PM announces relief to Bahamians in 2008/09 Budget

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The words lower, eliminate and tax free read all through the 2008/9 budget tabled in the House of Assembly by Minister of Finance Prime Minister Rt. Hon. Hubert Ingraham. Mr. Ingraham delivered huge concessions and tax breaks to citizen throughout the country. ‘Its the DELIVERY MAN, HE’s BACK!’ on blogger told Bahamas Press. Pictured from left: Minister of State for Finance the Hon. Zhivargo Laing, Prime Minister and Minister of Finance the Rt. Hon. Hubert Ingraham and Deputy Prime Minister and Minister of Foreign Affairs the Hon. Brent Symonette as Cabinet Ministers cross Rawson Square en route to the House of Assembly for the presentation by the Prime Minister of the government’s 2008/2009 Budget communication. (BIS Photo/Patrick Hanna)

2008/09 BUDGET COMMUNICATION
Delivered By Prime Minister Rt. Hon. Hubert Ingraham/ Wednesday 28th May, 2008 • House of Assembly

It is my honour to present the 2008/09 Budget Communication.

INTRODUCTION
Present global economic uncertainty is giving rise to what appears to be unstoppable increases in the cost of living driven by the continued rise in energy and food prices internationally.
The growing cost of energy is already impacting the travel plans of many with direct consequences for our primary industry, tourism.

This budget therefore has been crafted to take into account the international economic turbulence and uncertainty impacting so harshly on our own people and on the travel intentions of people wishing to vacation in The Bahamas.
In particular, this Budget embraces my Government’s social philosophy, its commitment and its determination to cushion the harshness of the impact of the international turbulence upon our citizens, most particularly low income families who invariably are impacted first and most acutely.

As importantly, this budget was designed to properly position our economy for the rebound in the international economy which we believe will begin during this budget period.
And so we have carefully determined the size and components of the fiscal programme which will touch every family with significant financial relief, but which at the same time will not under any circumstances compromise the sound fiscal status of our economy which we have worked so hard to maintain through several terms in Government.

Indeed, in this context our strategy would certainly have the approval of the International Monetary Fund, the IMF, because it is consistent with the views expressed recently by the IMF Managing Director. In a speech in February, the IMF Managing Director said:-

‘Unless the situation improves, the fiscal authorities in countries with low fiscal risks should prepare to exploit the headroom for timely and targeted fiscal stimulus that can add to aggregate demand in a way that supports private consumption. Of course, it has to be temporary – maintaining a sustainable medium-term fiscal position is still very important. But in a sense, medium-term fiscal policy is all about saving for a rainy day. It is now raining.’

It will be seen that we have sought to strike, and we have succeeded in striking, the correct balance between appropriate fiscal easing along the lines mentioned by the IMF Managing Director. This will provide financial relief on the one hand, and the perennial requirement to maintain the fiscal discipline which has been of such importance in attracting investment and employment to The Bahamas.

We must all be reminded that it is because we maintained a prudent economic policy in the years 1992 to 2002 that we now have the fiscal headroom to meet the present unsettled situation without compromising the medium-term fiscal policy stance.

We now know that the ratio of Government Debt to GDP that has obtained within the desired range of 30% to 35% in recent years. We can afford therefore to move to the upper limit of this range to implement measures which provide relief and assistance to Bahamians.

STRATEGIC DIRECTIONS
The 2008/09 Budget Communication will, in accordance with precedent, deal with economic and fiscal developments in the financial year coming to a close, 2007/08, and will set out the prospects, goals and objectives of economic and fiscal policy for 2008/09. In addition, the 2008/09 Budget Communication deals with certain major issues of a strategic nature in the direction of confronting crucial issues affecting our society and economy.

LAW AND ORDER

In this context I first wish to comment on the problems of law and order. Some 35 years, the life span of an entire generation, has passed since The Bahamas attained Independence in 1973. For those of us who lived through the process of obtaining Independence, it has inspired our lives, and our commitment to our beloved Bahamaland.

In the years since Independence new generations have come along. While the majority of young persons share the vision and dedication of their parents and grandparents’ generations in support of Bahamian national development, not all share the dream. Regrettably some have developed complacency about what has been accomplished. They take for granted the freedoms we enjoy and the way of life we can lead.

An even tinier minority appears to have no time perspective and no conception of the dark and dismal future to which their present behaviour and attitudes are leading them. They engage in activities which, tragically, will waste their lives and the lives of their victims.

And so, while ensuring that we provide opportunities for our focused youth to realize their full potential we must also redouble our efforts to reach out to those who are disengaged. We must assist them in understanding how very fortunate we are to have progressed so far in The Bahamas and encourage them to see how they might lead meaningful and productive lives.
We all know that youth has a tendency towards a limited time horizon. As one matures, this horizon lengthens until, as one reaches middle years, one seriously contemplates the future. An astronomer was once asked why he spends so much time looking into the future. His answer was “because that is where he will be spending the rest of his life!”

It is primarily through the medium of its annual budgets that Government creates and renews initiatives to positively impact the lives of its citizens and provide good governance. And so this Budget is designed to provide an opportunity to invite our young people to look into the future and to become part of a future which we and they want for themselves and our country.
We are continuing to address this urgent problem through this Budget. The financial provisions made can be supplemented by the contribution which every Bahamian can make in vigilantly safeguarding the progress which we have made, in standing ready to contribute positively to our collective future, and in finding assistance and encouragement through the operations of our Government.

