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2013 – 2014 BUDGET STATEMENT

In support of the Estimates of Revenue and Expenditure

Presented by The Hon. E.T. Richards, JP, MP

Minister of Finance

22 February 2013

Published by:

Government of Bermuda

Ministry of Finance

Government Administration Building

30 Parliament Street

Hamilton HM 12, Bermuda

February 2013

Design: Department of Communication and Information

Printed in Bermuda by Bermuda Press Ltd.

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INTRODUCTION

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 that

Bermuda faces a daunting economic challenge in the months and years ahead. The Island

is experiencing its fourth straight year of economic contraction. The Gross Domestic

Product — the value of all goods and services produced in the economy — has shrunk

by about10 per cent since 2007, meaning the economic pie shared by all Bermudians is

getting smaller, with less to go around.

The Government,which the One Bermuda Alliance took over as a result of the election on

17 December 2012, is in the midst of recording its fifth straight year of Current Account

deficits. 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 to

a projected $247 million deficit in the upcoming fiscal year. This accelerating trend is

unsustainable.

The operating deficits have compounded the alarming increase in our public debt, which

has 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 small

population, 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 seen

shop closures, layoffs and pay cutbacks; a construction industry that has shed hundreds

of jobs, a tourism industry that has downsized for the fewer customers flying to our

shores, and an international business sector that has quietly shipped jobs to competing

jurisdictions.

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 experienced

mass unemployment until now — we know that thousands of Bermudians are unemployed

and that more are “under-employed”, earning less than before. There is evidence that

hundreds of mortgages are in arrears, meaning that many people live in fear of losing

their homes.

The distress these negative economic forces inflict on individuals and families every

day is intense and unrelenting. It is this pain that the Government’s plans and actions

ultimately aim to relieve.

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Mr. Speaker,

Bermuda is facing one of the most serious challenges in its long history. The economic

foundations of the Island, which enable us to live our daily lives, must be strengthened

and better protected. The OBA Government understands the scope and scale of the

challenge and what needs to be done. Our goal is to create an economy that works for

everyone; 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 balance

between responsible growth and disciplined financial management.

The first track will implement specific pro-growth economic policies to stimulate muchneeded

foreign investment, restore confidence in the Island as a place to do business and

create new jobs.

The second track will eliminate wasteful government spending, thereby reducing our

national debt over time.

Mr. Speaker,

The way out of this situation will not be easy, nor will it happen overnight. It will take

time to implement solutions that work for the greater good. It will take time to revamp

structures that inhibit our ability to operate efficiently and effectively. And it will take

time to reverse trends and trajectories locked in place by past practices. Our borrowing

requirements for the coming year, for example, will reflect the situation we inherited on

17 December 2012 as Bermuda’s new government.

On this point it is with a heavy heart and a profound sense of frustration that I project

an overall operating deficit and Public Sector Borrowing Requirement (PSBR) of $331

million for the fiscal year 2013/14. This is a staggering amount that is the result of weak

projected revenues and a spending momentum that will take time to change, like a great

ship that is slow to answer the helm.

Mr. Speaker,

The projected borrowing requirement over the next year underscores the seriousness

of the situation we face. Bermuda will need patience and the strongest commitment to

changing the way we go about our business. The Government cannot do it alone. It will

take 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; a

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unity based on the prospect and realization of national progress in which we all can

share; progress anchored to principles of fairness, responsibility and inclusion; progress

driven by a sense of shared sacrifice and destiny.

The Government will take the lead in encouraging new levels of trust and cooperation

among 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 this

together.

That is our starting point as we begin the important work to recover, rebuild and restore

the promise of Bermuda.

THE GLOBAL ECONOMY

Mr. Speaker,

Bermuda’s economy is essentially a trading economy, one that trades with the rest of

the world mainly in financial services. Therefore, any analysis of Bermuda’s future

prospects must take into account the economic environment in which it trades: i.e. the

global economy. Even though

there are many countries in the

global economy it is dominated

by the United States, China and

the European Union. As our

principal trading partner, the

state of the USA is crucial to our

future.

