerably as a result of the passage of the Trust Companies Act 1991, do not benefit from the same duty relief on instruments conveying foreign property into trust and therefore are at a competitive disadvantage. In order to correct this anomaly, it is proposed that the Stamp Duties Act be amended to relieve from duty any instrument conveying non-Bermuda property to trusts administered by local trustees.

Mr. Speaker, despite the recession, Bermuda was successful in attracting 747 new international companies in 1992, bringing the net total of such companies on the register at year-end to 7,271. The international business industry, like tourism, is a very highly competitive business today. If Bermuda is to continue to attract new international business, we must also control costs in this area. To this end, the Government is going to do its part by keeping company fees, with one exception, at the level which took effect on January 1, 1991.

The exception to the arrangement just mentioned will be the licence fee for operating a trust company. Honourable Members will be aware that the Trust Companies Act 1991 provided for an expansion in the number of licensed trust companies. The companies licensed to do general trust company business must be regulated and supervised by the Bermuda Monetary Authority which carries with it a cost. The token licence fee of $1,000 currently in effect is to be raised to $10,000 in the coming financial year and will be kept under review as this new area of trust company business develops.

As in many other countries, small businesses are playing an increasingly important role in the creation of jobs in Bermuda. It is estimated that local small business now employ some 5,400 people, which is approximately 17 percent of the labour force. As the economy emerges from the recession and continues its structural adjustment in the 1990s, small businesses will become even more important.

When employment tax was introduced in 1973 the liability threshold and standard deduction were set at levels which protected small businesses from the full impact of the tax and thereby encouraged employment in such businesses. Although the liability threshold was increased in 1979 and again in 1987 to the current level of $50,000, the standard deduction and the payroll ceiling, introduced in 1973 and 1979 respectively, have not been revised.

While every business in Bermuda is feeling the impact of the recession it is undeniable that cash flow problems are more critical for small businesses than for large ones. Cash flow problems can seriously impede the ability of small businesses to engage additional staff: this adverse effect runs counter to Government's goal of increasing employment.

Accordingly, it is proposed that that employment tax liability threshold be raised from the present $50,000 to $66,000 per annum, an increase which is slightly in excess of the rate of inflation since the last increase in April 1987. In order to ease the transition to the full impact of the tax for those employers whose payroll is above the new liability threshold, it is also proposed that the level of the standard deduction be increased from $1,000 per month, or $3,000 per quarter, to $2,000 per month, or $6,000 per quarter. In addition, the payroll ceiling below which the deductions can be claimed will be raised from $100,000 to $200,000 per annum. It is estimated that these measures will have a considerable beneficial impact on approximately 700 small businesses who account for about 70 percent of all those who pay employment tax. The above changes will come into effect on 1st April, 1993.

The resulting loss of revenue to the Government will be approximately $800,000 in a full year. Notwithstanding the loss, this step is considered to be a definite long-term investment in the economy as a whole as it will assist small businesses and encourage employment as we emerge from recession.

The recession has unquestionably slowed the sale of local real estate. A number of condominiums which are available for purchase by non-Bermudians remain unsold. In order to stimulate this specific market, the fee charged non-Bermudians for a licence to buy condominiums is to be reduced from the present 20 percent of the value of the property to 15 percent of this value.

The Government is currently reviewing its policies with respect to the sale of condominiums to non-Bermudians to ascertain whether changes should be made to further stimulate sales of this form of housing. The fee of 20 percent of value will remain in the case of the sale of houses to non-Bermudians.

I have met with representative groups of boat owners on several occasions during the last twelve months and have listened to their views on the tax structure that was introduced for boats in last year's budget. As a result of these discussions the Government intends to amend the sliding scale boat registration fees by the introduction of a new set fee based on length alone.

This alteration, which will come into effect on 1st April, 1994, will be addressed in revised Government Fees Regulations and will result in a definite decrease in Government revenue from this source. Mooring fees, on the other hand, are to be increased and this also will take effect as of 1st April, 1994.

I would like to take this opportunity to thank those individuals who so willingly spent their own time exploring alternatives to the existing boat tax, thereby assisting in the redrafting of the legislation.

At the same time, I would also like to say how grateful I am for the advice I have received from scores of other individuals and groups leading up to the preparation of this Budget.

Mr. Speaker, whereas that concludes the revenue measures for the coming financial year, I would like to make a few general comments which relate to the long-term economic health of the country.

