Mr. Speaker and Honourable Members of the House of Assembly,On the occasion of my first Budget Statement as Minister of Finance, it is clear thatBermuda faces a daunting economic challenge in the months and years ahead. The Islandis experiencing its fourth straight year of economic contraction. The Gross DomesticProduct — the value of all goods and services produced in the economy — has shrunkby about10 per cent since 2007, meaning the economic pie shared by all Bermudians isgetting smaller, with less to go around.The Government,which the One Bermuda Alliance took over as a result of the election on17 December 2012, is in the midst of recording its fifth straight year of Current Accountdeficits. That is like a family having more monthly expenses than monthly income. Yearto-year operating deficits have risen unchecked from a $19 million surplus in 2008 toa projected $247 million deficit in the upcoming fiscal year. This accelerating trend isunsustainable.The operating deficits have compounded the alarming increase in our public debt, whichhas been growing significantly since 2005. At the end of the current fiscal year, debt,net of the Sinking Fund, will stand at $1.469 billion — a very large number for a smallpopulation, which will take many years to pay down.Mr. Speaker,The signs of economic trouble have been clear for all to see: A retail sector that has seenshop closures, layoffs and pay cutbacks; a construction industry that has shed hundredsof jobs, a tourism industry that has downsized for the fewer customers flying to ourshores, and an international business sector that has quietly shipped jobs to competingjurisdictions.The human toll that these trends have inflicted is unprecedented. Although up-to-date,accurate statistics are not available — a result of the Island never having experiencedmass unemployment until now — we know that thousands of Bermudians are unemployedand that more are “under-employed”, earning less than before. There is evidence thathundreds of mortgages are in arrears, meaning that many people live in fear of losingtheir homes.The distress these negative economic forces inflict on individuals and families everyday is intense and unrelenting. It is this pain that the Government’s plans and actionsultimately aim to relieve.2Mr. Speaker,Bermuda is facing one of the most serious challenges in its long history. The economicfoundations of the Island, which enable us to live our daily lives, must be strengthenedand better protected. The OBA Government understands the scope and scale of thechallenge and what needs to be done. Our goal is to create an economy that works foreveryone; to lay a new foundation for broad-based prosperity.To achieve that, we will follow a year-to-year, two-track strategy that strikes a balancebetween responsible growth and disciplined financial management.The first track will implement specific pro-growth economic policies to stimulate muchneededforeign investment, restore confidence in the Island as a place to do business andcreate new jobs.The second track will eliminate wasteful government spending, thereby reducing ournational debt over time.Mr. Speaker,The way out of this situation will not be easy, nor will it happen overnight. It will taketime to implement solutions that work for the greater good. It will take time to revampstructures that inhibit our ability to operate efficiently and effectively. And it will taketime to reverse trends and trajectories locked in place by past practices. Our borrowingrequirements for the coming year, for example, will reflect the situation we inherited on17 December 2012 as Bermuda’s new government.On this point it is with a heavy heart and a profound sense of frustration that I projectan overall operating deficit and Public Sector Borrowing Requirement (PSBR) of $331million for the fiscal year 2013/14. This is a staggering amount that is the result of weakprojected revenues and a spending momentum that will take time to change, like a greatship that is slow to answer the helm.Mr. Speaker,The projected borrowing requirement over the next year underscores the seriousnessof the situation we face. Bermuda will need patience and the strongest commitment tochanging the way we go about our business. The Government cannot do it alone. It willtake new levels of cooperation and teamwork from Bermudians in every sphere.The revival of the Bermuda economy is something we can and must all work for together.My colleagues and I see it as an opportunity to build a new unity within Bermuda; a3unity based on the prospect and realization of national progress in which we all canshare; progress anchored to principles of fairness, responsibility and inclusion; progressdriven by a sense of shared sacrifice and destiny.The Government will take the lead in encouraging new levels of trust and cooperationamong Bermudians across all sectors of our community. We will do it through