We seek in this Budget to enable us to bolster and support the positive; to remove any sense of alienation that exists in segments of our population, and to redirect the energies and imagination of all our young to positive goals that contribute to the betterment of Bahamian society.
We envisage this process resulting in reduced social tensions which have provided the seed-bed for crime and in moving our society towards our National Anthem’s ‘rising sun’.

ENVIRONMENTAL SUSTAINABILITY
We believe that our need for economic development must be kept in proper balance with the need to secure the protection of our environment including the biological diversity of our islands. Therefore, we are requiring all developers, national and international, to observe environmental best practices in the construction and operation of their projects.
This makes good economic sense particularly given the fact that our tourism sector, the chief engine of the economy, is dependent upon our maintenance of a healthy environment.

Hence, the Government places the highest priority on the effective management and protection of our natural resources and will continue to support environmentally sustainable activities including the implementation of environmentally sensitive policies, conservation education, habitat rehabilitation and the modernization of related legislation and regulation needed to support effective management of functioning protected areas.

In this regard, this Budget provides, in addition to the annual subvention of $1 million to the Bahamas National Trust (BNT), instituted by us in the last Budget period, a further sum of $250,000 for the expressed purpose of covering salary and other costs associated with the engagement of park wardens deployed in BNT managed parks around our country.

Additionally, this Budget makes provision for The Bahamas’ contribution of the first $500,000 toward the establishment of a permanent Bahamas National Protected Area Trust Fund under the auspices of the Caribbean Challenge Initiative. The Fund will be financed by a combination of private and public resources committed by regional governments, international environmental organizations such as The Nature Conservancy and other international funding agencies.

The Caribbean Challenge supports the initiative of parties to the UN Convention on Biological Diversity to conserve, at a minimum, 10 per cent of their terrestrial and marine habitat by 2010 and 2012 respectively.

We have committed to contribute $2 million dollars over the next four years for the establishment of The Bahamas National Protected Area Trust Fund. Similar action is being taken by other regional governments. The creation of Funds region-wide will permit the region to benefit from economies of scale for sustainable finance, assure transparency and strengthen local capacities.
I also advise of the appointment from amongst my Ministers, a Minister to be charged with responsibility for the Environment with effect from 1 July, 2008.

RENEWING GOOD GOVERNANCE
The next strategic issue on which I wish to comment is good governance. Good governance is not an empty concept devoid of meaningful and practical content. On the contrary, Governance places the people as the beneficiaries of Government services, and Government, a representative of the people, is the provider of those services. Governance places great responsibility on the political leadership of the Nation and on the administrators and managers of the State apparatus responsible for implementing policy in ensuring that essential public services are provided to everyone conveniently, promptly, courteously, and at minimum cost to the Bahamian taxpayer.

We came to office on a pledge of renewing trust. In government we seek to inspire trust through adherence to the principles of good governance.

Furthermore, we seek to ensure that good governance embraces everyone in society who has to, or wants to, approach governmental institutions for services to which they are entitled. We seek to ensure that no-one feels alienated or intimidated in seeking governmental services to which they are entitled. Again, a careful balance has to be struck between the goals of providing a range of governmental services which would require heavy taxation, and on providing an appropriate level of services which our society needs and which our economy can support.

In this regard I would refer Honourable Members to my remarks in the 1993/94 Budget Communication where I said:-
Good governance is only achievable if the society and the government are united in their understanding of the economic environment affecting that society; if they share the same goals and ambitions for the well-being of the society and its members, and if they adjust their expectations to the pace which economic and budgetary realities permit. Indeed, achievement of desired goals requires a full commitment by all to pursue the difficult path which must be taken in pursuit of such goals.

As part of our strategy on renewing good governance, I wish to refer to the launch of a Service Improvement Programme in the public sector just last week Friday to remind public officers that an effective Public Service is essential to good governance and to the effective delivery of public services to the general public.

Another strategic issue on which my Government intends to focus is the modernization of our revenue system. Later in this Communication I will deal with this matter in the context of the 2008/09 Budget.

MODERNISING FINANCIAL ADMINISTRATION
A further strategic issue on which I wish to comment is the importance of modernizing our public financial administration. It will be recalled that in the 2007/08 Mid-Year Budget Statement presented to this Honourable House on 25 February, 2008, I set out the position in relation to enhancing the accountability and transparency surrounding the functions and responsibilities of Ministers and the highest officials in the Public Sector.

The institution of the Mid-Year Budget Statement is the first major advance in our system of public financial administration since Independence. It will be borne in mind that the legislation for our present public financial system was enacted in 1973 shortly after Independence. Since that time, the dimensions of Government expenditure have expanded enormously.

The fundamental review involves assessment and evaluation of many aspects of our economic and budgetary arrangements. The purpose of this fundamental review is to place fresh and heightened emphasis and awareness on the cardinal requirements of transparency and accountability in relation to Government expenditures and revenues at all levels of Government, and to modernize these arrangements as necessitated by the growing importance of the Public Sector in the national economy.

