In addition, a further $3.3 million is being earmarked for capital works at the Airport in 1995 6.

Honourable Members should carefully note however that the total amount of $21.7 million is related to the International Airport only. The development of the Base lands and buildings to the north of the runway form a separate cost issue which is not being addressed in any major way in this Budget. The country will have to anticipate further expenditures to support the development of this area in the future as plans begin to crystallise.

In the 1994 Budget it was indicated that funds would be allocated to a new Airport Authority. As Members are aware this Authority has not yet been brought into being. However, in the interim careful attention has been given to the operation of the Bermuda Airport and while its management will, for the first five years, be contracted out to an overseas consultant group, the objective is to Bermudianise over the life of this contract.

Due to the establishment of the Department of Airport Operations as a new and enlarged separate entity to run the International Airport, it has been necessary to establish a separate department to deal with the regulatory and policy functions of civil aviation in Bermuda. One of the major functions of such a department will be the administration of the Aircraft Registry.

Accordingly, an additional $1.4 million is included to fund the increased cost of aircraft inspections prior to their inclusion in an expanded Aircraft Register. This step will of course generate additional foreign exchange for the country and, it must be pointed out, the costs will be more than offset by revenues earned over time.

In light of the demands of these new Airport expenditures, and Government's commitments to on-going projects, no other new capital projects have been considered for 1995 6. Government departments have been advised that they must redouble their efforts to work within established Budgets in the implementation of existing programmes while, at the same time, examining all operations in order to maximise efficiencies.

Many adjustments to programmes have been made internally by Ministries, however they will now be assisted in achieving this goal by utilising a new computerised financial information and management system that the Ministry of Finance has implemented. This system has been utilised for the first time in the compilation of the 1995 6 Budget and one important feature is the adoption of a procedure which clearly identifies individual cost and revenue centres.

These steps are designed to make Government more effective in the utilisation of its resources.

For this Budget, all Ministries were required to submit Budget information directly to the Ministry of Finance via on-line computer terminals, thus reducing time, eliminating unnecessary forms, and significantly increasing accuracy. The changes in the format of the Budget Book will give Members some idea of the improved information which is available from the new financial management system.

Mr. Speaker, new challenges require responsive and responsible solutions.

While Government has in recent years taken measures to stay as lean as possible, it has also taken steps to become more internally efficient.

Dramatically reduced supplementary requests, and the introduction of extremely tight controls, evidenced by Government's ability to adhere to its annual expenditure estimates in each of the past six years, are a clear demonstration of excellent operating procedures.

Details of Current Account Expenditure Projections Mr. Speaker, current account expenditure projections for the financial year 1995 6 total some $390.4 million, an increase of 6.8 percent over the revised figure for 1994 5.

The ten Heads of expenditure with the largest current account budgets, in the coming year, ranked in descending order, are: 1. Head 24 Hospitals $48.0 million 2. Head 17 Department of Education $47.6 million 3. Head 36 Works and Engineering $45.4 million 4. Head 33 Tourism $29.5 million 5. Head 07 Police $26.7 million 6. Head 11 Accountant General $20.6 million 7. Head 31 Airport Operations $18.4 million 8. Head 55 Financial Assistance $14.1 million 9. Head 25 Prisons and Senior Training School $11.7 million 10. Head 22 Health $10.7 million Current account expenditure estimates for Government Departments and Ministries will, with a few exceptions, which will be addressed shortly, be held to the 1994 5 levels, after allowing for negotiated pay awards.

Accordingly, most of the significant increases which are shown, primarily reflect known or anticipated costs of Airport Operations and associated functions.

In the past, the Civil Aviation Department has cost approximately $5 million per annum to run. Because of the new contracts entered into, these costs will rise to $18.4 million. Some examples of major additional operating costs for that Department are as follows: Crash ire escue $2.8 million; air traffic control $1.3 million; finance and administration, (including insurance and salaries) $1.6 million; meteorology $950,000; and ground electronics maintenance $875,000.