The last detailed review of Bermuda's tax structure was conducted in 1973.

Since that time there have been many changes both in the global and Bermudian economy, therefore, I would like to announce Government's intention to carry out a review of the existing tax structure with the objective of further refining our current consumption-based tax system which is the envy of many other countries. This review will be in addition to the proposed review of the Customs tariff mentioned earlier.

The growing practice of Bermudians buying goods overseas is of concern to the local retail sector and to the Government. Savings for the individual buyer achieved through this practice have to be set against the negative impact this activity has on the viability of the local retail sector, and, in particular, on local employment. Clearly, local retailers need to re-think both their marketing and mark-up practices in light of changing circumstances both here and abroad. The Government looks forward to the recommendations of both the Committee on Competitiveness and a recently-formed working group within the Chamber of Commerce which are examining this specific issue. Mr. Speaker, while our existing social insurance scheme provides a very creditable basis for a national pension plan, the Government is currently exploring the merits of introducing an ancillary pension scheme, based on earnings of the individual, to supplement social insurance. A Green Paper on the subject will be presented to the House in due course.

Mr. Speaker, you will recall that in last year's Budget Statement I advised that the Government intended to bring a Bill to this House to amend the Interest and Credit Charges (Regulations) Act 1975 with a view to moving towards the deregulation of interest rates.

Because of the sensitive nature of the subject and the need to give careful consideration to all ramifications of any alterations to the status quo, it has been necessary to move cautiously on this matter. The Ministry of Finance and the Bermuda Monetary Authority have been having on-going discussions on this subject with financial institutions on the Island over the past ten months. A special advisory Committee has been formed of Government and private sector representatives to review the various options and make recommendations on the precise nature and manner of implementation of any changes in the current interest rate structure.

During the course of these protracted discussions with local financial institutions, Bermuda has seen a lowering of interest rates charged locally for certain long-term loans, including mortgages, which injected, for the first time in decades, a level of competition in this area. This change is very encouraging and is, after all, what the Government desired all along as a first step towards deregulation. Therefore, it can be stated categorically that progress has been made in this area.

I shall bring further progress reports on the question of interest rate deregulation and allied matters to the House at regular intervals.

Mr. Speaker, the focus of this Budget Statement has clearly been on the need to continue to steer a steady course for the local economy in order to instil confidence in the whole community and to demonstrate that the Government has and will continue to act in the best interests of all segments of the community.

The Government fully appreciates that the community, just like the Government, has been having difficulty with cash flow. Accordingly, the Government feels the introduction of new taxes or even the raising of existing ones to be inappropriate at this point in time. Hence increases in taxes are minimal in this Budget.

Mr. Speaker, this year, instead of the time honoured remedy of simply increasing taxes the government has concentrated on reducing costs, and achieving greater efficiency in its service to the community. These actions will clearly demonstrate to the taxpayers of this Island the Government's continued commitment to the presentation of Budgets that ensure Bermuda's economic stability and financial well-being.

This 1993/94 Budget will have little or no influence on local inflation, thereby further assisting all segments of the private sector in their efforts to become more competitive in both local and international markets. Mr.

Speaker, in concluding let me state that the central theme of this 1993/94 Budget rests on the conviction that the Government alone cannot sustain economic recovery, but that a co-operative effort between the public and private sectors is required for true long-term economic success.

Measures taken over the previous two years, epitomized by the 1991/92, and 1992/93 Budgets, saw the Government in the forefront in the struggle to mitigate the effects of the recession.

This 1993/94 Budget on the other hand will be noteworthy for its emphasis on the easing of the tax burden, on making the Government less costly and more efficient, and on the belief that Bermuda's future financial well-being can only be assured through a team effort by all concerned -- be they the Government, employers, employees, unions, local companies, international companies, Bermudians or non-Bermudians. In the coming year, all of us who collectively comprise Bermuda Inc. must work together and avoid conflict and selfish behaviour at all costs.

Mr. Speaker, the Government firmly believes that providing we are honest with each other and work together in this way, valuing each others' contributions, Bermuda will remain what it has been for many, many years -- one of the best places in the whole world in which to live and to work, and indeed, to grow up in, and to grow old in.

Mr. Speaker, I respectfully submit the Budget for 1993/94.

Finance Minister the Hon. David Saul makes a point about his 1993-1994 Budget during a press conference yesterday.