Figure 1 shows the growth trends

firstly of Industrial Production

and below that, GDP since 2000.

The periods of recession are

clearly shown by the shaded

areas. Since emerging from

the “Great Recession” the US

economy has shown muted growth but does not appear to be in imminent danger of

returning to negative growth. The principal risk factor continues to be fiscal deadlock in

Washington DC.

China has been the sole growth source during the global economic calamity as it never

Figure 1

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went into recession during the period, and although the Chinese economy has cooled in

recent 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 economic

blocs. Figure 2 shows the European Union slipping into recession once again. This is

where the pressure on Bermuda will come from. Faltering economic fortunes in Europe

are likely to increase pressure

on their national budget deficits

thus ratcheting up the search

for easy scapegoats like offshore

domiciles, including Bermuda.

We face an environment of

constantly shifting regulatory

goal posts. The Bermuda

government will continue to

be ever vigilant against such

threats to our reputation and

our ability to freely trade with

nations of the world.

Figure 2

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THE BERMUDA ECONOMY

Mr. Speaker,

The Bermudian economy continues to struggle, official figures showing a recession for

three consecutive years, as illustrated in Figure 3. Due to the unavailability of economic

data, the graph ends in 2011 but

anecdotal evidence gives one no

expectation that 2012 produced

anything other than economic

contraction. That would make

it a four year recession.

This conclusion is reinforced

by employment data shown

in Figure 4, where there has

been a steady decline in the

workforce, in total, as well as

the Bermudian workforce. It

is the stark contrast between

Bermudian economic data

and the improving data from

our trading partners like the

USA and Canada that led

analysts to the firm conclusion

that Bermuda’s prolonged

recession was due to structural

Bermudian issues, issues that

we are compelled to address

ourselves.

While the number of new companies being formed in Bermuda has experienced a

moderate decline in 2012, anecdotal evidence indicates the economy is still shedding jobs.

The invention of “reinsurance sidecars” has enabled that sector to effectively increase

capacity without substantially increasing staffing levels. This is but one of the reasons

that our flagship industry has continued to return solid results to their shareholders

without making a significant impact on job growth in Bermuda.

December 2012 numbers for Retail Sales reconfirm the negative trend. Retail Sales by

volume were down by 3.7 per cent from a year earlier, the fifth consecutive monthly

decline. Retail Sales for Building Materials plunged an incredible 33.5 per cent. The near

completion of the new hospital wing’s outer shell was a major factor, but it demonstrates

the overall weakness of the sector.

Figure 3

Figure 4

-­-0.1

-­-0.05

0

0.05

0.1

0.15

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GDP

Annual % Change

0

10000

20000

30000

40000

50000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012P

Employment Trends

Total Filled Jobs Bermudians

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Mr. Speaker,

Visitor arrivals continued to be dominated by lower spending cruise travellers. In 2012

higher spending air arrivals were around the previous year’s levels. Cruise arrivals are due

to increase this year with the arrival of the Breakaway class ship that can accommodate

over 4,000 passengers.

These conditions underpin this Government’s intense focus on enacting policies that will

increase the number of potential employers on the Island, the demand for labour and

policies that will reduce the marginal cost of employing a Bermudian.

Some observers have accused the OBA approach to the economic problems of today

as being, “Too big business friendly.” Such comments speak to a profound lack of

understanding of the economic realities of today’s Bermuda. Clearly, today’s economy is

in these dire straits because a different approach was taken. It is worth reiterating the

simple fact that only an employer can create a job. And a job is the best social programme

ever invented. As a government, the choice is simple, we either employ everybody who

wants to work but doesn’t have a job, or we make it easier, cheaper and more attractive

for businesses based in Bermuda to employ more people. The first option would bankrupt

the Government, the second option leads to a more sustainable path. We choose the

sustainable option.