Furthermore, the review is intended to maximize the efficiency and the integrity with which public funds are disbursed. The review aims at fixing responsibility more firmly on those senior officials charged with that responsibility, and to separate policy from management.

The Ministry of Finance is preparing a White Paper which will set out proposals for changes in the structure of the public financial management so as to clarify the role and responsibilities of Ministers and senior officials in relation to the care and management of the revenue collection process, and the management and disbursement of public expenditures.

That White Paper will be circulated to Members of Parliament and senior officials for their comments, and it will be posted on the Ministry of Finance web-site for public comment.

WORLD TRADE ORGANISATION AND RELATIONS WITH THE EUROPEAN UNION
A crucial strategic issue on which to comment is the present state of progress in relation to negotiating membership by The Bahamas in the World Trade Organisation.

My comments contain no surprises as it remains my Government’s firmest commitment that final approval on membership as far as the interests of The Bahamas are concerned can only come by means of a consensus of the Bahamian people. Consensus does not have to be arrived at by referendum, I might add.

The Minister of State for Finance, the Trade Commission, and the Ministry of Finance are providing extensive briefing on the issues involved. We want the Bahamian public to be fully informed on the context of the crucial decision which will have to be made shortly. It is my Government’s considered opinion that entering into the WTO is a major step which we should be willing to consider.

The other matter of crucial importance in this context is the proposal for an Economic Partnership Agreement with the European Union. Again, the Minister of State for Finance, the Trade Commission and staff from the Ministry of Finance have tried diligently to provide the Bahamian public with comprehensive briefing. It is an issue on which we, as a democracy, should take an informed decision and not one based on poor and misleading information.

My Government and its agencies will continue to work very hard to fully inform the Bahamian public and their parliamentary representatives before any final decisions are taken.

REVISED GDP DATA
The final strategic issue on which I wish to comment at this stage is the remarkable progress which has been made in producing timely, accurate and comprehensive National Accounts data.

On Wednesday 21 May, 2008, the Department of Statistics held a Press Conference on the latest revisions in the National Accounts Data.

When we entered office in 1992, we were appalled at the lack of current, accurate and comprehensive economic data available. We initiated a major programme to assist the Department to fill this vacuum. The progress made by us and those who have succeeded us has been immense and will continue.

We are now at the juncture that each year for the annual budget, the Department of Statistics provides data for the years up to the preceding year. This is a quantum advance from the situation where we had to wait for the IMF Article IV Mission to produce tentative estimates.

I wish to compliment the Department of Statistics for responding so positively to the pressures exerted by the Ministry of Finance and the Central Bank of The Bahamas for providing reliable economic data on which Government can base sound economic and fiscal judgments. The Department of Statistics will continue to have our support to develop our national statistics.
Other Strategic Issues

The issues which I have singled out thus far are by no means exhaustive of the strategic issues facing the Government and The Bahamas. I have simply singled out the ones stated because they do have a bearing across the spectrum. For example, the law and order issue cuts right across a whole spectrum of government services dealing with security, immigration, education, housing and health. The issue about statistical data is of concern because without proper data government decisions can be no more than guesses.

THE GLOBAL ECONOMY
Moving on to place the revenues and expenditures in the 2008/09 Budget in context, I wish to comment on the global economy and then on the Bahamian economy.

Honourable Members are undoubtedly aware that the global economy experienced severe setbacks in 2007 and 2008, arising from the impact of the sub-prime mortgage crisis in the United States, with spreading implications for global financial markets, and from the surge in energy and food costs.

In this context it is important to appreciate that the emergence of the crisis and the spread of its implications for the global economy was not anticipated. For example, on 13 April, 2007 the G-7 Ministers of Finance, representing the US, Japan, Germany, the UK, France, Italy and Canada, issued a statement to the effect that:

‘.. the global economy is having its strongest sustained expansion in more than 30 years..’
Yet, the most recent G-7 Statement issued on 11 April, 2008, following their meeting in Washington states:-
The global economy continues to face a difficult period. We remain positive about the long-term resilience of our economies, but near-term global economic prospects have weakened. … The turmoil in global financial markets remains challenging and more protracted than anticipated.”

As the US economy is the major source of our tourists and our foreign direct investment inflows, our primary concern is with that economy. At its 29-30 April, 2008 meeting, the Board of the US Federal Reserve System concluded as follows:-

… (The Members of the Board) viewed activity as likely to be particularly weak in the first half of 2008; some rebound was anticipated in the second half of the year. … Beyond 2008, factors projected to buoy economic growth included the continued effects of an accommodative stance of monetary policy in conjunction with a gradual easing of financial market strains, stabilization in housing markets, and a leveling-off of oil and commodity prices… Most participants expected real GDP growth to grow roughly at their present estimates of its trend rate in 2009 and somewhat above trend in 2010.

THE BAHAMIAN ECONOMY
The Bahamian economy continued to grow in 2007, although moderated by restraint in the expansion of domestic credit and by some softening in the construction sector. Preliminary data by the Department of Statistics indicate a growth rate in real terms of 2.8% as compared with 4.6% in 2006. This growth rate of 2.8% was commendably strong in the context of the developing international economic downturn.

The softness in the construction sector was related to the completion of a major tourism investment project; Kerzner. The outlook for construction remains positive as a number of development projects are scheduled to commence and others are expected to gain momentum in the coming months.

