"The Budget has...been framed in the context of difficult economic circumstances," Sir Geoffrey announced in his speech on the budget, which was passed by parliament last week.

"There is evidence that the economy contracted in the March quarter of this year. There are some signs that the economy was slowing even before the cyclones. Moreover, the five cyclones that hit the country in February-March had a major short-term effect on the economy," he noted.

The minister continued:

"The evidence suggests that the downturn was relatively short-lived, and that activity has already started to pick up again. Tourist numbers recovered quickly following the cyclones and have been boosted by the addition of five extra flights per week from March-April. Taxation receipts since March have also been higher than expected. Nevertheless, economic growth in 2005-06 will be lower than it would have been without the cyclones. The budget is premised on real growth of 2.4% in 2005-06, slightly below the long-term trend growth rate of around 3%.

"Operating revenue for 2005-06 is budgeted at $78.9 million, an increase of 2.4% compared with 2004-05. This relatively modest increase reflects slower economic growth and the fact that significant tax arrears were received in 2004-05. It is not expected that this will be repeated in 2005-06."

"Moreover, company tax and income tax are received with a lag. Hence the expected reduction in company profits and incomes resulting from the slowdown in the March quarter 2005 will not be reflected in lower taxation receipts until 2005-06."

"Government has decided to abolish the departure tax and replace it with Te Pakau Aroa. Te Pakau Aroa will be increased from $25 to $30 for every person 12 years and over leaving this country. This is expected to lead to an increase in revenue of around $457,000. This five dollar increase will be allocated to waste management ($3.50), cultural development ($1) and the Natural Heritage Trust (50 cents)."

"I have also previously announced the partial removal of the 100% depreciation allowance for new assets. This will make the tax system more efficient and fairer, and contribute to increased revenue over time. However, it will have little impact on revenue in 2005-06 apart from reducing the rate of decline in company and income tax receipts."

"The Government will also review import levies. This will be with a view to maintaining or increasing those rates of imports that are hazardous to our health and that will harm our environment, while dropping import levy rates on most goods and products that facilitate growth, add to a healthy life-style and promote a good, clean environment."

"Turning to the expenditure side of the budget, operating expenditure for 2005-06 is budgeted at $75.4 million. This is a modest increase of $1.4 million or 2.0% compared with 2004-05. It provides for an operating surplus of some $3.4 million, up from $3.0 million in 2004-05. These figures highlight the Government’s commitment to fiscal responsibility."

"Government will receive technical assistance from the Asian Development Bank to develop an environmentally sustainable infrastructure development master plan. The plan will cover a twenty-year implementation span, to develop ports, harbours, airports, roads and other critical infrastructure in a phased manner in partnership with donor agencies."

"Additional funding has been provided to the Financial Intelligence Unit. It is critical that we redouble our efforts to ensure the Cook Islands remains permanently off the international financial blacklist."