To His Honour the Speaker and Members of the Honourable House of Assembly:

Mr. Speaker,

I am pleased to present to this Honourable House the United Bermuda Party reply to the 2004/2005 Budget Statement.

The Consequences of

PLP Government Failure

We?ve heard that the past comes back to haunt us, and the spectre hovering over the 2004/2005 budget is the continuing failure of the PLP government to deliver what it promised in 1998. In a fantasy world, a new Finance Minister and a new PLP administration could put the past behind them, make a fresh start and move on. But when a government takes responsibility for financial decisions on behalf of the people - as the Progressive Labour Party did in 1998 - the consequences of failure stick. And this budget is essentially a reaction to the consequences of inaction, waste and mismanagement. It?s an acknowledgement of what?s gone wrong under the PLP government for the past five years. It?s haunted by a record of non-performance.

A few weeks ago, the Premier made an extraordinary statement, which the Finance Minister repeated to set the tone for this budget. He said, ?The focus of the government should now be on the social agenda, addressing the negative elements in society to improve the overall quality of life for all Bermudians.?

Mr. Speaker,

If the time for social action is now, what has the PLP government been doing for the past five years? This year?s budget tells the tale.

First of all, this budget is a desperate attempt to reassure the country that the PLP government still has a social conscience after five years in power. But when the Finance Minister went looking for money to pay for social programs, it was hard to find. The well was running dry. She was hamstrung by the consequences of her government?s failure to negotiate successful wage settlements, manage projects effectively and keep the cost of government from spiralling out of control.

Of the $35.4 million in increased expenditure this year, more than two-thirds, or $26 million, will go toward salaries, wages and the increasing costs of running an ever-expanding government, not new social programs. The money simply allows for business as usual. As the Finance Minister tells us, ?The bundle of services that government delivers to the community now has a price tag $26 million higher than it was last year.?

When you combine the remaining one-third, or $9.4 million, with savings from discontinued programs, you find that the government actually had $16. 3 million in ?new? money to allocate. And how did the Finance Minister choose to allocate this ?new? money? About $2.5 million - or only 15 percent - was allocated for new social spending on items like additional police, educational programs, seniors and housing. That?s not even one-half of a percent of government?s budgeted expenditure. In fact, it?s not even 60 percent of government?s travel budget for this year.

No doubt the Finance Minister, as she prepared the budget, came to the same conclusion we did after reading it: You can?t reassure the public that the PLP government has a social agenda with that paltry $2.5 million going toward new social programmes. So the search was on for additional funds. And she found the ?Longbird Bridge money.?

To fund a few more social initiatives - housing for the homeless, the one-off increase in seniors? pensions, a small grant to the NDC - the Finance Minister had to dip into the $11 million the U.S. government paid to cover their obligations for Longbird Bridge. Once this money has been spent, it?s gone, and there is no indication how these programs will be funded in the future.

The $11 million was the estimate to replace Longbird Bridge, and it absolved the U.S. government of their responsibility to maintain the bridge until 2039. This money should rightly have been considered a capital contribution, because all the engineering reports conducted by both governments concluded that the bridge had come to the end of its useful life and should be replaced.

Certainly after Hurricane Fabian, every Bermudian understood that the causeway should be replaced to prevent additional loss of life. While the $11 million couldn?t begin to cover the costs of a new ?hurricane-proof? causeway, it could easily have been a down payment on such a project. It could have represented a good-faith pledge to the people of St. George?s and St. David?s that they would not be without a secure lifeline to the rest of Bermuda ever again. Instead, it will be spent, because of government waste, inaction and mismanagement in other areas.

Mr. Speaker,

The Finance Minister wouldn?t have needed to dip into the ?bridge money? if the PLP government had not presided over the loss of over $400 million in visitor spending since 1998. If the Berkeley project had been managed properly, it wouldn?t be more than $30 million over budget. If there hadn?t been a scandal that rocked the Bermuda Housing Corporation and if funds hadn?t gone missing, there would still be money to pay for housing our people. If the Finance Minister hadn?t had to deal with the consequences of inaction, waste and mismanagement by raising taxes and dipping into special funds - just to carry on business as usual - then real solutions to social programmes could be found and taxpayers could keep more of their money.

