Government increased spending and borrowing sharply in yesterday's Budget to continue its social programme of improvements in schools, health, housing and transport.

Motorists, smokers, drinkers, taxi drivers, cellular phone owners, and air passengers leaving the Island were hit by increases.

But Finance Minister Eugene Cox insisted the taxes were fair because they are helping lay the foundations for Bermudians to eventually compete for the top jobs in the economy.

Current account spending goes up by 7.2 percent to $570.8 million, but with capital projects included the total spend is $683 million - up from $619 million this year.

Borrowing will shoot up from $28 million last year to $50 million to finance Government spending plans.

Reaction was mixed, with Shadow Finance Minister Grant Gibbons describing the extra spending as "irresponsible'' at a time when the economy was slowing, adding that "the little man will have to pay for these spending increases''.

Bermuda International Business Association welcomed the Budget, particularly the move to treat international and local businesses the same for Payroll Tax.

The Chamber of Commerce visitor retail section said the Budget was "very disappointing'' because it offered nothing to stimulate local spending, and said the Progressive Labour Party (PLP) had still not delivered its election promise to introduce duty-free shopping for tourist-orientated goods.

The Chamber's international companies division chairman David Ezekiel described the reduction in Payroll Tax salary cap for exempt companies from $250,000 to $225,000 as "disappointing'' and "not meaningful,'' but was pleased tax rates had not changed.

Mr. Cox dismissed Dr. Gibbons' criticism as "arrant nonsense,'' and said Government was confident of 2.7 percent growth in 2001-2 - down from 2.9 percent predicted for this year -- even if there is a mild slowdown in the US economy.

He said Bermudians would support the tax changes because they will finance long-term plans to improve education to allow Bermudians to qualify for the highest paid jobs in the economy.

"We listened, we heard and we responded,'' Mr. Cox told MPs. "In raising the revenue to address the heartfelt concerns of the community, Government has also made minor tax changes to assure more fairness and equity in the distribution of the tax burden.'' Tax on fuel goes up five percent to generate $2.7 million, cigarettes are up three cents per cigarette to produce $1.8 million more for Government coffers, cigars increase by 33.5 percent ($70,000). Beer wines and spirits go up five percent ($500,000).

Departure tax goes up $5 to $25, cell phone owners will have to pay an annual $24 licensing fee, and licensing cars of class A to D goes up $50, and class E to G increase by $100. Licensing a motorcycle will go up by $10.

Taxi operators will have to pay a $1500 flat fee, but Mr. Cox said this was still well below the average quarterly roll of $1,260.

"These are reasonable taxes we are putting on the populace and probably when they listen and read it they will be pleased that we are thinking about them when requesting additional money to satisfy the needs of people who live in Bermuda,'' Mr. Cox said at a press conference later.

"There are major things we've done in capital infrastructure and we think we're well placed to benefit from these projects, contrary to what some people are saying that we don't expand the economy when we can because there may be a slowdown.'' Describing Dr. Gibbons' criticisms as "arrant nonsense,'' Mr. Cox said the prediction was of a slowdown in the US economy in the first half of the year and for it to pick up in the second half.

To stop planned capital projects would result in the economy closing down and be a "self-fulfilling prophecy''.

"We are not building the Berkeley Institute and the courts because we want to spend money, but because people have told us they want better security and their children given a decent education and getting some of these higher paying jobs because it looks like their country is being utilised and limited resources used (by foreigners).

"It is unfair to put it on the expat worker who comes here because the grass is greener, but we have to have tax to get money to improve education so our people can apply for some of these jobs.

"We need to have these projects to have the infrastructure to train our people so that down the road they can take the higher paid jobs.

"What we want is that when we have to bring in people, we are not bringing in people at the highest end of the remuneration scale.

"We are taxing when it is necessary and we are not taxing anyone or any company that can't afford to be taxed.'' Mr. Cox gave some relief to exempt companies by lowering the cap on the level of salary they must declare for Payroll Tax from $250,000 per employee to $225,000. Before the last Budget, exempt companies paid payroll tax on an "assumed'' salary.

Mr. Cox brought local companies into line with international business by allowing Island companies to pay Payroll Tax only on income of up to $225,000 per employee rather than on actual salary.

To compensate, the minister aims to recoup $3 million more from self-employed professionals such as doctors, architects, lawyers, dentists, surveyors, engineers, and taxi drivers.

The average national wage reported by this group is around $70,000, but Mr.

Cox said the actual market salaries for self-employed professionals were $100,000-150,000.

Describing the change as a step toward fairness, Mr. Cox said later: "The man who is paid a wage is paying a higher proportion of the wage than someone earning a fantastic salary because he is giving an assumed rate of pay.

Businesses such as lawyers and architects should be paying something commensurate with their earning power.'' In his Budget speech, Mr. Cox said the economy was healthy with growth estimated at 2.9 percent for this year and 2.7 percent for 2001/2002.