Tourism performance improved overall as an increase in the rate of visitor expenditure more than made up for a contraction in visitor arrivals. Total visitors fell by 2.9% to 4.6 million while the hotel sector recorded robust growth of 8.4% in room revenues. The outlook for the tourism sector is moderately positive in the short to medium term resulting from increased emphasis on marketing in Europe and Canada and in some non-traditional markets, helped by the depreciation of the U. S. dollar.
Inflation in 2007 as measured by changes in the Retail Price Index rose to 2.5% from 1.83% in the previous year. Increases were across the board, reflecting the pervasive impact of petroleum price increases and the upward pressure on food prices globally.
Unemployment in 2007 rose moderately to 7.9% from 7.6%, primarily driven by the additions to the labour force of 5850 persons for an increase in the labour force of 3.2% above the level in 2006.

Credit growth, although restrained, amounted to 10.3%; this represented a significant reduction from the 14.3% growth in 2006. Strong foreign direct investment inflows combined with this restraint in credit growth to increase bank liquidity and to provide support for stable monetary conditions during the year. Foreign Direct Investment inflows continued to be robust in 2007 with net inflows of $692.6 million, just $13.2 million off the pace in 2006 and $129.8 million above the 2005 level.

Despite an increase of $121 million in the import bill in 2007, there was an improvement of $138 million in the current account of the Balance of Payments, driven by a strong performance of the services account which posted a surplus of just over $1billion. This surplus is accounted for primarily by a 7.7% increase in net travel receipts as a result of a significant increase in the average visitor expenditure. This Balance of Payments performance has led to a reduction in the decline in international reserves for 2007 to $454.2 million which was $33.4 million better than 2006 and $43.4 million better than 2005.

Trading activity on the domestic capital market reflected contractions in both volume and value of shares traded on the Bahamas International Securities Exchange (BISX). The volume fell by 8.5% to 4.6 million shares and the value declined by 2.4% to $26.4 million. Market capitalization on BISX, however, rose by 24.3% to $3.9 billion.

The challenges from the consequences of the sub-prime market collapse and the sustained price pressures from oil and other commodities pose a continuing risk, nevertheless growth prospects for the Bahamian economy remain cautiously positive going forward as inflows from foreign direct investments are expected to add momentum to economic activity, and the basic economic fundamentals have remained strong.

The Bahamian economy is highly integrated into the global economy. Though it may be able to decouple to some extent from adverse forces in the global economy it cannot totally isolate itself from these forces. Nor would we wish to isolate our economy, even if we could do so, from global forces because it is precisely our integration into the global economy which has been of such benefit to our people.

The prudence with which our economy and public finances were managed over the years especially beginning in 1992 is continuing to enable our economy to ride out the most severe implications of the current uncertainties and difficulties of the global economy.

Earlier this year, in the Mid-Year Budget Statement I stated that we were not yet persuaded to downgrade the growth rate projected for 2008 by the International Monetary Fund Article IV Mission which visited The Bahamas in September, 2007.
Indeed, the IMF web-site entry for The Bahamas continues to give the same growth rates, namely 4% in real terms for 2008 and 3.8% in real terms for 2009.

Our adherence to these projected growth rates was a responsible assessment at the time of the Mid-Year Budget Statement. This is because at that time even the G-7 Ministers of Finance were unclear about the prospects for the global economy. Furthermore, investment inflows into The Bahamas suggested some degree of decoupling between the global economy and the Bahamian economy. Thus, in light of the intensity of the assessment of the IMF Article IV Mission, reducing the projected growth rate for 2008 would have been premature.

However, as the global economic situation has continued to be worrying, it is clear that some reduction in the 2008 growth rate for The Bahamas is warranted.

Accordingly, in the 2008/09 Budget we have assumed a growth rate of 2% in 2008 and of 2.5% in 2009.
The higher growth rate for 2009 is justified in light of the April 2008 Statement by the G-7 Ministers of Finance which stated:
“ …We remain positive about the long-term resilience of our economies…” and the stance of the US Federal Reserve which I mentioned earlier.

It is possible that an IMF Staff Visit will be made to The Bahamas in September or October 2008. While that Visit will not examine the Bahamian economy with the intensity of an Article IV Mission, it will still be a most useful exercise in giving policymakers an expert and independent assessment. Moreover, by the time of the visit the outlook for the full financial year 1 July, 2008 to 30 June 2009 will be greatly clarified.

The Statement arising from that Visit will be presented to Parliament. Therefore, until that assessment is made, my Government’s considered position is to make the adjustments which I have mentioned in the projected growth rate for 2008/09.

FISCAL PERFORMANCE 2007/08
The GFS Deficit is Total Expenditure, Recurrent and Capital, less Debt Redemption, minus Recurrent Revenue and Capital Grants, expressed as a percentage of Gross Domestic Product, GDP. The GDP figures for both 2006/07 and 2007/08 are the revised data recently released by the Department of Statistics.
The projected outturn for 2007/08 is for a GFS Deficit of 1.7% of GDP, a reduction of 0.8% over the GFS Deficit for 2006/07 – the last year in office of the previous administration.
The reduction in the GFS Deficit from 2006/07 to 2007/08 shows that this Government is firmly committed to fiscal prudence in the interests of the welfare of the people of The Bahamas. As Honourable Members are aware, maintaining a prudent fiscal policy is the bedrock on which the soundness of our economy is constructed. Without a prudent fiscal stance, The Bahamas would not be as able to attract productive inward investment and employment and living standards would be endangered.
FISCAL POLICY 2008/09

PUBLIC EXPENDITURE

All Government Ministries, Departments and Agencies are being allocated funding sufficient for them to meet their mandate to the public.

