In these challenging times Bermuda is faced with a slowdown in economic activity which is being experienced by other countries.

Accordingly, as part of the preparation of the 2009/10 budget, Ministers and Ministries are advised that new programmes and new initiatives do not necessarily come with new and additional monies. This is the time when our Zero Based Budgeting process (ZBB) should be most effective- it is a useful budgetary tool. Ministers are required to lead from the front as we employ more efficient and effective strategies in our business model.

Given the current global and local economic conditions, it would be unwise to anticipate more than a nominal increase in revenues for 2009/10. The Ministry of Finance’s most optimistic forecast is for real revenue growth of 2 per cent.

The public will be aware of my recent update on the economic outlook for Bermuda given in the House of Assembly in July of this year. Recent economic indicators in the United States suggest that the slowdown is spreading to many sectors of the US economy.

Taxation sensitivities relate to the perception by tax payers of the weight of the existing tax burden and their willingness to absorb further tax rate increases. In the 2008/09 Budget there were minimal increases in tax rates as this has been the Finance Ministry’s tax policy. The existing tax policy is supported by the results of the Sustainable Development survey, namely, not to create a tax structure which creates hardship on the wider public. Also based upon the results of the poverty line assessment statistics there is not likely to be the ability by tax payers to afford any increases in 2009/10.On the contrary there is likely to be further appeals for Government tax relief. In addition, the Government must be mindful of the impact of any further increases on Bermuda’s competitiveness as a jurisdiction.

In summary, the economic outlook and the likely downturn and the Government’s sensitivity to the concerns of the people and the business sector and the desire to assist in this challenging economic environment requires us to avoid imposing any increased financial burden on people and businesses. The effect of this will be to limit the potential for revenue increases in 2009/10. It is important also to consider the impact of a recession in the United States and its effect on Bermuda. Disposable incomes of US citizens have declined and they are expected to decline further in the short term; this has an effect on discretionary spending such as leisure and travel expenditure. Bermuda’s tourism sector has felt the effect of the US slowdown, recording declines in visitor arrivals and associated expenditures in the first quarter. The decline in visitor arrivals will impact on yields from the Hotel Occupancy Tax and Passenger Tax.

Given the economic forecasts, we have to look inward and at our operating business environment and financing options and this means that as a Government it is vital to re-assess and re-prioritise existing programmes in order to pay for any new or expanded policy priorities as opposed to increasing our expenditure and our debt. That is neither wise nor sensible.

As a guide, each Minister has been encouraged to identify savings of 10.5 per cent within their existing cash limits. This is a target and a guide. Some Ministries will not be able to do this given their people-oriented focus whereas other Ministries may be able to identify savings. Programmes that are not delivering results should be re-assessed and Ministers are encouraged to look for off-setting savings within the Ministry. The focus is on improving service delivery of programmes to Bermuda’s consumers. This cost-efficient model is not focused on shrinking Government in terms of existing personnel requirements- that is, no reduction in employment levels is being requested by the Ministry of Finance.

This is not a new approach, as mentioned above, it is the underlying principle of the zero-base budgeting methodology (ZBB). Policy prioritisation as the start of the ZBB process will facilitate a better alignment of the allocation of resources with Government’s overall policy initiatives and objectives.

The existing current and capital expenditure budget is $1.1 billion. However since Ministries in submitting their budget wish-lists have already indicated a number of new programmes, to ensure that we do not exceed the stipulated debt ceiling, Ministers have been asked to be realistic and reasonable in submitting their Budget wish lists. This is to ensure that we maintain the appropriate balance in our revenue and expenditure levels.

Since national budgets are not framed just for a one year window, but for a multi-year period, a programme that is delayed for a year or two could proceed in the next fiscal year. The intent is to avoid any increases in taxes at this time, or revisions to the debt ceiling. This is a pragmatic approach and one that is sustainable and economically and fiscally prudent.

With regard to housing, the Government has committed $65 million in total. Of this amount $30 million has been already spent which includes projects such as Loughlands, Perimeter Lane and Harmony Club.