In fact, in the past few years, the PLP government was flush with money to spend on social programmes. Consider the payroll tax. The PLP government has consistently underestimated revenue from payroll tax and has collected $78 million more than expected. With proper estimating, that money should have stayed with the taxpayer and gone toward savings, mortgages or college education. But since the PLP government collected it, why didn?t they spend it on something that produced results? Instead, the $78 million has gone into oversized cars for Ministers, excessive travel and the belly of the beast of government bureaucracy, never to be seen again.

This budget raises serious issues of trust and credibility. The first budget prepared by the PLP government was called ?people based and people focused?; we were told that ?expenditures will be focused on improving the quality of life for all Bermudians.? The second budget stated, ?We will put our people first.? The third budget indicated that ?the social focus of the PLP government is demonstrably shown by the increased resources channelled into human service areas.? The next budget noted ?the release of additional resources to the critical areas of education, training and development, healthcare, social assistance, housing and law enforcement.? And last year, the Finance Minister said, ?Government has included funding to continue our vital reform and development work in all areas, but most particularly in education, training, healthcare, senior care, housing and public safety.? So they?ve been talking about increased social spending every year since 1998 - it?s nothing new. The reason they?re talking about a ?new? social agenda in 2004 is because they?ve failed to deliver on their previous promises.

If two PLP governments couldn?t get it right over the last five years, why should we believe them when they say they can do it now? This budget is not a blueprint for a stable and prosperous future; it?s a reaction to the mistakes of the past and provides no guarantee that those same mistakes won?t be repeated.

The bottom line is that taxpayers will be digging deeper to pay for business as usual, not for real solutions to the housing crisis, seniors in need, drugs and crime, healthcare, economic empowerment or youth development. Taxpayers will be paying for the PLP government?s mistakes over the past five years. And if taxpayers trust the PLP government less and less to spend their money wisely, you can?t blame them.

The Berkeley Project: A Symbol of Gross Mismanagement

Mr. Speaker,

One of the biggest PLP government mistakes is ongoing. Just drive over to Berkeley Road and see it for yourself, a towering symbol of gross waste and mismanagement.

The construction of a senior secondary school to replace the current Berkeley Institute has been embroiled in controversy since the contract was awarded. Serious concerns have been raised about government?s management of the project, on-site progress, cost overruns and allegations of corruption. Criticism, whether it came from the United Bermuda Party or the media or the Auditor General, was summarily dismissed by the PLP government with ridicule, sarcasm and even accusations of racism.

The United Bermuda Party acknowledges that construction on this scale can exceed the original budget; we have faced our own critics regarding a $2 million unbudgeted payment to Sealand to complete the construction of Westgate prison. But the scale of waste and mismanagement at the Berkeley site is something we have never before seen in Bermuda?s history.

It was Premier Alex Scott, then the Works and Engineering Minister, who managed the project from its inception until his portfolio changed after the general election. It was he who responded publicly to suggestions that the new school was behind schedule and over budget. It was he who gave repeated assurances that the public would receive regular updates on progress, but regular updates were not forthcoming.

It light of that fact, we have provided a progress report of our own, based on the Premier?s statements to the press regarding the Berkeley site.

February 2000: The 2000/01 Budget Statement stated: ?We have carefully reviewed the plans for the construction of a new senior secondary facility on the Ridgeway property and the revised TAF [Total Authorised Figure] required for the completion of the school by September 2003 is $71.2 million...?

August 2000: The government advertises for contractors interested in the project.

April 17, 2001: Against the advice of technical officers, Cabinet awards the contract to Pro-Active Management Systems.

June 18, 2001: Work begins.

August 18, 2001: Just two months later, Minister without Portfolio Randy Horton - who is acting for then Minister Scott - said: ?It may appear to some people that nothing is happening or has taken place on the site, but in reality, there has been a lot of progress. ... It is due to finish by September 2003, and that is still the goal.? -The Royal Gazette

January 24, 2002: Asked to provide a timetable for completion, then Minister Scott said: ?It?s Pro-Active?s site, so releasing a schedule is their job.? -The Royal Gazette

May 31, 2002: Then Minister Scott said: ?I can report that aspects of the project are ahead of time. However, I am also required to confirm that some tasks are running behind the planned delivery time by as much as six weeks. ... I undertake to be as forthright as one practically can with a construction scheme of this magnitude.? -The Royal Gazette

July 26, 2002: Then Minister Scott said: ?We are bringing in more resources to the site and, to that end, from what I can understand, we should be more or less on time and on target.? -The Royal Gazette