Some 20,000 civil servants provide the multiplicity of services offered by the government to the Bahamian society. The vast majority of these persons are dedicated, hardworking employees labouring under often demanding circumstances and with little fanfare. We have launched a major Service Improvement Programme to enhance the delivery of services offered to the public.
I am pleased to announce that included in the 2008/2009 Budget allocation is the sum of $19.65 million representing $750.00 in negotiated increase in pay for each public officer. This sum also includes an increase of $1,250 for each teacher in the public school system.

Once again education receives the greatest call on the government’s resources. This ought to be no surprise, as we believe that the education of our children is the most critical investment that we can make in the future of our nation.
ÿ The education, youth, sports and culture services receive a total of $ 312 million, or 20% of total Recurrent Expenditure. Of this, the Department of Education will receive $207 million. The College of The Bahamas will receive $27 million. The Bahamas Technical and Vocational Institute will receive $6 million. The Ministry of Youth, Sports and Culture will receive $15 million. The Ministry of Education will receive $48million.

ÿ The Public Hospitals Authority will receive $174 million and the Ministry of Health almost $20 million. Additionally, the Department of Environmental Health Services will receive $36 million and the Public Health Department will receive $29 million and the Social Services Department will receive $35 million.

I have commented on the impact that the continued rise in energy and food prices are having on our people, most particularly on low income families.

We know that the poverty study which was launched when we were last in office placed the poverty line in The Bahamas at about $2,863 or about $238 per month. This has to be compared to the United Nation’s poverty line of some $300 per year or $1 per day.

When we came to office just over a year ago, the allocation for the Department of Social Services was $26.4 million. In the 2007/08 budget, we increased that Department’s budget allocation to $31.8 million, an increase of $5.4 million or 20.5%. Some $3 million of the Department’s Budget was specifically earmarked for poverty alleviation.

I note for purposes of comparison that when we left office in 2002, the Department’s budget was $21.8 million. In essence, the Department enjoyed an increase in its budget allocation between 2002 and 2007, similar to that granted by us in our first year in office.

Now, one year later, we provide a further increase in the Department of Social Services’ budget allocation amounting to some $7 million or 22%. We have acted so as to increase assistance to the poor by almost 45% or $13 million over a two year period.
The increase in budgetary allocation for the Department of Social Services will permit meaningful increases in all areas of relief to the poor, including food, uniform, rental and burial assistance, payments in respect of foster care, the student lunch scheme and the work programme.

I note that the last increase in these benefits to the poor was granted in 2000 during our last term in office.

ROYAL BAHAMAS POLICE FORCE
Maintaining public order is a primary objective of my government. We regard it as a singular determination to reduce crime and the fear of crime in our society. Indeed, all our efforts to bolster economic growth and development in our nation will be undermined if crime is or appears to be out-of-control.

For this reason, my government has sought to ensure that the Royal Bahamas Police Force, which stands on the frontline of our efforts to maintain public order, is adequately funded at all times. We believe that the total combined recurrent and capital allocation in this 2008/2009 budget of some $126.4 million is adequate to meet the spending needs of the police force in its efforts to fight crime.

I note that when we came to office in May of last year, the Police’s recurrent budget was $108.4 million. We immediately increased that amount by $9 million and we are now providing an additional amount of $4.5 million to bring the total recurrent budget for the police up to $121.9 million. I do point out that the amount provided for the police in this fiscal year includes the $2 million in contingency funding they received during the mid-year budget exercise.

THE ROYAL BAHAMAS DEFENCE
In the 2007/2008 budget, the Royal Bahamas Defence Force received some $45.8 million in recurrent allocation and $3.07 million in capital allocation for a total of $48.87 million. When we came to office, we practically doubled the capital allocation of the Royal Bahamas Defence Force from $6.8 million to $12.9 million. We expect the capital needs of the Defence Force to increase significantly in future years as they seek to further enhance their fleet.

Having ordered two aircraft and a number of sea craft this year for the Defence Force, we directed that proposals be sought from international suppliers to supply the Defence Force with its fleet needs up to and including the year 2014.

The current global economic environment and significant competitiveness in the tourism sector require that we both increase resources available to tourism as well as spend our funds strategically. We are providing an additional $9.3 million for the Ministry of Tourism and Aviation in recurrent expenditure.

We believe that this increase combine with strategic spending by the Ministry will go a long way in helping to increase the promotion of tourism over the next twelve months.

ÿ The Ministry of Tourism and Aviation is being allocated $ 91 million.

