Mr. Speaker, Government is conscious of the need for a social safety net and has built into its 1998-99 capital spending plan $3.15 million for an adolescent residential care facility and $450,000 for a prison half-way house.

A further $215,000 will be spent on improvements to St. Brendan's Hospital.

The construction of a biomedical incinerator at the King Edward VII Memorial Hospital will cost $1.4 million in total, with $500,000 being spent in 1998-99. When installed, this system will ensure that the hospital meets the highest environmental standards for disposal and air quality.

A better-equipped Police Service is supported through renovations to the St.

George's Police Station, at a cost of $100,000.

$5.9 million will be spent on the IBM AS400 computer infrastructure for Government and the development of new systems to improve productivity.

In total, Government expects to spend $71.6 million on capital projects and acquisitions in 1998-99, of which over one third will be spent on education and health and social services.

Details of Current Expenditure Projections The ten Heads of expenditure with the largest current account budgets, in the coming year, ranked in descending order are: 1. Department of Education $61.7 million 2. Hospitals $60.1 million 3. Works and Engineering $39.8 million 4. Police $33.5 million 5. Tourism $33.2 million 6. Accountant General $27.3 million 7. Airport Operations $15.7 million 8. Financial Assistance $13.0 million 9. Prisons $12.9 million 10.Health $12.4 million Mr. Speaker, Government's total anticipated expenditure on current account for 1998-99 is $475.1 million, which is $13.4 million or 2.9 percent more than the original estimate for 1997-98.

Mr. Speaker, a total of $5.8 million is added to the current account in this year's Budget to fund education. I have already referred to CedarBridge Academy and its significance in Government's programme for the preparation of young Bermudians. A complex facility like CedarBridge requires appropriate staffing and operational resources and $2.9 million in new funding is included for this purpose. A further $880,000 is required for 16 teachers not previously allocated to the school by the Ministry of Education, but required as a result of the increased number of students enrolled.

The total operating cost of CedarBridge Academy for 1998-99, inclusive of all salaries, will be $8.9 million.

Government has added annually to its complement of teachers and teaching assistants to support the programme of mainstreaming special needs students.

To support the intake of students from 1997, 14 new teachers and specialists and 18 assistants will be funded at a cost of $1.36 million, taking the annual cost of the programme in 1998-99 to $7.06 million. In view of the rapidly escalating resources to support this programme, a special study is being undertaken by Management Services to ensure its cost-efficient delivery.

To support the commitment of the Government to the safety and security of teachers and pupils, a further $432,000 is added to the budget of the Ministry of Education. $350,000 is also added to support a full year of operation of the alternate school at Warwick Camp.

Mr. Speaker, the total expenditure of new funds on education of $5.8 million represents 46.1 percent of all the new allocated funding on current account for 1998-99. This demonstrates Government's commitment to the future of Bermuda's young people.

Mr. Speaker, this Government sets a high priority on the training and retraining of adult workers, to provide the greatest opportunity for full participation in our economy. For 1998-99, a further $706,200 is added to the budget of the National Training Board in the Ministry of Labour, Home Affairs and Public Safety. To assist with the provision of summer employment for young people in Government departments, $167,000 is added to the Ministry's budget, giving a total provision of $350,000 for this purpose.

The Ministry's responsibility for public safety continues to receive the full attention and support of the Government. The civilianisation programme in the Police Service is provided with funding for a further 15 positions at a cost of $696,000, which takes the total number of positions provided under this initiative to 61. This figure exceeds the 57 positions lost in cut-backs during the recession years.

The system of communications used by the Police Service and other emergency services is not performing satisfactorily and must be replaced. While the capital expenditure plan for 1998-99 and 1999-2000 shows a relatively modest expenditure on new broadcast equipment of $1.8 million, the Police Service is further allocated on current account some $552,000 to lease equipment that can more readily be replaced as it becomes obsolete over time.

The Police Service will also receive $116,000 towards the operational costs of the closed-circuit television system being installed in the City of Hamilton.

Safety in the workplace is essential for the well-being of employees and necessary for the success of a business. $82,600 is to be spent in 1998-99 on a Health and Safety Training and Awareness programme and the revision of health and safety legislation.