October 25, 2002: Then Minister Scott said: ?My last estimate was that the project would go about $300,000 above the $68 million. ... It will certainly not go to the $100 million that the Shadow Works and Engineering Minister Erwin Adderley has suggested.? -The Mid-Ocean News

November 30, 2002: Referring to the investigation launched by the Auditor General into management of the Berkeley project, then Minister Scott said: ?He?s an auditor out of control.? -The Royal Gazette

February 14, 2003: Then Minister Scott said: ?Mr. Adderley maintained recently that the project would end up costing $100 million. They don?t know the facts, and they don?t need to know the facts to get a headline. I, as Minister, have been most sober in my pronouncement.? -The Royal Gazette

April 25, 2003: Then Minister Scott said, referring again to Mr. Adderley: ?His estimates are pie in the sky figures. This is just another one of his speculations. Adderley does not need facts, all he needs is a fertile imagination.? -The Royal Gazette

July 4, 2003: Then Minister Scott said: ?This project is on budget. You cannot produce any sources, information or document that says the project, as it?s currently going, is over budget. ... There have been suggestions that it is going to take a year beyond the original date. We are going to talk in terms of months instead of a year.? -The Royal Gazette

July 19, 2003: Then Minister Scott said: ?The school was never really set to be open by this September, anyway, despite members of the public being led to believe so.? -The Royal Gazette

Mr. Speaker,

I don?t want to say this too loudly, in case somebody in Washington hears. But it appears that Bermuda is harbouring a weapon of mass deception.

Now we can add another update, following the embarrassing announcement last week by the new Minister for Works and Engineering that the project would not be completed until at least the spring of 2005. It could be later. He also indicated that the Total Authorised Figure for the project has risen from the original estimate of $71.2 million to $101 million. It could be more. In fact, this year?s budget statement shows a TAF of $102.2 million plus an additional line for fittings, which adds another $1.5 million to the overall cost. That brings the project to $103.7 million and counting. It appears that Mr. Adderley was too conservative in his estimates.

This shameful saga is not over yet. The Auditor General?s report on the $700,000 performance bond at Berkeley is still in the hands of the police. What we know for sure is that the Berkeley project is now nearly two years behind schedule and more than $30 million over budget. The victims of this gross mismanagement are not only Bermuda?s taxpayers, who are paying far more than they needed to for the PLP government?s mistakes, but also the eager students and teachers whose dreams have been put on hold once again.

So much for caring about our youth. So much for having a social agenda. The Premier and the Cabinet have lost all credibility over this issue and have abused the trust of the people of Bermuda.

The Housing Crisis: No Planning, No Progress

Mr. Speaker,

We acknowledge the effort of the PLP government to finally address housing for the homeless. The goal is worthy: For affluent Bermuda to have a homeless problem in the first place is shameful. But the United Bermuda Party understands that the fundamental issues of affordability and availability will not be solved by a generous, one-off injection of ?bridge money.? There are so many pieces to this puzzle that a single initiative is doomed to failure unless it is part of an overall plan for housing.

There?s that word again. Plan. It?s a word that doesn?t seem to exist in the PLP dictionary of good governance. There?s certainly no evidence in this budget that the government has a plan for housing. Not a short-term plan. Not a long-term plan. No plan at all. Just initiatives.

We believe that creating initiatives here and initiatives there will fail unless they are part of a broader and interconnected strategy. That?s been proven beyond doubt by the PLP government?s abysmal record on housing over the last five years.

The PLP government promised better housing for low-income families, and they built homes in Warwick for a grossly inflated $450 per square foot. They promised a vacant-and-derelict-homes project, an adopt-a-home project, increased rental stock, two multi-storey boarding houses for single men and 100 low-cost homes. Most of these programs were announced but not completed. In any case, not a single one has made a dent in the housing crisis.

Now they have promised to displace St. George?s people to build homes that cost $600,000 to $800,000 and to turn the community at Prospect upside down with additional low-cost housing. And the government seems willing to continue to make the Bermuda Housing Corporation responsible for solving Bermuda?s housing problems.