Mr. Speaker,

In the Bermudian economy there are two types of businesses: foreign exchange earners

and foreign exchange users. Businesses that earn foreign exchange for the Island are

our most valuable national economic assets. It is these earners of foreign exchange that

are the pumps that infuse money throughout the economy. Other businesses use that

money to employ other people and provide residents with goods and services. Resident

consumers use that same money to live. However, without the foreign exchange earners

they would not be able to fulfill that function. Ultimately all jobs in Bermuda are derived

from these primary foreign exchange earning businesses.

Therefore, it is a moral imperative for the Government of Bermuda to encourage and

assist these primary foreign exchange earning enterprises which provide the funding for

its citizens to have opportunities of employment, home ownership, education, healthcare

and a good standard of living.

For many decades Bermudians have taken such enterprises for granted, concentrating

instead 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 the

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struggle between “Us and Them”, should have realized by now that there is no us and

them, there’s only us and us. The data shows that divisiveness only succeeds in shrinking

the pie. The “have nots” always suffer the most when the pie is shrinking. The fortunes of

all 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 we

will do everything within our power to create jobs for Bermudians by improving the

environment for entrepreneurial activities in Bermuda so that job creators can do what

they do best:- take risks to seize market opportunities, thereby creating employment as

a by-product. That’s how jobs are created.

THE BUDGET

Mr. Speaker,

The headline numbers projected for fiscal 2013/14 are as follows:

$000

Total Revenues 871,199

Total Current Expenditures 983,883

Debt Service 134,300

Current Account Deficit (246,984)

Capital Expenditure 84,609

Overall Deficit (PSBR) (331,593)

Mr. Speaker,

The revenue estimate for 2013/14 is $871.2 million, 4 per cent lower than the original

estimate for the previous year.

The most significant decline has been in the Customs Duty yield which has decreased

by $25 million or 12.5 per cent compared to the previous year. The weakening economy

is the main factor. The other factors are the continuing Customs Duty concessions being

granted for the redevelopment of the King Edward VII Memorial Hospital and to the

hotel, 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 be

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extended 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 the

lackluster trends exhibited in the current fiscal year where the PSBR was $42 million

larger than forecast, we are unable to forecast anything other than weak revenue

projections for 2013/14. We are, however, hopeful that the measures we have already

taken and those that we plan to take as the fiscal year unfolds will have a positive effect

on economic growth and job creation, thereby rendering higher revenues than forecast

here. 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’ cash

requests by significant amounts during the budgeting process but have not had the

time to really come to grips with cost structures within the Government. Moreover,

with 71 Departments, the organizational structure of the Government is unnecessarily

cumbersome, a complexity that generates excess expense. These and other related issues

are matters the SAGE Commission will look into.

Capital expenditures for the coming fiscal year are glaring examples of spending

momentum carried over from the previous administration. The new Government has

been locked into large capital expenses to remediate poor quality work done at Heritage

Wharf at Dockyard; to make major repairs at Tynes Bay and to complete the Aquatic

Centre.

Heritage Wharf deserves special mention as the poster child for government bungling

and waste. Not only was this project hugely over budget, it was not built to the required

specifications and therefore did not survive the first hurricane intact. Now the new

Government is forced to spend millions of scarce dollars to make repairs in time for the

cruise ship season in April 2013.

Like Heritage Wharf, this budget is groaning under the weight of economic decisions

of the former administration, the consequences of which we have inherited and have

carried forward through to the coming year. They say, “Rome was not built in a day,” and

I 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. This

budget contains no artificial, unexplained revenue projections, neither does it try to

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use sleight of hand to make the cost of debt service appear less than it really is. This

Government gives it to Bermudians straight, irrespective of whether the news is good or

bad.

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MEDIUM TERM ECONOMIC DEBT GLIDE PATH

Mr. Speaker,

It is high time for the Government of Bermuda to be real about debt. Overall deficit

spending by the Government started in the year 2003 and this has annually accumulated

in an ever rising profile of public debt right up to the present time. The rise in debt, which

has been exponential, is unsustainable. To redress this situation the new Government

has 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 public

debt Government must first stop running annual operating deficits, and start running

cash surpluses which, when applied to the debt, will reduce it.