CAPITAL EXPENDITURE

The overall provision for Capital Expenditure is $250 million. This is an increase of 11% over 2007/08 and signals my Government’s continued commitment to modernizing and expanding the nation’s infrastructure.
We are providing $80 million in Sundry Capital Expenditure. It is from this budget item that we make the payments to Bahamasair, the Broadcasting Corporation, the Water and Sewerage Corporation and a number of other government entities.
I do want to point out that in the 2008/2009 Budget we are providing a higher level of transparency with respect to subvention to government agencies than has ever been done before. In this budget, we allocate $28 million to Bahamasair. We fully expect any shortfall in Bahamasair’s financial needs to be met by its business operations. We don’t expect them to come back.
We are providing $19 million to the Water and Sewerage Corporation. And we are also providing $3 million for the installation of potable water for Green Turtle Cay, Abaco.

And, we are allocating some $11.7 million for the Bahamas Broadcasting Corporation.

Additional sums have been allocated to Ministries and Departments under the Capital Budget including principally:
ÿ The Department of Public Works, $ 87 million;
ÿ Ministry of Education , $31 million.
ÿ The Royal Bahamas Police Force, nearly $5 million; and the Royal Bahamas Defence Force some $3 million.
ÿ Department of Environmental Health Services over $ 6 million

I am pleased to advise that progress on the redevelopment of the Lynden Pindling International Airport is on course. The $400 million dollar project will provide for the construction of a new US Departure Terminal, a new International Departures Terminal and a new Domestic Terminal. The first phase of the construction costing some $86 million will commence during this budget period with the start up of construction of the US Departure Terminal.

Some 25% of the design work for the new terminal will be undertaken by Bahamian architects and engineers.

CITY OF NASSAU REVITALIZATION ACT

My Government attaches a high priority to the revitalization of the City of Nassau.
The city of Nassau is, without doubt, the economic, political, cultural and historic centre of our nation. Its vitality has been the source of great pride and prosperity for our people over the years.

Regrettably today, the City is in serious decline having fallen into an unacceptable state of urban blight. Too many buildings in the centre of the city are in need of upgrade and refurbishment. The city is devoid of cultural dynamism, is short of upscale restaurants and lacks places of entertainment or spaces for leisure. Increasingly the city appears disconnected from the soul of our nation, the people who live here.

It is urgent that we act to rescue and revitalize our capital city. We took a first step in this direction with the recent amendment to the Hotels Encouragement Act which extended concessions in the City of Nassau inter alia for the construction, refurbishment, upgrade, and/or expansion of restaurant and shops.

Today we introduce a landmark piece of legislation – a Bill for the enactment of the “The City of Nassau Revitalization Act”. This is meant to focus capital investment in the city of Nassau over the next five years. When enacted into law, the provisions of the Act will grant exemptions and fiscal incentives to persons making capital investments in the city. Such investments will include the construction of buildings for residential or commercial use; and include also the renovation, repair or upgrade of residential and commercial buildings. Concessions available will include:
• Exemption from customs duty on all materials necessary for the investment imported into the country; purchased or taken out of bond;

• Exemption from real property taxes on all buildings comprising the investment, all additions thereto and land upon which the investment is situated; and
• Exemption from any Excise Taxes that might be levied.

We fully expect that this Bill when enacted will serve as a catalyst for investment in our capital city, restoring the city centre to its former status as a charming and picturesque capital catering to the needs and tastes of individuals of wide ranging interests.

THE FAMILY ISLANDS DEVELOPMENT ACT
The balanced growth and development of The Bahamas requires that all parts of the country receive the focussed attention of the Government. Hence, as we provide incentives to stimulate investment in the City of Nassau we are also providing incentives to stimulate and encourage investment in our least developed islands.

Development on these islands hold the potential to transform the quality of life of Bahamians by helping to redistribute the population away from the concentration on New Providence and providing improved opportunities for the diversification of our economic base.

Toward this end, we are enacting anew, a piece of legislation first enacted during our previous stint in office to promote investment in selected Family Islands. It is our intention to adopt the Family Island Development Encouragement Act and have it enter into effect on July 1, 2008. The Act will provide the following concessions for individuals investing in the named islands:
• Duty free and Excise Tax free import of all construction material to be used for the construction of a new building; or for the rehabilitation, remodeling or extension of a new or existing building; and
• Duty free and Excise Tax free import of any machinery used for the clearing of land for farming or construction carried out in any of the Family Islands specified.
Islands to benefit from this law are:
• Sweetings Cay and Water Cay (Grand Bahama);
• Grand Cay and Moores Island (Abaco);
• Current Island (Eleuthera);
• Andros;
• Cat Island;
• San Salvador;
• Rum Cay;
• Long Island;
• Crooked Island;
• Long Cay;
• Acklins;
• Ragged Island and Cays;
• Mayaguana; and
• Inagua
I am pleased to advise that the Inter-American Development Bank recently approved an increase in funding of $100 million to an existing loan for the completion of an expanded New Providence Road Improvement Programme. We shall introduce the Resolution seeking the authorization of this Honourable House to take up this increased loan facility.
I am pleased to advise that the work on the new Marsh Harbour International Airport is continuing. A new terminal and control tower facility will be constructed during this fiscal period.

As part of my Government’s support for home ownership among middle-income families, we will introduce a Resolution for authority to issue a $75 million Mortgage Corporation Housing Bond, the largest Parliamentary request for a Housing Bond since the establishment of the Bahamas Mortgage Corporation 23 years ago.
It is our intention to develop a number of fully-serviced residential housing subdivisions in New Providence and in selected Family Islands where the demand for housing remains high.