Of course, the highlight of the PLP government?s record on housing was the mother of all Bermudian scandals at the Bermuda Housing Corporation, a national disgrace initially denied by the PLP government as they desperately tried to sweep it under the carpet. The original mission of the BHC was lost in a miasma of golden paintbrushes and missing public funds. Two people have been arrested, but until this interminable investigation is completed, we will not know who else was involved, how deeply they were involved and why the PLP government failed to prevent this disaster. But we do know that the scandal destroyed the credibility of the BHC, stopped housing progress in its tracks and increased the burden on Bermuda?s taxpayers.

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? This is an organisation whose mission desperately needs to be reviewed to ensure that its structure is still appropriate in light of today?s complex housing crisis. Instead, the new Minister for Housing gleefully accepts $1 million of ?bridge money? and a further $4 million BHC loan, says he?s in love with the Finance Minister and admits he has ideas - but not a plan yet - for how to spend the money. No one should be confident that the additional money will be spent wisely or produce results.

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? It?s also worth pointing out that no Minister for Housing has laid the financial statement of the Bermuda Housing Corporation before this House since 2001, despite a statutory duty to do so. The Minister for Housing is, therefore, breaking the law.

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? The last time the United Bermuda Party criticised the government for not having a housing plan, the new Minister for Housing - the fourth Minister in five years, we hasten to add - actually challenged us to provide a plan of our own. Well, he asked for it. Now he?ll get it.

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? Mr. Speaker,

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? Here is the United Bermuda Party plan for housing, which we outlined in last year?s budget reply and detailed in our election platform.

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? The United Bermuda Party understands that the growing crisis of affordability and availability in housing affects everyone in our community. And there is no single answer to this complex problem. That?s why our three-step approach to addressing housing focuses on short-term needs and long-term solutions.

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? How to Deliver Emergency Housing

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? To meet the immediate need for emergency housing, we will build 100 homes for affordable rental within two years. We will clean up and restructure the Bermuda Housing Corporation to ensure that it meets the needs of those it is intended to serve, especially single mothers with children and single men.

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? How to Build Affordable Housing

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? The United Bermuda Party wants Bermudians to feel that it?s still possible to own a home. We will work to provide new, affordable options to young people and families, particularly those trying to save for their first home. We will:

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? Encourage private construction of affordable housing in special development zones through tax and other incentives.

? Liberalise building height restrictions for special housing initiatives.

? Set aside 25 acres of former baselands at Tudor Hill, Southampton, for affordable residential development.

? Examine all government property from St. George?s to Somerset to identify further land resources available for affordable housing.

? Work with financial institutions and developers to create a financing package that supports low-interest-rate mortgages and rent-to-buy schemes.

? Explore the use of new modular construction technology to lower costs of new housing.

? Encourage home ownership and help people save more of their money by significantly reducing the death tax on a primary residence.

? Make affordable housing a priority in the forthcoming Bermuda Development Plan.

Continue the program to renovate derelict housing. Over 250 units were identified in 1998.

How to End the Housing Crisis

Until we address the fundamental causes of Bermuda?s housing problems, we will continue to see housing shortages and housing that?s too expensive for average Bermudians. It?s time for us to take a serious look at the overall causes of our housing problems, set out a range of possible solutions and work with the people of Bermuda to make the right choices for our future.

We will develop a National Housing Strategy, in consultation with experts in housing, planning, environment and finance, which will provide innovative, long-term approaches to the problems of affordability and availability.

The strategy will include a long-term plan for providing adequate and affordable housing options for an increasing elderly population as well as first-time buyers. The strategy will be co-ordinated with a sustainability study on international business, in order to determine the impact of this sector on Bermuda?s quality of life and housing choices.

In addition, the United Bermuda Party proposed a First Homes Plan during the general election that brought the ownership cost of a two-bedroom first home to less than $2,000 per month. We worked with local architects and builders who agreed they could build these homes for less than $250 per square foot. We worked with local financial institutions to put together a government-backed finance package with mortgage providers that would deliver 4 percent or lower interest rates to qualified, first-time homebuyers. As a government, the United Bermuda Party would have streamlined the planning process to bring these homes on line quickly and adjusted duties on building materials for approved First Homes projects.

Mr. Speaker,

Although these proposals were presented in 2003, we haven?t stopped thinking about how to house the people of Bermuda. Given the timing of the Bank of Bermuda sale, we believe our First Homes Plan could be partially funded by a special government-guaranteed housing bond, denominated in either U.S. or Bermuda dollars. This bond would give former Bank of Bermuda shareholders, who will receive cash for their shares, an attractive investment that would channel their proceeds to savings instead of consumption. Properly presented and managed, such a bond would allow former bank shareholders and, indeed, the broader community to invest in a solution to Bermuda?s housing problems.