The Government has been running large deficits over the last few years and this upcoming

year represents one of the worst years of deficit spending. This Government recognizes

that it will take time and changes in policy to actually start paying down the debt. Figure

5 shows three scenarios: the Base

Case, the Worst Case and the Best

Case. All scenarios are possible but

the Base Case is the scenario that

Government thinks is the most

probable.

The most noteworthy of the scenarios

is the Worst Case because it merely

extrapolates the current real life

deficit and debt trends. In other

words if we do nothing and economic

conditions 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 and

salaries there would be little left for anything else.

The Base Case scenario shows debt continuing to rise to just over $2 billion and declining

thereafter. The Best Case sees debt rolling over faster and being somewhat lower after

five years. Again, we are working toward and hoping for the Best Case but the highest

probability scenario: i.e. the expected case is the Base Case.

Figure 5

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

4500000

2011 2012 2013 2014 2015 2016 2017

Bermuda Debt Trajectories

BASE CASE DEBT WORST CASE DEBT BEST CASE DEBT

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Mr. Speaker,

This is a very sobering chart and should explode anybody’s notion that this debt situation

can be solved overnight. However, what it does show is that a growing economy coupled

with continuous cost containment on the part of Government will eventually wrestle this

debt beast down to more manageable levels.

Part of this management programme is to set up debt related targets, or rules, that

are appropriate for an economy the size of Bermuda’s. The IMF has a set of criteria of

maximum acceptable Debt/GDP levels for small economies: the low target equals 20 per

cent, with the high target being 40 per cent. We are currently under that 40 per cent

mark but will blow straight through it over the next few years under the Worst Case

scenario. The IMF also has a maximum level criterion for the Debt/Revenue ratio of 80

per cent. Currently we are well above that maximum. but we will work to comply with it

over the medium term.

Moving Government off of its dependency on operating deficits requires medium term

revenues to strengthen and costs squeezed out. Current weak revenues may improve

as our efforts to revive the flagging economy through policy incentives and investment

incentives take hold. On the cost side the SAGE Commission will soon start its work.

Government will also formally commence negotiations with the relevant unions regarding

reduction in staff compensation.

The overarching principle, insofar as cost reduction is concerned for this Government, is

that of shared sacrifice. It is wrong to ask some people to sacrifice while others get off “scot

free”. 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 all

in the public sector is the only way for such action to be fair. The projections in Figure 5

do 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 its

long term financial obligations. One thing is clear, and that is large countries are given

much more latitude than small ones, and developed economies are similarly given more

latitude than developing ones. Bermuda is highly developed but is undiversified and very

small. All public sector jobs, and some private sector jobs too, depend on the Government

remaining solvent. The fact that a Minister of Finance is even discussing solvency should

send a message to Bermuda that we cannot continue as we are, i.e. along the Worst Case

scenario path as shown in Figure 5. We must change.

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This National Budget contains only the first steps of the changes required. There has not

been enough time since this Cabinet was sworn in to make any more changes than we

show here, but we are committed to making the changes in the Public Sector to make it

sustainable in the eyes of Bermudians as well as the eyes of our foreign creditors, upon

whom we rely.

DEBT CEILING

Mr. Speaker,

Currently the authorized debt ceiling for the Government is $1.45 billion. In view of the

forecast operating deficit, not only for the year under consideration, but for those forecast

in 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 ratcheting

up the debt ceiling gives the impression that there is indeed no debt management plan

at all. This is a negative insofar as capital markets are concerned, the same entities we

rely on to finance this debt.

Therefore, we will be laying legislation, for the approval by Parliament, to raise the

authorized debt ceiling to $2.5 billion. It is important to note that this only authorizes

the 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 level

that is pragmatic, realistic and static. The only adjustment to this ceiling I would like to

see is an eventual downward adjustment.