As stated above, there are an additional number of other essential current account costs which are outside the control of Government, and some others which are consequential upon previous policy decisions which also have to be considered and because of the magnitude of their cost they need to be highlighted in this Statement.

Government's insurance costs have significantly increased this year, and a review is being conducted to assess options open to Government in the future.

Due to a world wide increase in the cost of catastrophe insurance coverage, Government's annual premium is estimated to increase by $2.25 million to $4.3 million in the coming year. This insurance will protect the Government property portfolio which is valued at $825 million. Again, unavoidably, an additional property insurance premium of $325,000 is required for coverage of newly-acquired Bases properties, as is a further $120,000 for a liability insurance premium at the Airport in respect of additional responsibilities.

In addition to property insurance, $200,000 is allocated to the Ministry of Works and Engineering for maintenance of the site and buildings at the former Canadian Base at Daniel's Head together with a sum of $500,000 to fund security and maintenance costs at the US Navy Annex after the handover of that property.

A further $430,000 is allocated to the funding of the incinerator to reflect a full staff complement in its first full year of operation.

The Ministry of Education is allocated $280,000 to reinstate funding for honoraria and sabbaticals for teachers and for after-school activities.

Two other consequential expenditure items in Education also require funding.

Some $263,000 is being allocated to pay for six additional teachers' assistants and a therapist required to provide support and help for those students with special needs who are being integrated into the mainstream school system. In addition, courses designed to prepare principals and teachers to administer the restructured education system, together with retraining courses to embrace changes to the curriculum, including the introduction of middle school education, will cost a further $500,000.

The Police budget will be strengthened by an additional $215,000 to fund the cost of ten extra police cadets to add impetus to the Bermudianisation of the service. Crime prevention and detection duties will be further strengthened when 12 uniformed officers are released from their security duties at the Airport as these positions are civilianised. The Department of Airport Operations will assume responsibility for contracting for this service in future.

Success and growth in our international business sector has placed increasing pressures on the Registrar of Companies and, accordingly, two senior managers and two temporary clerical assistants are to be funded at a cost of $185,000 in that Department.

The Government will continue to fund the Financial Assistance programme. While social assistance is maintained at 1994 5 levels, the Housing Assistance Programme support will be reduced by $1 million to $2.2 million reflecting a reduction in demand during 1994 5. At the same time funds will be provided for a dedicated training officer in the Ministry of Labour and Home Affairs whose initial objective will be the formulation of a detailed strategic plan for future employment and training with a programme structured to match employment opportunities.

Mr. Speaker, the shift in demographics towards an older population, which was identified in the 1991 Census and commented on in last year's Budget, is now beginning to impact on the Government's expenditures. For example, the hospital bed days for the aged forecast at 27,000 at the King Edward Hospital in 1994 5 are now projected to rise by 2,300 or 8.3 percent in the coming year. This necessitates an increase in subsidised bed care for the elderly and constitutes a substantial part of the increase of $3.7 million in the grant to the Hospital for the 1995 6 year. It must be remembered that Government provides for 80 percent of hospital costs for persons over sixty-five and 90 percent of such costs for persons over seventy-five years of age. The total grant to the King Edward Hospital is $32.5 million for 1995 6.

After several years of significant upward adjustment in the Social Insurance benefits, Government made no increase in 1994 5. Any increases in benefits necessitates increases in contributions and the Government recognised that employers needed a year of grace to allow employment costs to stabilise. In 1995 6 however, it is intended to increase benefits once again, but for this year and for the foreseeable future such increases will be kept to the rate of inflation. Accordingly, Government will, in August, increase benefits payable from the Contributory Pension Fund by 2.2 percent, and will contribute an additional $155,000 into the Fund as an employer in accordance with the anticipated general increase in employer contribution rates of approximately 70 cents per person per week.

The subject of Parliamentary salaries has been considered by a Select Committee and the various reports debated by this House, and these deliberations were followed by much public discussion on the subject. The Majority Report made a recommendation that salaries of Parliamentarians should be increased by 27.9 percent in order to compensate Parliamentarians for the years in which they received no increases at all.