I also advise of plans underway to cause to be constructed a 60,000 square foot plus government office complex in New Providence. The complex will properly and appropriately accommodate a number of Government agencies.

A similarly sized office complex will be constructed in Freeport, Grand Bahama where land has already been identified to accommodate Customs, Immigration, Labour and the Passport Offices.

A third government office complex is to be constructed in Central Abaco to provide suitable office accommodation for government administrative agencies on the island of Abaco.

Work will resume on the magistrates’ court complex on Nassau Street. We will also undertake and complete another interrupted refurbishment project at the former City Market Complex on Market Street. That complex is to accommodate the offices of the Registrar General and Business Licence Unit and Valuation Unit. This is known as “priming the pump.”

And, we will initiate work for the construction of a new Judicial Complex to accommodate the Supreme Court and the Court of Appeal.

This Budget also anticipates the commencement of major works in Nassau Harbour including dredging to permit the harbour to accommodate the largest cruise ships coming on stream this and next year. Works are scheduled to commence before the end of this calendar year.

The dredge material will be used to create a boardwalk extending from Prince George Wharf eastward to Armstrong Street creating opportunities for the development of a promenade bounded by restaurants, specialty stores and entertainment establishments.

It is also expected that the dredging of the harbour will provide sufficient material to facilitate the expansion of Arawak Cay westward, or alternatively the creation of a second artificial island connected to the mainland by a bridge or causeway, to accommodate the relocated commercial port, which will be in the Arawak Cay area.
In a related development, an inland depot will be developed to receive for storage cargo off-loaded at Arawak Cay and moved inland overnight, thereby avoiding congestion now associated with cargo movement during peak traffic hours.

REVENUE MODERNISATION
For 2008/09, my Government will consolidate the fiscal position taking account of the need to re-inflate the economy, to generate greater economic activity and employment, and to ease the cost of living borne by Bahamians.
One year ago, in presenting my Government’s first budget in this term of office, I signaled my Government’s stand on fiscal matters, particularly on taxation. I advised of my Government’s intention, consistent with our Manifesto ‘07 commitment, to simplify the Customs Tariff, and amalgamate Customs Duties and Stamp Tax on imports.

I said then that we were committed to continually rationalizing and simplifying the Customs Tariff. We had commenced the process in 1995 when, it will be recalled, we reduced the number of tariff rates from 129 to 29, concurrently reducing many rates of duty with the result that the average tariff rate in the country fell from 45% to about 35%.

The Ministry of Finance and the Customs Department have completed the study of administrative and other arrangements needed to accomplish the amalgamation of Customs Duties and Stamp Tax on imports in the 2008/09 Budget.
Hence, with effect from 1 July, 2008, we are reforming our Customs tariff.
Firstly, we are amalgamating the Customs Tariff Rates with the corresponding Stamp Duty Rates.
Secondly, we are extracting from the Customs Tariff those items which are treated as ‘excises’ in international practice and placing them in a new Excise Act. These include the luxury items such as perfumes and tobacco and cigarettes, and also high value items such as vehicles and petroleum.
Basically the sum of the present rates of Customs Duty and Stamp Duty will become the new excise rates under the new Excise Act. The purpose of this exercise is to follow international practice and also to remove these taxes from any reduction exercise which might be necessary as a result of admission into the World Trade Organisation.
REVENUE MEASURES

I will shortly outline the key revenue measures that we are implementing in 2008/09 to assist Bahamians in dealing with the rising cost of living. Before I turn to those, I would like to review the projection for recurrent revenue in the coming fiscal year.
Total recurrent revenue in 2008/09 is projected at $1,574 million, fully 7.8% higher than the provisional outturn for 2007/08. This fairly robust revenue performance, in the face of an economy whose rate of growth moderated in 2007 and early 2008, attests, I believe to the success of the efforts that have been deployed to strengthen revenue collections. The reform measures that I outlined earlier should further bolster the buoyancy of our revenue system.
The measures to reform and modernize revenues will result in important changes in our major sources of revenues. The new Excise Tax, for instance, will now account for $234 million of total revenues in 2008/09. Customs duties, from which a number of products were removed and placed in the new Excise Act, will now account for $516 million in revenues, as compared to $591 million in 2007/08.
Stamp taxes on imports having been amalgamated with customs duties and built into the new excise duties will no longer represent a source of revenue.
A further step in reforming the way the Government does business and collects revenue will be exploring to the maximum extent possible, means of consolidating and streamlining its revenue collection operations. This will be one important element in our overall strategy to make it easier for taxpayers to deal with Government and to comply with their tax and fee obligations.
Revenue measures being taken are designed to:
• reduce the cost of living;
• promote the use of energy-saving products;
• reduce the cost of re-financing mortgages or consolidating debt;
• provide added relief in respect of real property taxes; and
• lower the cost of building materials for home construction or renovations.
For example, we will:
• Eliminate import duties on a number of citrus fruits, as well as frozen vegetables.
• Eliminate import duties on cereals, oatmeal, and breads.
• Exempt personal computers, printers and software from the current stamp tax, thereby making them completely duty-free.
• Make duty free the import of energy-saving light bulbs, solar lamps, batteries, converters and wind engines.