The people of Bermuda know the PLP government is out of excuses for lack of progress on housing. Their credibility in the area of housing is practically nonexistent. If they can?t produce an integrated housing plan that produces clear and measurable results, outsource it to the United Bermuda Party.

Seniors: Money Helps, but It?s Not the Real Solution

Mr. Speaker,

In their first five years in office, the PLP government ignored the big issues facing our seniors every day, including adequate housing, pensions and healthcare. But there?s nothing like a close general election to light a spark. In this budget, seniors finally get some attention. But without an overall plan to address the plight of the elderly on a structural basis, the PLP government will once again be spending money to address symptoms without addressing the cause.

No one can argue with the long-overdue 9 percent increase in pension benefits, but even at that level, the maximum benefit of $1,000 per month is not sufficient to live on in Bermuda today. But the Finance Minister provides no indication that any thought has been given to the structural issue of adequate pensions and how to finance them. Unless that happens, employers and workers should be prepared for substantial increases in social-insurance deductions every year.

Last year?s 3-percent pension increase, which finally arrived four months late in December, was funded by drawing down reserves from the Contributory Pension Fund. This coming August, employers and workers will see a 4.25 percent increase in social-insurance deductions to support the continuation of that 2003 pension increase.

Although the Finance Minister is dipping into ?bridge money? to pay for this year?s 9-percent increase, she has not indicated how this will be funded in the following year. The likelihood is that workers and employers will face another 10 to 13 percent increase in 2005 on top of the 4.25 percent increase this year.

We also note that the $2 million of ?bridge money? allocated for pensions actually covers only one-third of the 9-percent pension increase. So how is the remainder being funded? Is the Finance Minister drawing down an additional $4 million directly from Contributory Pension Fund reserves? If so, this is a dangerous practice that puts the assets of the Contributory Pension Fund at risk.

After five years, the PLP government has failed to articulate a pension policy. Nor have they addressed how the social-insurance pension scheme should be structured to work in conjunction with the National Pension Plan. Current retirees and those about to retire will not benefit from the National Pension Plan as much as those who remain in the workforce longer. A United Bermuda Party government would commission a thorough actuarial analysis to determine how the social-insurance scheme and the National Pension Plan might work in parallel over the next decade to improve the benefits of current retirees and strengthen the plans of future retirees.

The PLP government has also failed to insure that employers? pension plans under the National Pension Plan have been approved as required by law, thus potentially jeopardising the future pensions of Bermudians through lack of proper oversight.

None of this suggests that the PLP government is practising prudent fiscal policy in managing seniors? pensions. Once again, money is being thrown at a problem without a plan and as a consequence of previous years of PLP government neglect.

The residents of St. George?s will be pleased that finally, after five years of promises, a new senior-housing facility will be built. But this budget does not show any evidence of a long-term strategic plan to plug the gaps in seniors? healthcare coverage, pursue insurance reform, provide safe, affordable housing, develop adequate assisted-living facilities to meet the future housing and medical needs of the baby-boomers or improve human rights for seniors.

If the PLP government continues to ignore these issues and push care of seniors back to families, Bermuda will suffer the consequences. The population is ageing. We can?t turn back that demographic clock. Without action and reform, even 10- to 13-percent social-insurance increases will look insignificant compared to what we will face in the near future.

Declining Economic Fundamentals, No Economic Plan

Mr. Speaker,

Ever since the Progressive Labour Party first formed government in 1998, we have been waiting to hear about their economic plan for Bermuda. Considering what the PLP supported in its early days, including income tax, it was no wonder that the people of Bermuda were eager to see just what economic principles would guide the PLP?s management of the economy in their ?new Bermuda.?

We got a partial answer early on: The first few PLP budgets were prime examples of tax-and-spend philosophy. In between whopping payroll- and land-tax hikes and dramatically increased government spending, we heard some muttering about prudence and sound fiscal management and micro- and macroeconomics. But not once in five years did the PLP government share with their fellow Bermudians a clear economic plan for our future.