consultation,transparency and plain speaking; building from the understanding that we are all in thistogether.That is our starting point as we begin the important work to recover, rebuild and restorethe promise of Bermuda.THE GLOBAL ECONOMYMr. Speaker,Bermuda’s economy is essentially a trading economy, one that trades with the rest ofthe world mainly in financial services. Therefore, any analysis of Bermuda’s futureprospects must take into account the economic environment in which it trades: i.e. theglobal economy. Even thoughthere are many countries in theglobal economy it is dominatedby the United States, China andthe European Union. As ourprincipal trading partner, thestate of the USA is crucial to ourfuture.Figure 1 shows the growth trendsfirstly of Industrial Productionand below that, GDP since 2000.The periods of recession areclearly shown by the shadedareas. Since emerging fromthe “Great Recession” the USeconomy has shown muted growth but does not appear to be in imminent danger ofreturning to negative growth. The principal risk factor continues to be fiscal deadlock inWashington DC.China has been the sole growth source during the global economic calamity as it neverFigure 14went into recession during the period, and although the Chinese economy has cooled inrecent quarters, there is no legitimate cause for fear of recession.Mr. Speaker,Europe, on the other hand, has not been able to recover as well as the other major economicblocs. Figure 2 shows the European Union slipping into recession once again. This iswhere the pressure on Bermuda will come from. Faltering economic fortunes in Europeare likely to increase pressureon their national budget deficitsthus ratcheting up the searchfor easy scapegoats like offshoredomiciles, including Bermuda.We face an environment ofconstantly shifting regulatorygoal posts. The Bermudagovernment will continue tobe ever vigilant against suchthreats to our reputation andour ability to freely trade withnations of the world.Figure 25THE BERMUDA ECONOMYMr. Speaker,The Bermudian economy continues to struggle, official figures showing a recession forthree consecutive years, as illustrated in Figure 3. Due to the unavailability of economicdata, the graph ends in 2011 butanecdotal evidence gives one noexpectation that 2012 producedanything other than economiccontraction. That would makeit a four year recession.This conclusion is reinforcedby employment data shownin Figure 4, where there hasbeen a steady decline in theworkforce, in total, as well asthe Bermudian workforce. Itis the stark contrast betweenBermudian economic dataand the improving data fromour trading partners like theUSA and Canada that ledanalysts to the firm conclusionthat Bermuda’s prolongedrecession was due to structuralBermudian issues, issues thatwe are compelled to addressourselves.While the number of new companies being formed in Bermuda has experienced amoderate decline in 2012, anecdotal evidence indicates the economy is still shedding jobs.The invention of “reinsurance sidecars” has enabled that sector to effectively increasecapacity without substantially increasing staffing levels. This is but one of the reasonsthat our flagship industry has continued to return solid results to their shareholderswithout making a significant impact on job growth in Bermuda.December 2012 numbers for Retail Sales reconfirm the negative trend. Retail Sales byvolume were down by 3.7 per cent from a year earlier, the fifth consecutive monthlydecline. Retail Sales for Building Materials plunged an incredible 33.5 per cent. The nearcompletion of the new hospital wing’s outer shell was a major factor, but it demonstratesthe overall weakness of the sector.Figure 3Figure 4-0.1-0.0500.050.10.151996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011GDPAnnual % Change010000200003000040000500002002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012PEmployment TrendsTotal Filled Jobs Bermudians6Mr. Speaker,Visitor arrivals continued to be dominated by lower spending cruise travellers. In 2012higher spending air arrivals were around the previous year’s levels. Cruise arrivals are dueto increase this year with the arrival of the Breakaway class ship that can accommodateover 4,000 passengers.These conditions underpin this Government’s intense focus on enacting policies that willincrease the number of potential employers on the Island, the demand for labour andpolicies that will reduce the marginal cost of employing a Bermudian.Some observers have accused the OBA approach to the economic problems of todayas being, “Too big business friendly.” Such comments speak to a profound lack ofunderstanding of the economic realities of today’s Bermuda. Clearly, today’s economy isin these dire straits because a different approach was taken. It is worth reiterating thesimple fact that only an employer can create a job. And a job is the best social programmeever invented. As a