Mr. Speaker, going forward Government will demand that its health-care system provide quality care as efficiently as possible with the goal of universal access. For 1998-99, the Ministry of Health and Social Services receives $4.6 million in support of new expenditure items. Of that amount, the subsidy to the King Edward VII Memorial Hospital claims the largest allocation with an increase of $2.9 million. A further $1.1 million is allocated to support St.

Brendan's Hospital and, taken together, the total amount of new funding allocated to the hospitals of $4.0 million represents 31.7 percent of all new allocated funding on current account for 1998-99. Increased grants will go to PALS and to the Bermuda Nursing Council. While most funding for the treatment of HIV/AIDS passes through the hospital, the Ministry will be allocated an additional $20,000 for the purchase of testing kits for HIV and other sexually transmitted diseases, and vaccines.

Hospice care receives an additional $109,416, and renal dialysis a further $81,900. Three nurse's aides are added to the staff of the Learning Disability Day Care Centre at St. Brendan's Hospital at a cost of $85,000.

Within the Ministry's Department of Child and Family care, over $58,000 is allocated to improvements in the foster-care programme, $31,000 to family services and $11,000 to probation services.

The Montrose Substance Abuse programme, formerly run by King Edward VII Hospital, will be moved to St. Brendan's Hospital but at no additional overall cost.

Mr. Speaker, the cost of health care as evidenced by the increase in subsidy to the hospitals continues to climb. As noted in my 1997 Budget Statement, the 1996 actuarial review of the Government Employees Health Insurance Fund (GEHI) recommended a substantial flat-rate adjustment to the monthly premium.

Contributing members were required to pay increased contributions beginning on the 1st of April, 1997. A further $19 per month increase is required for the year commencing the 1st of April, 1998, and matching contributions are needed from Government as an employer. Included in the Accountant General's budget, therefore, for the coming year is an additional $1.69 million, representing the employer's matching share of the cost of the increase for existing employees. A further $273,000 added to Budget represents the health insurance, civil-service pension and social-insurance contributions anticipated to be required as employer contributions by Government in respect of new employees.

Given the substantial costs of overseas care, preferred-provider relationships, with world-class institutional providers overseas, will be actively pursued during 1998-99 with the goal of mitigating future increases on GEHI participants.

Mr. Speaker, Government's war on drugs emphasises treatment and rehabilitation for the victims of this scourge. The Department of Human Affairs will receive a further $550,000 in funding for the National Drug Commission (NDC), which represents a 46 percent increase over 1997-98. This additional grant will enable the Commission to begin work on phasing in a drugs court as well as supporting a Salvation Army Drug Rehabilitation programme. This will take the total resources allocated to the NDC on an annual basis to $1.75 million.

The Government periodically reviews the benefits distributed to senior citizens through the social insurance scheme. The last increase in benefits was made in 1995, and it is time to give further attention to the purchasing power of retirees. Accordingly, benefits will be increased as of the 15th of August by three percent. Employers and employees will share a corresponding increase of three percent in contributions to the social insurance fund. While specific new rates will be announced later in the year, Government's contributions on behalf of its employees will rise by approximately $150,000, and this amount has been included in the Accountant General's budget.

It is anticipated that the $50,000 included in the Accountant General's budget for a review of stamp duties legislation will be supported in due course by appropriate revenues generated from improved procedures and application of the laws. Thorough, professional work by the Accountant General has already produced successful results in this area.

Mr. Speaker, during the past year, the Government has supported the work of the Monitor Group to research the global and domestic challenges to our tourism industry. Their thorough analyses have led to a community-wide vision for the future direction of this sector. In the coming year, we will see the development and implementation of many projects designed to rebuild tourism.

The Government will support this implementation phase with an allocation of $1 million.

The creation of the Bermuda Tourist Authority, a further example of public/private sector partnership, is proceeding through its conceptual and development stages. A portion of the funding currently allocated to the Ministry will be used to support the Authority once it has been set up.

Preliminary funding for a major Millennium event -- the Tall Ships 2000 Race -- is added to the Ministry of Tourism's budget. $67,000 will support the establishment of a Port Committee and the production of brochures.

