Mr. Speaker, Honourable Members will recall that on November 12th, I gave a Ministerial Statement on the 2021/22 Half-Year Performance. I also committed to report to this Honourable House on the updated 2021/22 Revised Estimates of revenues and expenditure, resulting from a detailed 2021/22 Mid-Year performance assessment. Further, I undertook to provide an update on the continued impact of the COVID-19 pandemic on Government’s revenues and expenditures for fiscal 2021/22.
Mr. Speaker, in accordance with these commitments I rise this morning to provide this Honourable House with the results of the Mid-Year performance assessment and advise on the revised Budget for this fiscal year.
Mr. Speaker, as a result of measures taken to keep Bermuda open for business in 2021, after severe disruptions in 2020 to combat the spread of COVID-19, the Bermuda economy is estimated to have grown by 3.0% to 5.0% in the first three quarters of 2021. The majority of the key economic indicators, such as employment income, imports, visitor spending, construction activity and retail sales increased during this period. Although several of the 2021 key economic indicators experienced positive results, it should be noted that some of these figures such as imports, construction and tourist arrivals and spending are below the 2019 figures. This indicates that the economy is moving in the right direction but has not fully recovered to pre-pandemic levels.
Revised Budget for 2021/22
Mr. Speaker, I will now speak to the results of the 2021/22 Mid-Year review analysis.
Revenue
The original revenue budget estimate for 2021/22 was $998.9 million. The Ministry estimates that revenue yields for 2021/22 will increase by a small amount of $8 million to $1,007 billion.
Mr. Speaker, key factors contributing to the revenue estimates include the following:
- Increase in Customs Duty of $20 million, 7% increase over the original budget. The original budget of $200 million was conservative based upon the unknown impact of further COVID-19 restrictions. However, as these restrictions were relaxed, we have seen increases in economic activity reflected by increase in imports;
- Increase in Stamp Duty of $4 million, due to the increase in land conveyances from the sale of real estate;
- Decrease in Passenger and Transportation Infrastructure Taxes of $5 million, this decrease continues to reflect the slow recovery of the Tourism Industry due to the impact of COVID-19 and
- Payroll Taxes remain on budget.
Expenditures
Current Account
Mr. Speaker, original current account expenditure in 2021/22 was forecast to be $903 million. Current expenditures for fiscal 2021/22, excluding debt service, are now projected to increase by
$56.9 million, which will revise current expenditures to $959.9 million.
Mr. Speaker, the primary reasons for this increase directly relates to the impact of the COVID-19 pandemic.
Based on the submissions by Ministries coupled with the Ministry of Finance forecasts, additional COVID-19 expenditures are estimated at approximately $21.3 million for this fiscal year. These additional COVID-19 expenditures directly relate to the impact of the 3rd & 4th wave of COVID-19 which occurred during the April/May and August/September periods. The related rise in positive cases triggered a requirement for increased testing, contract tracing, lab operations, quarantine mandate and benefits related to the temporary unemployment benefit program. Taking into
account the amounts that were included in the Government’s 2021/22 budget, total projected spend for COVID-19 expenditures is approximately $34.8 million for the fiscal year, of which Unemployment and related Supplemental Benefits are projected to total approximately $12.7 million.
The pandemic has also significantly impacted the operations of the Bermuda Hospitals Board resulting in reduced revenue and increased expenses, and consequently their need for further subsidy support. Honourable Members would recall the statement made by the Honourable Minister of Health earlier this year regarding increases to the Standard Premium Rate to address the shortfall. The increases passed by this Honourable House were not the full amount needed to meet the shortfall of income as the Cabinet decided not to pass all of the costs to employees and businesses to reduce the size of the increase. This additional shortfall of $11 million will be funded from the Consolidated Fund to ensure that our hospital can continue operations.
Mr. Speaker, as indicated in my Ministerial Statement on the 2021/22 Half-Year performance further additional expenditures are anticipated which relate to significant Government guarantee commitments made under the previous administration. These include the Airport Revenue guarantee expenditure of $16 million and the costs for Morgan’s Point/Caroline Bay estimated at
$5.3 million to fund the work of the joint provisional liquidators, buildings maintenance, lawyers, and consultants. Other areas of proposed additional spend include Financial Assistance at $1.25 million.
Mr. Speaker, in my Ministerial Statement on the 2021/22 Half Year Performance, I highlighted that it is imperative that the budget deficit target for fiscal 2021/22 is not exceeded, given the current high level of public debt. As I have noted on a number of occasions, a breach of the deficit target should be seen as a serious issue, as it could have a potentially negative impact on the cost of refinancing government debt in the future and on Bermuda’s credit rating.
Accordingly, current expenditure savings have already been identified by all Ministries in the amount of approximately $13 million to support the increase in expenditures. The majority of these savings is due to vacant positions throughout the Government, which have yet to be recruited. Steps are also being taken to ensure that overtime is further managed and limited to use in essential matters only. In addition, Ministries continue to reexamine and reduce lower priority budget expenditures, to ensure the deficit target is achieved.
Mr. Speaker, having considered the increase in revenue; the unbudgeted expenditures and the already identified expenditure savings, it was recognized that there is also a need to consider the level of proposed Capital Expenditures to ensure that the original deficit target of $124.7 million was achieved.
Capital Expenditures
Mr. Speaker, I will therefore now provide further detail in relation to capital investment. The original capital expenditure component of the 2021/22 Budget was set at $92.9 million.
Capital expenditures, continue to track below the expected level for an annual spend of $92.9 million for fiscal 2021/22. This decrease was mainly due to the continued impact of COVID-19 on the availability of resources required to deliver on capital projects. Therefore, the Ministry of Finance is proposing a $25 million reduction in capital expenditures for this fiscal year. This would revise the estimate for capex down to $67.8 million for 2021/22, an expenditure level, which is in line with actual capital spending in the 2019/20 and 2020/21 fiscal years.
Mr. Speaker, after factoring in both proposed current and capital expenditure savings, increases in revenue and the impact of work being done to further reprioritize spending, we remain confident that the budget deficit target of $124.7 million can be achieved.
It is important that we continue to ensure that fiscal matters are managed in a prudent and considered way, and that we continue the fiscal discipline that is required for the achievement of a balanced budget in as timely a period, as possible. In that regard, it is intended that the Government will continue its work to progress on the implementation of the Government Reform initiatives, including rationalization of all Government Departments, quangos and services.
Mr. Speaker, in closing, we recognize that these are extremely challenging times, not only for Governments but also for individuals and businesses. We remain conscious of the continual need to provide appropriate support for our community, while ensuring that we execute a financial and fiscal strategy that is credible and sustainable. As we continue our work to appropriately manage the financial affairs of this country, our focus remains on taking actions in a way that contributes to a bright future for all.
Thank you, Mr. Speaker.