government, the choice is simple, we either employ everybody whowants to work but doesn’t have a job, or we make it easier, cheaper and more attractivefor businesses based in Bermuda to employ more people. The first option would bankruptthe Government, the second option leads to a more sustainable path. We choose thesustainable option.Mr. Speaker,In the Bermudian economy there are two types of businesses: foreign exchange earnersand foreign exchange users. Businesses that earn foreign exchange for the Island areour most valuable national economic assets. It is these earners of foreign exchange thatare the pumps that infuse money throughout the economy. Other businesses use thatmoney to employ other people and provide residents with goods and services. Residentconsumers use that same money to live. However, without the foreign exchange earnersthey would not be able to fulfill that function. Ultimately all jobs in Bermuda are derivedfrom these primary foreign exchange earning businesses.Therefore, it is a moral imperative for the Government of Bermuda to encourage andassist these primary foreign exchange earning enterprises which provide the funding forits citizens to have opportunities of employment, home ownership, education, healthcareand a good standard of living.For many decades Bermudians have taken such enterprises for granted, concentratinginstead on getting a bigger piece of the pie. But after four consecutive years of contraction,with the loss of jobs, opportunity, savings and homes, we can no longer think like that.The pie is shrinking and we must start expanding it again. Those who still harp on the7struggle between “Us and Them”, should have realized by now that there is no us andthem, there’s only us and us. The data shows that divisiveness only succeeds in shrinkingthe pie. The “have nots” always suffer the most when the pie is shrinking. The fortunes ofall people who call this island home are tightly interlocked: we all rise and fall together.This government understands the linkages that bind this economy together and wewill do everything within our power to create jobs for Bermudians by improving theenvironment for entrepreneurial activities in Bermuda so that job creators can do whatthey do best:- take risks to seize market opportunities, thereby creating employment asa by-product. That’s how jobs are created.THE BUDGETMr. Speaker,The headline numbers projected for fiscal 2013/14 are as follows:$000Total Revenues 871,199Total Current Expenditures 983,883Debt Service 134,300Current Account Deficit (246,984)Capital Expenditure 84,609Overall Deficit (PSBR) (331,593)Mr. Speaker,The revenue estimate for 2013/14 is $871.2 million, 4 per cent lower than the originalestimate for the previous year.The most significant decline has been in the Customs Duty yield which has decreasedby $25 million or 12.5 per cent compared to the previous year. The weakening economyis the main factor. The other factors are the continuing Customs Duty concessions beinggranted for the redevelopment of the King Edward VII Memorial Hospital and to thehotel, restaurant and retail sectors which will reduce the Customs Duty yield in 2013/14.Also the payroll tax concessions for the hotel, restaurant and retail sectors will be8extended which have reduced the projected payroll tax yield in 2013/14 by an estimated$21 million.As the overall Bermudian economy remains stagnant-to-weak, and particularly from thelackluster trends exhibited in the current fiscal year where the PSBR was $42 millionlarger than forecast, we are unable to forecast anything other than weak revenueprojections for 2013/14. We are, however, hopeful that the measures we have alreadytaken and those that we plan to take as the fiscal year unfolds will have a positive effecton economic growth and job creation, thereby rendering higher revenues than forecasthere. We are hopeful; but prudence demands that a National Budget must be based on“Expected” cash flows as opposed to hoped for results.Mr. Speaker,Insofar as expected expenses are concerned we have cut back most Ministries’ cashrequests by significant amounts during the budgeting process but have not had thetime to really come to grips with cost structures within the Government. Moreover,with 71 Departments, the organizational structure of the Government is unnecessarilycumbersome, a complexity that generates excess expense. These and other related issuesare matters the SAGE Commission will look into.Capital expenditures for the coming fiscal year are glaring examples of spendingmomentum carried over from the previous administration. The new Government hasbeen locked into large capital expenses to remediate poor quality work done at HeritageWharf at Dockyard; to make major repairs at Tynes Bay and to complete the AquaticCentre.Heritage Wharf deserves special mention as the poster child for government bunglingand waste. Not only was this project