It?s possible they didn?t have one. It?s also possible they just didn?t want to say. In any case, we were left in the dark about their economic principles, as we were about so many other things the government was up to. They never released the tax review, so we don?t know anything about this government?s philosophy toward taxation. They never shared the annex to the OECD letter of commitment, so we don?t know what this government committed Bermuda to. They have continued to reduce the availability of economic statistics we once took for granted, so what are they trying to hide?

Finally, in the last few months, we have learned something interesting. Now, mind you, this information didn?t come from the Finance Ministry in a press release intended to enlighten the public. On the contrary, it came by accident, overheard in a speech delivered for another purpose.

We learned from the Finance Minister?s overseas economic consultant, Dr. Brimmer, that the Progressive Labour Party government has been ?striving to lay the economic and financial foundations for an independent Bermuda.?

Mr. Speaker,

In the United Bermuda Party, we knew this ?economic preparation for independence? was really more political rhetoric than economic vision, because Bermuda - steered for three decades by the United Bermuda Party - had long enjoyed a stable economy and remarkable prosperity. But it did make us wonder what economic foundations the PLP government had in mind.

Surely, we thought, our economic fundamentals would have to be sound. The key ingredients for a healthy and stable Bermudian economy in a global, free-market system would have to include such things as high employment levels and job creation; low inflation; satisfactory balance of payments; government efficiency; low and stable levels of taxation; moderate levels of government spending in line with inflation; and a diversified economy to provide broad opportunities for all Bermudians.

Then we took a look at how these fundamentals have fared under the PLP government.

Employment statistics over the past five years will give little comfort to Bermudians. In 2003, the total number of filled jobs in Bermuda was 37,634, or 215 fewer jobs than in 1999. Between 1999 and 2002, nearly 1,000 Bermudian jobs were lost. The jobs that were created - again almost a thousand - went to non-Bermudians. And the total number of jobs in the hotel industry was almost cut in half.

Paycheques are beginning to shrink as inflation slowly creeps up. Since last year?s budget, monthly increases have all exceeded 3 percent, reaching as high as 3.8 percent in September 2003. In contrast, both the Canadian and U.S. rates of inflation have been consistently under 2 percent.

The United Bermuda Party left the Smith government a balance of payments surplus on current account of $223 million in 1998. By the end of 2002, that surplus had shrunk to only $67 million, less than one-third of the original amount. This decline shows no sign of stopping. In the second quarter of 2003, the balance of payments surplus dropped by a further $12 million. This is not scintillating stuff; no one gets excited talking about balance of payments. But everyone can see it?s going in the wrong direction. When Bermuda?s balance-of-payments account turns negative, it will touch Bermudians in a most unpleasant way: It will certainly raise the spectre of exchange controls.

The promise of a scissors-man to cut out government waste and inefficiency helped get the PLP elected in 1998. It was another promise not kept. With this budget, the size of the government, as measured by wages, salaries and associated overheads for the civil service, has increased by over $80 million, or 31 percent, since 1998. Government is now projected to employ 5,121people, or one out of every seven workers in Bermuda.

Bermudians have felt the full brunt of PLP government tax increases in the past five years, as the annual tax burden is currently $120 million more than it was in 1998. And now, after two election-year budgets, the screws have tightened again. The Finance Minister says the increases will fund social programs to heal the community and promote a Bermuda for all. The United Bermuda Party begs to differ. Most of this year?s increases will allow the Finance Ministry to pay for the excessive, arbitrated wage settlements that this labour government failed to negotiate successfully. The taxpayer will also pay more than $30 million extra for waste and mismanagement at the Berkeley project. And taxpayers will pay an additional $700,000 toward full-time ministerial salaries, thereby fattening the paycheques of the very people responsible for the mismanagement in the first place.

The PLP government has spent over $3 billion since 1998, and what do they have to show for it besides business as usual and a few fast ferries? Is housing more affordable and available? Are seniors more financially secure? Is healthcare more accessible and affordable? Do we feel safer? Are drug rehab programs working yet? Are tourists coming to Bermuda again? Has the Berkeley project been completed on time and on budget? And now taxpayers are being asked to dig deep into their pockets again to compensate for the waste and mismanagement of the first five years.

In addition, the $775 million in capital and operational spending proposed in this budget is clearly inflationary, as the rate of increase of 6.4 percent is double the current rate of inflation. It appears that excessive government spending is a hard habit to break.