In conjunction with the new ceiling the Government commits to keep public debt at such

a level that the net debt/GDP ratio does not exceed 38 per cent. Additionally, Government

recognizes the desirability of achieving a net debt/revenue ratio that is below 80 per cent

and a debt service cost/revenue ratio that is below 10 per cent. We will work toward

reducing these ratios to such a level over the medium term.

NON TAX POLICIES TO PROMOTE JOB GROWTH

Mr. Speaker,

For several years now it had been clear to most economic and financial analysts that

Bermuda had become an uncompetitive player in its trading in services with the rest

of the world. And since trading in services with the rest of the world is our primary

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business, this fact represents a huge problem. It is our lack of competitiveness that is

causing our economy to contract. That contraction is causing the loss of jobs and the

weakness 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 of

delivery. 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 for

Bermudians.

Regarding quality, we have the issue of intellectual capital. It was found that employers

were not willing to bring non-Bermudian staff to Bermuda if they could only stay for

six years. Company executives told us that there is a global competition for intellectual

capital and that such people wouldn’t come here if they had to be arbitrarily uprooted after

six years. So this intellectual capital either left Bermuda, never to return, or wouldn’t

come here in the first place. Bermudian employees connected with that non-Bermudian

intellectual capital often lost their jobs because of the exodus. Our economy was therefore

robbed 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 employment

of Bermudians to what Bermudians had been told by the former government. Term

limits turned out to be job killers for Bermudians instead of job savers. The statistical

and anecdotal evidence support this assertion 100 per cent. The OBA didn’t have access

to all the facts before we became government and that’s why we promised to suspend

term limits pending a review of all the facts. Once in office, however, we reviewed the

facts, as well as multiple legal opinions that the former government had at its disposal

and ignored, and the case was clear. If we were going to be a Government that would

be acting to improve Bermuda’s competitiveness and create jobs for Bermudians, term

limits had to go. We acted decisively, taking one first step to improve job opportunities

for Bermudians.

Mr. Speaker,

The other component of competitiveness is speed of delivery. Speed is important because

time is money. Government is in the process of speeding up approvals required for a wide

range 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 Development

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Committee whose mandate is to compress the time taken to obtain the necessary approvals

for direct inward investment into our island. To restart economic growth we are in urgent

need of major flows of direct inward investment capital. Unwelcoming and bureaucratic

procedures 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 the

formation of the Bermuda Business Development Corporation (BBDC). The BBDC is a

private public partnership that is intended to spearhead the promotion of Bermuda as a

preferred domicile for a variety of international business activities, including reinsurance,

asset management, trusts and fund administration. This involves organizing all the

relevant stakeholders and formulating a coherent mission for the BBDC and strategies

to achieve that mission.

This Ministry will play a crucial role in helping Bermuda to improve its quality of

services to our international customers as well as increasing the speed of delivery thereby

improving the island’s competitiveness worldwide.

Small businesses provide goods and services locally but they also play an important role

in determining Bermuda’s competitiveness and by extension its future growth path. The

Government, through the Bermuda Economic Development Corporation will continue to

support Bermudian entrepreneurs in their quest for success.

Mr. Speaker,

As I mentioned earlier, one of the ways to turn around the trend of economic contraction

is to encourage inward direct investment to the island. Crucial to this strategy is the

encouragement and enabling of the construction of new resort hotels on island which will

provide new construction jobs and ultimately new jobs in hospitality. However, before

any building can start investors and financiers must be convinced that such projects

represent compelling value propositions. This is the linchpin of every potential new hotel

project, a value proposition that works. Government, through the Economic Development

Cabinet Committee, is working to accelerate approvals and clear away red tape that

would otherwise erode the value proposition for new hotel development.

This Government has embarked on these initiatives and will take any other necessary

steps to stimulate economic growth through these non-tax policy driven initiatives.