hugely over budget, it was not built to the requiredspecifications and therefore did not survive the first hurricane intact. Now the newGovernment is forced to spend millions of scarce dollars to make repairs in time for thecruise ship season in April 2013.Like Heritage Wharf, this budget is groaning under the weight of economic decisionsof the former administration, the consequences of which we have inherited and havecarried forward through to the coming year. They say, “Rome was not built in a day,” andI would add that neither can it be cleaned up in three months or a year.But the journey back to credibility starts now, and it starts with transparency. Thisbudget contains no artificial, unexplained revenue projections, neither does it try to9use sleight of hand to make the cost of debt service appear less than it really is. ThisGovernment gives it to Bermudians straight, irrespective of whether the news is good orbad.10MEDIUM TERM ECONOMIC DEBT GLIDE PATHMr. Speaker,It is high time for the Government of Bermuda to be real about debt. Overall deficitspending by the Government started in the year 2003 and this has annually accumulatedin an ever rising profile of public debt right up to the present time. The rise in debt, whichhas been exponential, is unsustainable. To redress this situation the new Governmenthas laid down a debt management plan, or a Medium Term Debt Glide Path.Bermudians should understand that as long as the Government runs an overall deficit(on the modified cash basis used in budgeting) debt will rise. So, in order to reduce publicdebt Government must first stop running annual operating deficits, and start runningcash surpluses which, when applied to the debt, will reduce it.The Government has been running large deficits over the last few years and this upcomingyear represents one of the worst years of deficit spending. This Government recognizesthat it will take time and changes in policy to actually start paying down the debt. Figure5 shows three scenarios: the BaseCase, the Worst Case and the BestCase. All scenarios are possible butthe Base Case is the scenario thatGovernment thinks is the mostprobable.The most noteworthy of the scenariosis the Worst Case because it merelyextrapolates the current real lifedeficit and debt trends. In otherwords if we do nothing and economicconditions remain as they are now, Bermuda is forecast to have a public debt of about$4 billion in five years. Debt service is forecast to be in the area of $300 million per year,making it by far the largest Government “department.” After paying debt service andsalaries there would be little left for anything else.The Base Case scenario shows debt continuing to rise to just over $2 billion and decliningthereafter. The Best Case sees debt rolling over faster and being somewhat lower afterfive years. Again, we are working toward and hoping for the Best Case but the highestprobability scenario: i.e. the expected case is the Base Case.Figure 50500000100000015000002000000250000030000003500000400000045000002011 2012 2013 2014 2015 2016 2017Bermuda Debt TrajectoriesBASE CASE DEBT WORST CASE DEBT BEST CASE DEBT11Mr. Speaker,This is a very sobering chart and should explode anybody’s notion that this debt situationcan be solved overnight. However, what it does show is that a growing economy coupledwith continuous cost containment on the part of Government will eventually wrestle thisdebt beast down to more manageable levels.Part of this management programme is to set up debt related targets, or rules, thatare appropriate for an economy the size of Bermuda’s. The IMF has a set of criteria ofmaximum acceptable Debt/GDP levels for small economies: the low target equals 20 percent, with the high target being 40 per cent. We are currently under that 40 per centmark but will blow straight through it over the next few years under the Worst Casescenario. The IMF also has a maximum level criterion for the Debt/Revenue ratio of 80per cent. Currently we are well above that maximum. but we will work to comply with itover the medium term.Moving Government off of its dependency on operating deficits requires medium termrevenues to strengthen and costs squeezed out. Current weak revenues may improveas our efforts to revive the flagging economy through policy incentives and investmentincentives take hold. On the cost side the SAGE Commission will soon start its work.Government will also formally commence negotiations with the relevant unions regardingreduction in staff compensation.The overarching principle, insofar as cost reduction is concerned for this Government, isthat of shared sacrifice. It is wrong to ask some people to sacrifice while others get off “scotfree”. Accordingly, Cabinet has led the way by example in cutting its own compensation.Others must also share the burden. Bermudians are fair people and the inclusion of allin the public sector is the only way for such