In 1998, Bermudians were still calling tourism a twin pillar of our economy, and with good reason. Tourism and international business were both major contributors at that time. By 2003, however, even the PLP Tourism Minister had admitted that tourism was indeed in crisis. Two successive PLP governments have failed to stop the haemorrhaging that has occurred in tourism since 1999. Money spent by tourists has dropped by over $100 million annually from 1998 levels, and international business is now the primary engine of Bermuda?s economy.

But international companies are not coming to Bermuda like they used to. In spite of the addition of a few highly capitalised reinsurance companies in the aftermath of 9/11, the total number of new exempt-company registrations has declined every year for the last three years and is now 50 percent below what it was in 2000. And this year?s tax and fee increases will make Bermuda even less competitive by raising the cost of doing business here.

Mr. Speaker,

If the goal of economic management under the PLP government was economic preparation for independence, they have failed: Every one of these economic fundamentals is worse than it was in 1998 when they formed government.

But some people will say it?s not as bad as we make it out to be. And if you?re not a single mother with a child living in a car, if you?re not a young couple looking for a one-bedroom apartment for less than $1,800 a month, if you?re not driving a 15-year-old car, if you?re not running a small business dependent on tourists, if you?re not 84 years old and trying to find $48 to pay for your heart medicine and if you haven?t been made redundant by the bank, then maybe Bermuda?s economy seems pretty good.

And there?s no doubt that there?s still money around. But before the PLP government congratulates itself too much for prudent fiscal management, we must point out that two, unanticipated catastrophes provided perverse windfalls for the Finance Ministry and kept Bermuda?s economy growing. The influx of business that came to Bermuda after 9/11 from new reinsurers provided a welcome and unexpected boost to government coffers. In the aftermath of Hurricane Fabian, customs duties increased from materials brought in for repairs, and insurance money paid out is circulating in our economy as the island rebuilds.

But we can?t count on disasters to save our bacon. Our economic fundamentals have deteriorated - the Finance Minister prefers the ambiguous term ?relatively stable? - and the United Bermuda Party doesn?t see a legitimate plan on the horizon to turn this situation around.

Mr. Speaker,

Of course, the Finance Minister will tell us not to worry; she says the PLP government has plans to diversify the economy by expanding the financial-services sector. Now diversification is something the United Bermuda Party understands. We talked about it in the budget reply last year and the year before that and the year before that. In fact, the strategy of diversifying Bermuda?s financial-services sector is not new at all; it goes back to former United Bermuda Party governments that opened up Bermuda to international trust business and fund administration. And during the recent general election, we explained in great detail how the United Bermuda Party planned to diversify the economy in ways that would provide new opportunities for all Bermudians, not just those suited for international business.

But we do worry, because the consequences of continued government inaction, waste and mismanagement will not affect government ministers; after all, they?re the ones anticipating bigger paycheques this year. The real cost of failure will be paid by average Bermudians.

International Business and Financial Services: Losing Competitiveness

Mr. Speaker,

The PLP government has flip-flopped like a fish out of water in its position regarding foreign ownership of Bermudian businesses. Shortly before they formed government in 1998, of course, the then PLP Opposition voted against giving the Bank of Bermuda an exception to the 60/40 rule. Before last year?s general election, we were told that Cabinet was opposed to the sale of the Bank of Bermuda. Just three months ago the Finance Minister -then Attorney General - said that further dialogue was needed before the financial-services sector could expand. Yet the same day shareholders approved the sale of the Bank of Bermuda to foreign owners, the new Finance Minister actually seemed to claim credit for the transaction, calling it a ?watershed event in our continuing efforts to develop our country as a world-class capital market.?

The PLP government may indeed have a plan for diversifying the financial-services sector, but with all this ambiguity, you?d never know it. Certainly no plan for economic diversification of any kind has ever been shared with the people of Bermuda.

As we mentioned earlier, expanding financial services can hardly be considered a new strategy. But financial services is one thing, and offshore banking is quite another. If the PLP government now intends to encourage the development of offshore banking, the public deserves to be informed and involved in a discussion of the implications. A commitment to offshore banking raises serious questions concerning Bermuda?s economic future.

As an international financial centre, we have successfully differentiated ourselves from other offshore banking centres because of our emphasis on insurance and reinsurance. Onshore politicians and international regulators have aggressively attacked banking centres such as Cayman and Switzerland in recent years and have acted to eliminate tax havens. Will we still be able to differentiate ourselves and maintain our reputation as a well-run financial centre if we add offshore banking?