Professor Archer's annual reports on international business have ensured that the community is aware of the growth in foreign exchange earnings from this sector. Like any other successful business, it needs to be marketed properly and a positive image of Bermuda presented to the world. For 1998-99, through the Registrar of Companies' office, a further $250,000 is allocated to the marketing of Bermuda's pre-eminent offshore insurance industry. In addition, $550,000 is budgeted for increased support to the Bermuda International Business Association (BIBA) for their extensive marketing and promotional activities. Government support for BIBA now totals $1.5 million.

To support an expanding international business sector, Bermuda requires effective and competitively priced communications. $94,000 is allocated to the Department of Telecommunications to engage a consultant to ensure that the demands of a competitive environment are actively addressed following deregulation. Temporary clerical staffing will be engaged to ensure that the necessary licence fees are collected and secretarial support is provided to senior officers.

The Government will provide funding to the Ministry of Community and Cultural Affairs to celebrate the new Millennium. Legislation will be introduced to create a Millennium Fund into which Government will pay $500,000 in 1998-99 and $500,000 in 1999-2000. Trustees appointed by the Minister will allocate these funds either to projects conceived by themselves or to projects designed by others and supported by the Trustees. It is hoped that additional funds may be forthcoming from the private sector. Persons with ideas or suggestions requiring support from the Millennium Fund should direct their proposals to the Minister of Community and Cultural Affairs.

Mr. Speaker, the Office of the Auditor will receive additional funding in 1998-99, totalling $173,600. $150,000 of this is to be spent on secondments to his office to address the backlog of work and to help bring the audit of Government accounts up to date.

In concluding this section on Government expenditure, reference should be made to the transparency of departmental costs. Accordingly, Honourable Members will note that in this Budget the cost of renting office space is included in departmental appropriations, rather than being consolidated in one central vote. This represents another step toward making the true cost of departmental operations fully transparent.

Details of Revenue Projections Mr. Speaker, following exceptionally strong real GDP growth of 6.95 percent in 1995-96, our revised estimates indicate that the economy grew at a healthy 3.0 percent in 1996-97. This is in line with our projections from last year's Budget and reflects the continuing performance of international business, strong capital outlays in the construction sector and increased expenditure on goods and services by the Government.

It is projected that real GDP growth for the current fiscal year, 1997-98, will continue at around three percent and, barring any major setbacks, the Bermuda economy should grow at a rate of 2.5 percent to three percent in 1998-99.

In the external sector, the continuing strong performance of international business accounted for some 48 percent of the total foreign exchange earnings in 1996-97. Although overall tourism arrival numbers were slightly down in 1997 by 1.7 percent, the latter half of the year, from August, showed consistent improvement over 1996. As the various product and marketing initiatives to revitalize tourism are implemented in 1998, it is hoped that this improving trend will continue.

The domestic retail industry continued to review its competitive situation in 1997 and also showed an improved retail sales performance in the second half of the year versus 1996.

In keeping with the last two Budgets, Government will facilitate Bermuda's efforts to be more competitive in the face of global change by being restrained in raising new tax revenues. Government's strategy of minimising additional burdens on the business community and letting the economy grow and naturally generate additional revenues will continue in this Budget.

Given the dependence of our international business sector and tourism on both external and domestic factors, the Government recognises the need for prudence in its estimation of the additional revenue the economy will generate.

Balancing these issues against the strong underlying growth, it is anticipated that the economy will generate additional revenues of some $7 million on the revised estimated base for 1997-98 of $504.5 million. This will provide an estimated revenue total for 1998-99 of some $511.4 million.

Mr. Speaker, Government is prepared to assist the tourism industry in meeting the challenges it faces in the new global economy. Attracting new capital, particularly for the construction of new hotel properties, will be essential to improving tourism's performance. New hotel construction and the enhancement of existing facilities will stimulate domestic competition, create new jobs and offer a more attractive product to our visitors. Accordingly, Government is examining a variety of approaches to encourage investment in new and existing hotel properties, including tax-incentive financing.