action to be fair. The projections in Figure 5do not include any specific presumed compensation reductions.Mr. Speaker,The concept of solvency for a government is not necessarily a matter of rigid rules.Solvency is the measure of an entity, a company or a government, to be able to meet itslong term financial obligations. One thing is clear, and that is large countries are givenmuch more latitude than small ones, and developed economies are similarly given morelatitude than developing ones. Bermuda is highly developed but is undiversified and verysmall. All public sector jobs, and some private sector jobs too, depend on the Governmentremaining solvent. The fact that a Minister of Finance is even discussing solvency shouldsend a message to Bermuda that we cannot continue as we are, i.e. along the Worst Casescenario path as shown in Figure 5. We must change.12This National Budget contains only the first steps of the changes required. There has notbeen enough time since this Cabinet was sworn in to make any more changes than weshow here, but we are committed to making the changes in the Public Sector to make itsustainable in the eyes of Bermudians as well as the eyes of our foreign creditors, uponwhom we rely.DEBT CEILINGMr. Speaker,Currently the authorized debt ceiling for the Government is $1.45 billion. In view of theforecast operating deficit, not only for the year under consideration, but for those forecastin the medium term plan, this authorized ceiling must be raised.It is the view of this Government that what has become the annual ritual of ratchetingup the debt ceiling gives the impression that there is indeed no debt management planat all. This is a negative insofar as capital markets are concerned, the same entities werely on to finance this debt.Therefore, we will be laying legislation, for the approval by Parliament, to raise theauthorized debt ceiling to $2.5 billion. It is important to note that this only authorizesthe limit of Government borrowing, it does not prescribe the actual amount of borrowing.We do not expect the borrowing requirement to take us to that level, but we want a levelthat is pragmatic, realistic and static. The only adjustment to this ceiling I would like tosee is an eventual downward adjustment.In conjunction with the new ceiling the Government commits to keep public debt at sucha level that the net debt/GDP ratio does not exceed 38 per cent. Additionally, Governmentrecognizes the desirability of achieving a net debt/revenue ratio that is below 80 per centand a debt service cost/revenue ratio that is below 10 per cent. We will work towardreducing these ratios to such a level over the medium term.NON TAX POLICIES TO PROMOTE JOB GROWTHMr. Speaker,For several years now it had been clear to most economic and financial analysts thatBermuda had become an uncompetitive player in its trading in services with the restof the world. And since trading in services with the rest of the world is our primary13business, this fact represents a huge problem. It is our lack of competitiveness that iscausing our economy to contract. That contraction is causing the loss of jobs and theweakness in government revenues and the increase in public debt.Competitiveness is not merely a function of cost, although cost is very important.Competitiveness is also a function of the quality of our services as well as speed ofdelivery. The latter two areas are issues that the Government can and should influence,because by doing so we can increase competitiveness and promote growth and jobs forBermudians.Regarding quality, we have the issue of intellectual capital. It was found that employerswere not willing to bring non-Bermudian staff to Bermuda if they could only stay forsix years. Company executives told us that there is a global competition for intellectualcapital and that such people wouldn’t come here if they had to be arbitrarily uprooted aftersix years. So this intellectual capital either left Bermuda, never to return, or wouldn’tcome here in the first place. Bermudian employees connected with that non-Bermudianintellectual capital often lost their jobs because of the exodus. Our economy was thereforerobbed of their consumer spending and government revenue derived from that spending.Mr. Speaker,It was clear to this Government that term limits had the opposite effect on employmentof Bermudians to what Bermudians had been told by the former government. Termlimits turned out to be job killers for Bermudians instead of job savers. The statisticaland anecdotal evidence support this assertion 100 per cent. The OBA didn’t have accessto all the facts before we became government and that’s why we promised to suspendterm limits pending a review of all the facts. Once in office, however, we reviewed thefacts, as well as multiple legal opinions that the former government had at its disposaland ignored, and the case was clear. If we were going to