• Reduce import duties on a number of building materials, thereby lowering the cost of building a home or renovating an existing one, including plywood, oriented strand board, insulation, wooden hurricane shutters, aluminum and wood doors, wooden windows, and cement board.

• Reduce the import duties on energy-saving home appliances from 35% to 15%.

• Reduce the import duty rates on energy-efficient windows, low-flow shower heads and low-flow toilets to 15%.

• Significantly reduce the import duty on hybrid vehicles, from between 45% and 65% to 25%.
Home-owners will become eligible to benefit from the following additional revenue measures:

• exemption from the payment of Stamp Tax (a) applicants purchasing a lot zoned for residential development upon which he/she proposes to construct a primary dwelling place; (b) applicants purchasing a newly constructed dwelling place; (c) applicants purchasing a dwelling unfit for occupation with the intention of occupying the dwelling upon completion of its renovation or (d) applicants purchasing an existing dwelling to serve as their primary residence.

• exemption from Stamp Tax on the transfer of a mortgage of a dwelling place from one financial institution to another, and exemption from stamp tax where the applicant seeks to consolidate debts by mortgaging a dwelling home up to a value of $500,000.

• First-time homeowners will benefit from an increase in the ceiling for exemption from real property taxes, from $250,000 to $500,000, for the first five years.
We are eliminating the $35,000 ceiling on real property tax for owner-occupied properties and will reduce the rate of tax to _ of 1% down from 1% on properties valued in excess of $5 million.

Some of these revenue measures will admittedly result in revenue losses for the Government but that will be money that will stay in the pockets of consumers and homeowners and thereby provide much-needed relief in the period ahead.
Having reduced the stamp tax on food items from 4% to 2% during our last stint in office we are now moving to eliminate the 2% Stamp Tax on some 160 food items.

We are granting a two-year suspension of Customs Duty of 10% and Stamp Duty of 7% on Bahamas Electricity Corporation’s (BEC) fuel imports as a positive measure to address the rising cost of the utility surcharge, which currently includes the 7% stamp tax. This is expected to enable BEC to function without further increasing the costs of electricity.
I note that immigration work permit fees and bank licensing fees are being increased.

The Government has negotiated new marketing incentive programmes with some major cruise lines serving New Providence and Grand Bahama.

Special emphasis will be placed on enhancing and strengthening the skills of public officers and particularly Customs Officers to meet the challenges of the 21st century. Requisite training will ensure that service to the public is enhanced, trade is facilitated and revenue collections are adequately secured.
We will also streamline the application process for Business Licence, simplifying both the process for application and the means of calculating the business licence fees.

MODERNISING FINANCIAL ADMINISTRATION
Since 1973, management practices have made major advances, and the volume of Government revenues and expenditures have increased enormously. A review of the Financial Audit and Administration Act is now appropriate to determine the full extent of the legal provisions which should govern the accountability and transparency of Government expenditure and revenues.
It is envisaged that a revised Financial Administration and Audit Act will be part of the 2009/10 Budget.

CONCLUDING REMARKS
A prominent US journalist commented after the death of President Kennedy on the contribution which President Kennedy had made as follows:-
John F. Kennedy exemplified the morality of practical citizenship.
Our society would be transformed if each and every Bahamian of every age could follow this example. My Ministers and I are irrevocably committed to this ideal – hence our commitment to renewing and enhancing good governance in all its forms. The 2008/09 Budget and the strategic directions which I have outlined are a major step along this chosen path towards the ‘rising sun’.

4 COMMENTS

  1. How is the budget providing help to the middle to low income citizens when it is the bread basket items that have the major increases in customs duty. Also how are we to get better results in our educational system when duty has gone up on school supplies and many tools for educating oneself. If we were getting a D when they were free, then we must expect to get a F when you put duty on it, you would think.

  2. Writer Suggest Police refuse to Quiz Drug Dealer

    Police refuse to quiz drug dealer in murder

    Dear Editor,

    I notice that there has been emphasis on unsolved murder cases in the media and I think you may be interested in the case of Dion Lafleur, who was murdered in January 2003.

    Lafleur turned up dead in his truck on Blue Hill Road south on Jan. 7, the day he was scheduled to testify against rival drug dealer Gordon “Hog” Newbold. Lafleur was found in his truck with multiple gunshot wounds to the head.

    Newbold had been charged with pulling a gun on Lafleur and threatening to kill him. Newbold, who had recently been released from prison on an attempted murder charge, told his friends that he couldn’t afford to go back to prison.

    At the time, he was making lots of money smuggling drugs for the Pedro Smith/Melvin Maycock Sr. drug trafficking organization.

    Florida officials requested Newbold’s extradition in 2004 for drug trafficking. He was released on $100,000 bail in 2006.

    Newbold has bragged that he paid off the officers who were investigating the murder. He has access to lots of money and has a number of crooked officers on his payroll and this has prevented the Lafleur family from getting justice.

    Police claim that they have been unable to locate Newbold for questioning, yet he signs in at the Elizabeth Estates Police Station three times a week as a condition of his bail. But he is often seen violating traffic laws as he rides his motorbike through Nassau. He is also brazenly selling drugs in Coconut Grove, where he grew up. He has a home in Winton Meadows and Seagull Gardens.

    Concerned citizen

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