Mr. Speaker, by its introduction in 1991 of the Hotel Refurbishment (Temporary Customs Duty Relief) Act Government encouraged the renovation of hotels. Duty was lowered to five percent on capital goods utilised in upgrading existing hotel facilities. The legislation was subsequently extended past its original sunset date and then broadened to cover goods used to develop additional rooms for existing hotel facilities. Both initiatives have proved successful. To now provide a further stimulus to encourage investment in both new and existing guest accommodations, the rate of duty will be lowered to zero in this Budget, under the Hotel Refurbishment Amendment Act 1998, for a limited period of three years, on those items currently enjoying the five percent rate.

This move will enable new hotel developments currently under discussion and approved by the Ministers of Finance and Tourism to import items needed for their construction at a zero duty rate for a limited time. It also offers the same facility to any existing hotel operators that want to undertake redevelopment. However, by its nature, it encourages any developer to import necessary materials before the sunset date of 31st March, 2001.

Hoteliers with refurbishment schemes approved at the current duty rate of five percent should re-apply to remove customs duty from capital goods imported after today. The duty rate of 0 percent will only apply to those goods imported after today's date.

Additional steps are proposed to support tourism and related service providers.

In 1997, a preferential duty rate was introduced to assist owners of boats for commercial tour or diving purposes. In this Budget, further assistance will be given in the area of marine tourism. The Government Fees Act will be amended to eliminate the boat registration fee for small recreational vessels that are paddle-driven. This primarily affects the kayaks and pedalos favoured by tourists and should assist both hotels and local firms providing this form of recreation by lowering their overall cost of operation.

Mr. Speaker, certain other products will see with effect from today reductions in their duty rates. The luxury tourist item of table coverings and accessories made of linen will see the duty rate fall from 22.25 percent to 6.5 percent, and the Fifth Schedule to the Customs Tariff Act will be amended to reduce to zero the duty on parts for agricultural equipment, correcting an anomaly. Other changes will await the results of the tax review.

In a move to assist both locals and tourists to move around the Island, the operators of mini-buses offering services approved by the Minister of Transport will be charged less for their annual licensing fee. The fee will be reduced to that equivalent to a taxi licence fee, under amending legislation to be introduced by the Minister of Transport.

To assist the Bermuda Hospitals Board with maintaining high standards of on-Island care, the Customs Tariff Act will be amended to encourage the purchase of equipment for the Hospitals from the Board's Endowment and Donations Fund. Equipment purchased specifically for the Hospitals with moneys donated to this Fund will be allowed to enter Bermuda duty free. This is important when the cost of major capital items is often beyond the value of any individual donation. This arrangement will demonstrate a broadening of the present Customs Tariff provision that allows items donated directly to the Hospital to be imported duty free. The Auditor will be invited to monitor the movements of capital sums into and out of this Fund.

Mr. Speaker, in order to be successful in the global economy, our young people must learn to integrate information technology into their lives, as students today and in the workplace tomorrow. Therefore, Government will support a move to encourage computer-assisted learning and the use of portable computers outside school by Bermuda's young people. Honourable Members are reminded that computer parts and accessories purchased for use in schools can be imported duty-free. It is now Government's intention that the duty on portable computers purchased by schools and sold by them to their pupils for use during and outside school will be reduced to five percent. The Customs Tariff Act will be amended to permit this. The legislation, however, will require the Minister of Education to certify to the Collector of Customs that the computers are to be used for this purpose, and boards of schools involved in the scheme will have to establish a register of the sale of the computers and maintain that register through regular checks. Customs officers will be able to inspect the register and verify the number of such computers and their sale. This scheme must be monitored to avoid abuse and the undercutting of revenue derived from the importing of computers for commercial purposes. If it is found that a computer has been sold or otherwise disposed of for purposes other than those described in this scheme, the additional duty will have to be paid.

Mr. Speaker, I wish to emphasise the absence of new domestic taxation.

However, there is quite clearly a need for revenue to support Government's commitment to spending on Bermuda's social infrastructure. The policy of reviewing the Government Fees Act every two years to offset the effects of inflation will be continued in this Budget. A 4.5 percent increase across the board in Government Fees will produce an anticipated $1.2 million in additional revenues in 1998-99. A similar application of this policy in relation to annual company fees was not implemented in 1996, but an aggregate of the past two years' increases in inflation has been calculated and applied to company fees for 1998 to produce a 4.1 percent increase in revenue of $1.3 million, most of which will not in fact be payable until 1999.

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