be a Government that wouldbe acting to improve Bermuda’s competitiveness and create jobs for Bermudians, termlimits had to go. We acted decisively, taking one first step to improve job opportunitiesfor Bermudians.Mr. Speaker,The other component of competitiveness is speed of delivery. Speed is important becausetime is money. Government is in the process of speeding up approvals required for a widerange of circumstances: from work permits to planning approvals to company formation.The speeding up of these procedures will improve our competitiveness. In addition,Government has established a Cabinet Committee called the Economic Development14Committee whose mandate is to compress the time taken to obtain the necessary approvalsfor direct inward investment into our island. To restart economic growth we are in urgentneed of major flows of direct inward investment capital. Unwelcoming and bureaucraticprocedures have reduced the flow of inward direct investment to virtually a trickle.Mr. Speaker,Government through the Ministry of Economic Development, has moved forward on theformation of the Bermuda Business Development Corporation (BBDC). The BBDC is aprivate public partnership that is intended to spearhead the promotion of Bermuda as apreferred domicile for a variety of international business activities, including reinsurance,asset management, trusts and fund administration. This involves organizing all therelevant stakeholders and formulating a coherent mission for the BBDC and strategiesto achieve that mission.This Ministry will play a crucial role in helping Bermuda to improve its quality ofservices to our international customers as well as increasing the speed of delivery therebyimproving the island’s competitiveness worldwide.Small businesses provide goods and services locally but they also play an important rolein determining Bermuda’s competitiveness and by extension its future growth path. TheGovernment, through the Bermuda Economic Development Corporation will continue tosupport Bermudian entrepreneurs in their quest for success.Mr. Speaker,As I mentioned earlier, one of the ways to turn around the trend of economic contractionis to encourage inward direct investment to the island. Crucial to this strategy is theencouragement and enabling of the construction of new resort hotels on island which willprovide new construction jobs and ultimately new jobs in hospitality. However, beforeany building can start investors and financiers must be convinced that such projectsrepresent compelling value propositions. This is the linchpin of every potential new hotelproject, a value proposition that works. Government, through the Economic DevelopmentCabinet Committee, is working to accelerate approvals and clear away red tape thatwould otherwise erode the value proposition for new hotel development.This Government has embarked on these initiatives and will take any other necessarysteps to stimulate economic growth through these non-tax policy driven initiatives.15TAX POLICIES TO PROMOTE GROWTH AND CREATE JOBSMr. Speaker,Government has found itself in the difficult position of, on the one hand, needing morerevenue to pay for its operations and debt service, while on the other hand, not wantingto cripple the economy further with major tax increases. In this budget there are two taxinitiatives which will have the effect of stimulating economic activity and employment.The first, as per our election platform, is the two year payroll tax holiday for newBermudian hiring. This tax holiday lowers the marginal cost to an employer for a newBermudian hiring. I will remind Bermudians that only an employer can create a job.The payroll tax cost to the employer for any new Bermudian hire will be zero, althoughthe portion of the tax normally deducted from the employee will take place as usual,like any other worker. This will be an incentive for employers to hire Bermudians. Thistax holiday will not be available to employers for their existing Bermudian employees.The Tax Commissioner’s Office will be set up to be watchful for those few unscrupulousemployers who may wish to try to game the system.Government expects this tax holiday to be, at the very least, revenue neutral as theeffect of more Bermudians in the workforce will counteract the revenue lost from the taxholiday itself.Mr. Speaker,The second tax initiative relates to Licence Fees for non-Bermudians’ purchase ofBermuda property. Currently, the Licence Fee is 25 per cent of the value of the property.It is proposed to cut this fee to 8 per cent for a period of 18 months, rising to 12.5 per centthereafter. For condominiums, not used for tourism purposes, it is proposed to cut licencefees from 10 per cent to 6 per cent, increasing to 8 per cent in 18 months. For PRC holdersit is proposed to reduce licence fees to 4 per cent, increasing to 6 per cent in 18 months.Mr. Speaker,This is a jobs programme, pure and