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TAX POLICIES TO PROMOTE GROWTH AND CREATE JOBS

Mr. Speaker,

Government has found itself in the difficult position of, on the one hand, needing more

revenue to pay for its operations and debt service, while on the other hand, not wanting

to cripple the economy further with major tax increases. In this budget there are two tax

initiatives 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 new

Bermudian hiring. This tax holiday lowers the marginal cost to an employer for a new

Bermudian 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, although

the 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. This

tax 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 unscrupulous

employers who may wish to try to game the system.

Government expects this tax holiday to be, at the very least, revenue neutral as the

effect of more Bermudians in the workforce will counteract the revenue lost from the tax

holiday itself.

Mr. Speaker,

The second tax initiative relates to Licence Fees for non-Bermudians’ purchase of

Bermuda 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 cent

thereafter. For condominiums, not used for tourism purposes, it is proposed to cut licence

fees from 10 per cent to 6 per cent, increasing to 8 per cent in 18 months. For PRC holders

it 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 outlined

will stimulate much needed inward direct investment into Bermuda. The purchase of a

new house, particularly those at the highest echelons as represented here, is frequently

accompanied by renovations or customization of some description. Local construction

companies will be required to carry out such modifications, thereby increasing the

demand for labour in that depressed sector. As these customizations will be varied in

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scale 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 months

should have the same psychological effect as the end of a “Sale” in retail: it spurs people

to act sooner instead of procrastinating.

Insofar as Government revenues are concerned we anticipate this action to have a

positive effect. We estimate that the demand for property is indeed price elastic and

the 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 will

increase. Thirdly, if construction activity is stimulated, as we expect, revenues will accrue

to Government via payroll taxes for the jobs that will be created. Customs Duties will

also 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 home

in Bermuda can only be a good thing for Bermudians, as it enhances the connection of

their Bermudian employing enterprises to our island. This is a win-win proposition for

all concerned.

Mr. Speaker,

This tax incentive will in no way increase the number of properties in Bermuda available

for sale to non-Bermudians.

With these two tax initiatives Government has found a way to stimulate the economy

and create jobs without resorting to major tax cuts which would jeopardize the solvency

of the Government.

OTHER TAX ADJUSTMENTS

Mr. Speaker,

The duty on cigarettes and tobacco and beer, wines and other spirits will be raised in

April 2013 to achieve additional Customs revenue of about $2 million.

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The yield from land tax will be improved in 2013/14 by adjusting the rates on ARV bands

higher than $90,000. The amount of additional tax is estimated at $3.4 million. The effect

of the adjustment is that 96 per cent of the residential properties will not see any changes

in their land tax bill.

The exemption previously afforded to seniors for vehicle licences has been maintained for

vehicles in classes A, B, C and D. However the exemption from licence fees for seniors in

classes E, F, G and H will be rescinded. Also there will be an increase in vehicle licence

fees of 3 per cent on all vehicles. These measures will recoup an estimated $2.2 million in

vehicle licence fees for 2013/14.

The cost of bus passes (day passes) will be raised resulting in an increased revenue yield

of $500,000.

The Corporate Service Tax Rate, which has been in existence since 1995, will be raised

from 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 is

estimated that these changes will be revenue neutral.

TAX COLLECTION

Mr. 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 not

been paid. As Government presently has to borrow money to pay monthly bills, every

unpaid dollar owed to government increases the public debt and costs taxpayers the

interest payable on that dollar.

Due to the extended recession there are many small businesses that have struggled to

meet their tax obligations in a timely fashion. Government will work with these businesses

to make suitable arrangements. However, there are others who simply ignore their

obligations. For this group Government will use all available means to collect overdue

taxes, thereby improving Government’s cash flow and reducing its need for borrowing.

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Mr. Speaker,

Now I would like to provide a few highlights of programme initiatives related to the key

Ministries of Public Safety, Education and Health and Seniors.

PUBLIC SAFETY

Mr. Speaker,

Safety and security in Bermuda are fundamental human rights, hence it is a clear

imperative to provide the Bermuda Police Service with the resources they require to

meet the challenges of these times. This budget provides additional funding to increase

the 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 with

complaints made against the Police thereby increasing public confidence that rights and

freedoms are highly valued in this society.