But he warned the struggling tourism sector could experience even further drops in visitors in 2001/2 because of a slowdown in the US and Canadian economies.

Finance Minister Cox delivers big spending Budget Meanwhile, Government's travel budget is predicted to rocket in 2001/2 by 48 percent, $1.42 million - the largest percentage increase in current account expenditure.

Expenditure by international firms rose by 20.2 percent to $921 million in 1999 and was expected to be an estimated $1 billion by 2000. The number of companies registered rose by 9.5 percent in 2000 to 12,567, although the number employed dropped by one percent to 3,216.

Construction was strong in 2000, with $73.9 million in the first half of the year.

Government is expecting a current account surplus of $81.2 million in 2000/1.

Bermuda was given a senior debt rating of AA1 by Moody's Investors Service.

"Despite the forecast increase in debt required to finance Bermuda's capital expenditure plan, Moody's is confident that the economy will remain vibrant, based on the strength and growing diversification of Bermuda's international business sector,'' he told MPs.

The Island had posted surpluses of above 7.5 percent above gross domestic product since 1995. Inflation is expected to be 2.7 percent for the current financial year and should remain steady barring major changes in the price of oil.

Government's projected revenue for 2000/1 was up one percent at $598 million with the extra cash coming primarily from Payroll Tax ($11.2 above estimate) and international company fees ($3 million ahead of estimate).

The increases were offset by reduced expected revenue from Customs, sale of land to non-Bermudians, passenger tax, stamp duties, Post Office receipts and vehicle licences.

"The social focus of the PLP is demonstrably shown by the increased resources channelled into human service areas such as health, education, housing and social welfare,'' said Mr. Cox.

Combined spending on Education and Health and Family Services now takes up 37 percent ($197.4 percent) of the 2000/1 current account, up from 35 percent ($159) under the UBP in 1997/8.

Class sizes were reduced to improve educational quality, and support for health had risen nearly 20 percent from 1997/8 to 2000/1.

Cumulative debt is $143 million, $107 below the statutory borrowing limit of $250 million.

Major capital projects include the new Berkeley Institute campus, new accommodation for Hamilton Police station and magistrates court, and the purchase of new ferries, resulting in new borrowing in 2001/2 of $50 million.

Total current account expenditure will rise $38.5 million in 2001/2 to $570.8 million.

Health and Family Services are up from $111.7 million to $124.2; Education is up from $5.7 to $91.7; Finance up from $76 to $80.1; Labour, Home Affairs and Public Safety up from $68.8 to $74.3; Transport from $46.4 to $46.8; Tourism from $36.8 to $37.6; Environment, Development and Opportunity from $24.6 to $26.9; Youth, Sport and Recreation from $5.9 to $6.6; and Telecommunications and E-Commerce from $5 to $5.7.

Bermuda International Business Association chairman Raymond Medeiros welcomed the Budget.

"Once again, the Minister of Finance has sought to address the challenging task of reconciling social programmes for the community with the commercial needs of Bermuda, to ensure we all benefit from sustained growth in the economy,'' said Mr. Medeiros.

"We are very pleased to see the Minister has heard the concerns of the local business sector and applied the same treatment of Payroll Tax for both local and international companies.'' Charles Gosling, the acting chairman of the Visitor Retail Division of the Chamber of Commerce said that his sector was disappointed by the Budget.

He said: "We are very disappointed at the Budget.It is nibbling away at our business by increasing the costs.

"There are two ways of making a business more profitable and we are looking at Bermuda as a business. One is to cut costs. Two is to increase revenue at a faster rate. The costs have gone up and there is absolutely nothing discussed about any way for revenue to go up. If anything the minister said he expected the economy to decline a little bit.'' The retail sector had hoped that the budget would make Bermuda a duty free shopping Island.

He said: "We had hoped the minister would review the duty structure, especially in tourist-related items such as clothing, jewellery, perfume, etc.

We hoped they would take a step toward the promise they made to voters before the last election to introduce duty free shopping to Bermuda.'' He added it had been three budgets since the PLP was elected and they still had not come through with this election promise. Mr. Ezekiel said he was disappointed with the reduction in Payroll Tax cap, but pleased to see the rate itself remain unchanged.

"The current account surplus of $56.5 million is healthy, but we note the increased borrowing of $50 million with some concern as this is required to fund a substantial capital expenditure number of $112 million..

"We recognise the need for investment in our infrastructure but would like borrowing to be contained as far as possible as it now represents a significant percentage of gross domestic product.

"It is, however, good to see that a large percentage of the capital expenditure is related to education.'' But he sounded a warning: "The international sector generates a larger potion of Government revenue as each new year comes along and Government must be mindful not to make us uncompetitive by increasing costs. On those lines, we are pleased to note that Government has held company taxes and fees at prior year levels.'' Eugene Cox CHARTS