simple. The lowering of licence fees as outlinedwill stimulate much needed inward direct investment into Bermuda. The purchase of anew house, particularly those at the highest echelons as represented here, is frequentlyaccompanied by renovations or customization of some description. Local constructioncompanies will be required to carry out such modifications, thereby increasing thedemand for labour in that depressed sector. As these customizations will be varied in16scale and scope it should create opportunities for construction firms both large and small,thus creating a considerable diffusion of opportunity in the sector.Furthermore, the fact that the low licence fees will revert to higher levels after 18 monthsshould have the same psychological effect as the end of a “Sale” in retail: it spurs peopleto act sooner instead of procrastinating.Insofar as Government revenues are concerned we anticipate this action to have apositive effect. We estimate that the demand for property is indeed price elastic andthe reduction in fees will stimulate a more than proportionate increase in transactions.Secondly, there has been no adjustment in stamp duty rates, so revenues from these willincrease. Thirdly, if construction activity is stimulated, as we expect, revenues will accrueto Government via payroll taxes for the jobs that will be created. Customs Duties willalso rise due to the increased volume of building materials that will have to be imported.Lastly, the 25 per cent licence fee has acted as a deterrent for many of our resident non-Bermudian job creators to feel “connected” to Bermuda. Encouraging them to own a homein Bermuda can only be a good thing for Bermudians, as it enhances the connection oftheir Bermudian employing enterprises to our island. This is a win-win proposition forall concerned.Mr. Speaker,This tax incentive will in no way increase the number of properties in Bermuda availablefor sale to non-Bermudians.With these two tax initiatives Government has found a way to stimulate the economyand create jobs without resorting to major tax cuts which would jeopardize the solvencyof the Government.OTHER TAX ADJUSTMENTSMr. Speaker,The duty on cigarettes and tobacco and beer, wines and other spirits will be raised inApril 2013 to achieve additional Customs revenue of about $2 million.17The yield from land tax will be improved in 2013/14 by adjusting the rates on ARV bandshigher than $90,000. The amount of additional tax is estimated at $3.4 million. The effectof the adjustment is that 96 per cent of the residential properties will not see any changesin their land tax bill.The exemption previously afforded to seniors for vehicle licences has been maintained forvehicles in classes A, B, C and D. However the exemption from licence fees for seniors inclasses E, F, G and H will be rescinded. Also there will be an increase in vehicle licencefees of 3 per cent on all vehicles. These measures will recoup an estimated $2.2 million invehicle licence fees for 2013/14.The cost of bus passes (day passes) will be raised resulting in an increased revenue yieldof $500,000.The Corporate Service Tax Rate, which has been in existence since 1995, will be raisedfrom 4 per cent to 6 per cent to achieve additional revenue of about $1.5 million.Most other tax rates will remain unchanged except for various Immigration fees. It isestimated that these changes will be revenue neutral.TAX COLLECTIONMr. Speaker,Government financial statements show large amounts of money as Taxes Receivable.These represent taxes that should be paid to government according to law but have notbeen paid. As Government presently has to borrow money to pay monthly bills, everyunpaid dollar owed to government increases the public debt and costs taxpayers theinterest payable on that dollar.Due to the extended recession there are many small businesses that have struggled tomeet their tax obligations in a timely fashion. Government will work with these businessesto make suitable arrangements. However, there are others who simply ignore theirobligations. For this group Government will use all available means to collect overduetaxes, thereby improving Government’s cash flow and reducing its need for borrowing.18Mr. Speaker,Now I would like to provide a few highlights of programme initiatives related to the keyMinistries of Public Safety, Education and Health and Seniors.PUBLIC SAFETYMr. Speaker,Safety and security in Bermuda are fundamental human rights, hence it is a clearimperative to provide the Bermuda Police Service with the resources they require tomeet the challenges of these times. This budget provides additional funding to increasethe BPS manpower to adequate levels.Also provided is an increased allocation to the Police Complaints Authority. An additional$30,000 will enable this body to engage a part-time investigator to properly deal withcomplaints made against the Police thereby increasing