The Government will move to renegotiate the Police Conditions of Service Order to

remove those provisions regarding Police compensation which are no longer appropriate.

While we will not compromise on keeping Bermuda safe, fiscal prudence must be applied

even to this vital Department.

Mr. Speaker,

Supporting strong enforcement must be accompanied by effective rehabilitation. The

Department of Corrections fulfills a critical role in breaking the cycle of anti-social

behaviour in our community. To ensure that incarcerated men and women are returned

to society equipped to make better choices, and thereby reducing the risk they pose to the

wider community, this Budget makes provision for the recruitment of prison officers to

fill existing posts and in this fiscal year the Department of Corrections will also engage

key professionals in areas related to the rehabilitation and management of inmate issues.

EDUCATION

Mr. Speaker,

This Budget will allow the Ministry of Education to improve teaching quality and

learning outcomes as well as expand opportunities and provide greater access for all of

our students.

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Career Pathways, a programme started in September 2012, represents a dynamic

partnership between Bermuda’s industry partners, the Ministry of Education, the

National Training Board and the Bermuda College. The programme is designed to

provide public school students with pathways for greater preparation for career and

college opportunities for a fulfilling life beyond the classroom.

The goal is to expand the programme to bring Bermudian students closer to the various

occupations in which non-Bermudians are heavily represented. The refining of the

programme at the Senior School level will assist the Ministry to build the pipeline that

will eventually see the introduction of the Career Pathways programme at the Middle

School level.

The budget allocation for the upcoming year will allow the Ministry to expand its services

to special needs students.

Vision Services is one such area that has expanded in recent years. The number of students

with vision impairments has risen from 11 in 2010 to 46 in 2012 of which five require to

be serviced with Braille. Known as the Busy Bees programme, this vision programme

has benefited from overwhelming school, family and community support. Without this

support 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 troubled

youth with severe behavioural challenges who were not functioning to their level of ability

in the regular school environment. This one per cent of the total student population

is being serviced through a consortium of alternative facilities to meet their individual

learning and behaviour management needs.

These new programmes provide opportunities for our students to reach their full potential

and for the public education system to be inclusive and responsive to student needs.

HEALTH AND SENIORS

Mr. Speaker,

The proposed 2013/14 budget for the Ministry of Health and Seniors is $195.2 million

which is an increase of $4.2 million or 2.2 per cent on the base budget from the previous

year.

The vast majority of the Ministry of Health and Seniors’ budget (over 72 per cent) is

allocated to the Bermuda Hospitals Board.

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For the 2013/14 fiscal year, a budget of $104 million has been provided for patient

subsidies for the youth, indigent and the aged, as well as providing some support for the

Continuing Care Unit at the Hospital.

Mr. Speaker,

Since the closing of what was then called the “Indigent Clinic” at the Hospital, there

have been many among our most vulnerable populations who have been unable to access

primary care. Instead, many of these Bermudians have either gone without care or they

have gone to the Emergency Department. This situation is unpleasant for the people

involved, and it drives up costs for the entire healthcare system.

The Ministry of Health and Seniors will address this by providing primary care services

for those Bermudians who cannot afford health insurance. The Ministry will address

their immediate care needs, and will ensure that they have the appropriate treatment

and support for any chronic conditions.

CONCLUSION

Mr. Speaker,

This budget marks the beginning of a new direction for the manner in which the economy

of Bermuda and the finances of the Bermuda Government are managed. The hallmarks of

the new management style will be realism, transparency, prudence and decisiveness. At

the present time Bermuda’s economy is in a tough spot but the Government is confident

that the corrective measures outlined in this Budget Statement, and others initiatives

that will come, will result in more jobs, more prosperity, greater opportunity and safer

neighbourhoods in the years to come.

Therefore Mr. Speaker, this Government remains firmly confident in future prospects of

Bermuda.