It is the view of this Government that after almost a decade without an improvement in salary, Members of Parliament and Senators do indeed merit a substantial increase along the lines recommended by the Select Committee.

However, the current state of the finances of the country do not permit the increase to be paid in one lump sum, nor do the realities of the market place support the increase being retroactive. Accordingly, the amount of the recommended increase is to be phased over two years, such that while the recommended percentage of 27.9 percent is accepted, 13.6 percent is to be paid with effect from April 1, 1995, and the balance paid with effect from April 1, 1996. This step will cost $195,000 in 1995 6. Future increases will mirror inflation. Also from April 1, 1995, the annual contributions made by individual Members to the Ministers' and Members' Pension Fund will increase from 91 percent to 121 percent.

Details of Revenue Projections The estimates for 1995 6 indicate Government revenue of $426.1 million which is $35.9 million or 9.2 percent more than the revised total revenue estimate for 1994 5. In framing these revenue projections the following assumptions have been made: There will be a 3 percent increase in total tourist arrivals, to around 610,000 and, furthermore, total visitor expenditure will increase by about 6 percent at current market prices.

The foreign currency generated by international business will increase by 5 percent.

The improvement in gross domestic fixed capital formation will continue, reflecting the recovery in the level of activity in the construction sector and a general improvement in the level of business confidence.

The rate of inflation will remain at approximately 2.5 percent and the level of wage settlements is expected to remain correspondingly low.

The continued improvement in household disposable incomes will stimulate a small increase in consumer expenditure, which will result in a modest increase in the volume of imports.

On the basis of these assumptions Bermuda's balance of payments current account in 1994 is expected to be in surplus of between $50 and $60 million.

The rate of growth in Bermuda's Gross Domestic Product is projected to moderate from 3.5 percent in 1994 5 to around three percent in real terms in 1995 6, well above the average of 1.9 percent in the 1980s.

The Government will continue to hold down costs but, as demonstrated by earlier comments, the country is faced with a number of unavoidable demands being made on the public purse in the coming year.

Fortunately, last year's Budget prepared the ground for the partial financing of some of those new demands and hence, notwithstanding the Base imponderables, it is not my intention to subject the country to any disproportionately large tax demands in 1995 6 simply because to do so would threaten to undermine the economic recovery.

However, as stated earlier, Mr. Speaker, the country is now faced with some unprecedented and unavoidable expenditures as a result of the takeover of the critical Airport functions and hence some additional revenue raising measures are required.

It should be self-evident that without the Airport the enviable way of life that we enjoy in Bermuda would not exist. It is a fact that the community as a whole enjoys the benefits that accrue from the hundreds of thousands of visitors who fly to our shores annually on vacation or for business. Jobs, supported directly and indirectly by the tourist industry would not exist without the Airport and the international business industry would not have developed and flourished to the level that it has today. Those who work directly for international companies or provide services to them are clearly dependent upon excellent air connections.

At this point it is fitting that Bermuda acknowledges the fact that we owe a great debt of gratitude to the United States Government for maintaining the Airport and operating it free of charge to Bermuda for over half a century, and thereby enabling our economy to develop to the high level that it has.

Bermuda residents are inveterate travellers and on average pass through the Airport twice a year, whether it be to do business, to vacation or to shop.

Obviously, the international airlines which service Bermuda also make a part of their income and profit from the use of the Airport.

It is therefore only natural that all who benefit from our Airport be prepared to increase their contribution to the cost of operating that sophisticated facility.

Accordingly, it is intended to amend the Passenger Tax Act 1972 to increase the Airport departure tax to a flat $20 per passenger over the age of two years. At the same time it is proposed to introduce legislation which will require payment of the tax by means of a voucher, purchased from hotels or guest houses or from the offices of agents issuing tickets locally, in an attempt to virtually eliminate the inconvenience currently experienced by travellers when dealing with this tax at the Airport check-in counter. It is estimated that this measure will raise $2.4 million in a full year.