public confidence that rights andfreedoms are highly valued in this society.The Government will move to renegotiate the Police Conditions of Service Order toremove those provisions regarding Police compensation which are no longer appropriate.While we will not compromise on keeping Bermuda safe, fiscal prudence must be appliedeven to this vital Department.Mr. Speaker,Supporting strong enforcement must be accompanied by effective rehabilitation. TheDepartment of Corrections fulfills a critical role in breaking the cycle of anti-socialbehaviour in our community. To ensure that incarcerated men and women are returnedto society equipped to make better choices, and thereby reducing the risk they pose to thewider community, this Budget makes provision for the recruitment of prison officers tofill existing posts and in this fiscal year the Department of Corrections will also engagekey professionals in areas related to the rehabilitation and management of inmate issues.EDUCATIONMr. Speaker,This Budget will allow the Ministry of Education to improve teaching quality andlearning outcomes as well as expand opportunities and provide greater access for all ofour students.19Career Pathways, a programme started in September 2012, represents a dynamicpartnership between Bermuda’s industry partners, the Ministry of Education, theNational Training Board and the Bermuda College. The programme is designed toprovide public school students with pathways for greater preparation for career andcollege opportunities for a fulfilling life beyond the classroom.The goal is to expand the programme to bring Bermudian students closer to the variousoccupations in which non-Bermudians are heavily represented. The refining of theprogramme at the Senior School level will assist the Ministry to build the pipeline thatwill eventually see the introduction of the Career Pathways programme at the MiddleSchool level.The budget allocation for the upcoming year will allow the Ministry to expand its servicesto special needs students.Vision Services is one such area that has expanded in recent years. The number of studentswith vision impairments has risen from 11 in 2010 to 46 in 2012 of which five require tobe serviced with Braille. Known as the Busy Bees programme, this vision programmehas benefited from overwhelming school, family and community support. Without thissupport the programme would not have been able to meet the needs of these students.Mr. Speaker,In September 2011, an Alternative Education Programme was implemented for troubledyouth with severe behavioural challenges who were not functioning to their level of abilityin the regular school environment. This one per cent of the total student populationis being serviced through a consortium of alternative facilities to meet their individuallearning and behaviour management needs.These new programmes provide opportunities for our students to reach their full potentialand for the public education system to be inclusive and responsive to student needs.HEALTH AND SENIORSMr. Speaker,The proposed 2013/14 budget for the Ministry of Health and Seniors is $195.2 millionwhich is an increase of $4.2 million or 2.2 per cent on the base budget from the previousyear.The vast majority of the Ministry of Health and Seniors’ budget (over 72 per cent) isallocated to the Bermuda Hospitals Board.20For the 2013/14 fiscal year, a budget of $104 million has been provided for patientsubsidies for the youth, indigent and the aged, as well as providing some support for theContinuing Care Unit at the Hospital.Mr. Speaker,Since the closing of what was then called the “Indigent Clinic” at the Hospital, therehave been many among our most vulnerable populations who have been unable to accessprimary care. Instead, many of these Bermudians have either gone without care or theyhave gone to the Emergency Department. This situation is unpleasant for the peopleinvolved, and it drives up costs for the entire healthcare system.The Ministry of Health and Seniors will address this by providing primary care servicesfor those Bermudians who cannot afford health insurance. The Ministry will addresstheir immediate care needs, and will ensure that they have the appropriate treatmentand support for any chronic conditions.CONCLUSIONMr. Speaker,This budget marks the beginning of a new direction for the manner in which the economyof Bermuda and the finances of the Bermuda Government are managed. The hallmarks ofthe new management style will be realism, transparency, prudence and decisiveness. Atthe present time Bermuda’s economy is in a tough spot but the Government is confidentthat the corrective measures outlined in this Budget Statement, and others initiativesthat will come, will result in more jobs, more prosperity, greater opportunity and saferneighbourhoods in the years to come.Therefore Mr. Speaker, this Government remains firmly confident in future prospects ofBermuda.