At present aircraft landing fees are collected by the US Navy. In due course it is anticipated that these fees will revert to the Government. Historically the fees have been some of the lowest in the world and they are currently being reviewed. There is justification for substantial increases to be made to assist with meeting the costs of the Airport.

Traditionally, Customs Duties have generated the largest portion of Government revenue. Last year in order to give relief to local merchants the Tariff was substantially overhauled and simplified, resulting in a revenue loss to the Government of some $4 million.

Although aggregate amounts of Customs Duty will continue to increase because most items are charged on an ad valorem basis, its total as a percentage of Government revenue has been falling for decades, from 58.7 percent in 1970 1 to 43.4 percent in 1980 1 to 36.8 percent in 1990 1. Customs Duty for 1995 6 will form only 31.6 percent of total Government revenues.

In the coming year only marginal changes are planned to the Tariff. A rate of 15 percent is being created to close the gap in the present rate structure between ten percent and 22.25 percent. Some miscellaneous items, for example manufactured paints and varnishes, and articles of plastic and aluminium for the conveyancing of goods manufactured in Bermuda are included in this new rate. Recognising the improvement in technology for electrically powered vehicles it is also proposed to introduce a preferential rate of 22.25 percent for motor cycles powered by electricity.

The duty on a packet of cigarettes will be increased by 20 cents. At present the rate of duty on childrens' clothing is 10.0 percent unless the item is made of natural fibre, where it is 8.5 percent. In order to simplify the procedure for the retailer the rate of duty is being reduced to a flat rate of 8.5 percent for all childrens' clothing, regardless of the type of material.

There will be no increases in duty on gasoline or alcohol in order to contain inflation and to maintain the competitive position of local businesses, especially those in the hospitality sector.

The Hotel Refurbishment (Temporary Duty Relief) Act, 1991 is due to expire at the end of June. This measure, which enables hotels to import capital goods for the refurbishment of their properties at a concessionary rate of five percent proved invaluable at a time when the hoteliers experienced a sharp contraction in their cash flow as a result of the downturn in tourism.

Although the tourism position is improving the financial position of some of our hotels remains weak and the industry as a whole needs the assurance of being able to plan large scale refurbishments well in advance. Accordingly the Act is being extended for a full five years, until June 30, 2000.

The designation of a facility as a bonding warehouse has hitherto been granted without cost and therefore it is proposed to make a change in this area. The Revenue Act 1898 will be amended to provide for the charging of a fee by the Collector of Customs in respect of each area designated as a bonding area.

Mr. Speaker, in my address last year the House was advised that the Ministry of Finance would be seeking outside consulting advice in an effort to combine the Hospital Levy and the Employment Tax into a single payroll tax. This goal has been achieved and the streamlined tax will be imposed as of April 1 of this year. As of that date employers will be required to pay tax to Government quarterly in respect of the total amounts which they provide in cash or by way of benefits to their employees in a tax period. The tax will be a percentage of the total value of cash and benefits paid or given in respect of services rendered by those employees in a tax period. Employers will be entitled to withhold from their employees' cash emoluments an amount equal to a percentage of the value of the cash and benefits which the employees enjoy. The term "benefits'' encompasses benefits which those employers who currently pay Employment Tax are obliged to value.

There will be items of remuneration which are exempted from the tax such as employers' contributions to social insurance, the Hospital Insurance Plan, approved retirement plans, hospital ealth schemes, life insurance schemes and workmen's compensation schemes. Furthermore, compulsory tips in hotels will remain untaxed.

The combined standard rate of tax payable by an employer will be increased from 11 percent to 11.5 percent: the employer will be allowed to withhold a maximum of four percent from his employees' remuneration, and this provision will also apply to those employers who will enjoy special rates, such as farmers and fishermen.

Thus the all-encompassing nature of the Hospital Levy is retained, but the employer's entitlement to withhold from the employee will now be TAXES TAX