Bermuda has been attacked in the U.S. as a result of a few corporate inversions. Will a move to offshore banking expose Bermuda to further attacks? How many additional banks will be allowed to set up in Bermuda? What additional requirements will be placed on the BMA to supervise offshore banks? Does government propose to relax the 60/40 rule for all firms in the financial services sector?

For the Finance Minister to say that government has a plan is not good enough, especially on an issue of vital importance to our economic future. Consulting in limited fashion with a Financial Services Development Committee is not good enough either. Discussion on this topic should be broad and thorough.

Mr. Speaker,

The United Bermuda Party is pleased that the PLP government acknowledges the importance of international business to our future. But continuing to champion international business as Bermuda?s chief revenue-generator on the one hand and disparage its impact on our society on the other is ultimately self-defeating.

We are concerned that the PLP government does not recognise that some of the same competitive forces that led to the deterioration of our tourism industry are beginning to undermine the core of our international-business sector. Just as we faced growing competition for tourists from a widening pool of destinations, we face intense competition for international business from other jurisdictions. We lost our focus on what the customer wanted in tourism, and we are in danger of losing sight of what makes Bermuda attractive to international business. High prices drove tourists away from Bermuda; we run the same risk with international companies by increasing their cost of doing business here. When tourism declined, we had international business to fall back on. After five years of PLP government, we have nothing to back up international business.

We support government?s efforts to prepare our young people to actively compete for top jobs in international business. But while government talks about expanding opportunities, its tax and immigration policies are pushing international business to outsource the very jobs that young Bermudians aspire to fill. Hefty increases in payroll tax and social-insurance contributions disproportionately increase the cost of hiring Bermudians in entry- and mid-level jobs and make it attractive to outsource these positions to lower-cost jurisdictions.

The combined impact of increased taxes, slow immigration decisions and term limits make us less competitive than other offshore financial centres that have been forced to improve their reputation and attractiveness over the last five years.

Our declining competitiveness may also account for the downward trend in numbers of new exempt-company registrations since 2000. Registrations for the first three-quarters of 2003 are 11 percent below the same period in 2002 and 50 percent below the first three-quarters of 2000.

There are also external factors at work. We have suffered from the adverse publicity on tax havens and the more recent attacks by U.S. politicians. Bermuda has been targeted as the poster boy for corporate greed and unpatriotic behaviour. In deciding where to locate an offshore company, corporate management must now consider the possible public criticism they will face for choosing Bermuda.

Unfortunately, the PLP government has completely dropped the ball on lobbying and disregarded the need to maintain good relations with lawmakers in Washington. While funds have been allocated for lobbying in this year?s budget, it will be difficult to overcome five years of neglect.

It?s a positive sign that the new Finance Minister is prepared to make the case for Bermuda herself. But with all due respect, trying to appeal to Senator Kerry?s presumed intelligence in the middle of a tight presidential race demonstrates an understanding of Washington politics and lobbying that is at best naive and unproductive. If money is once again to be spent on lobbying, we urge that professional lobbyists be consulted to increase the probability of success.

Properly targeted marketing will enhance our competitiveness, but the additional $80,000 that BIBA and the Insurance Advisory Committee have been given for that purpose is inadequate, especially in view of the importance that the Finance Minister has now attached to international business. In fact, the total amount spent on marketing to international business is not even 10 percent of what this government spends on tourism marketing.

In recent years, the PLP government has subtly shifted the legislative approach to international business by placing more emphasis on regulation than our commercial competitiveness. In an effort to please international and onshore regulators and bolster the image of the Bermuda Monetary Authority, the PLP government has neglected to create a business environment for Bermuda that is uniquely attractive. While regulation is important to maintain our reputation, it must not be heavy-handed and should be balanced by offsetting legislative enhancements.

Given the continuing decline in tourism and a weakening competitive position in international business, there has never been a more urgent need for economic diversification. Depending solely on financial services - or offshore banking - to provide the economic development, jobs and opportunities we need for a secure future is unwise.

This is why the United Bermuda Party continues to support the creation of an Economic Development Authority that would position Bermuda as a compelling centre for business and investment, search for new opportunities in all sectors and ensure that all Bermudians have the opportunity to participate in our future success. We also continue to call for a study to assess the sustainability of growth in international business and its impact on Bermuda?s infrastructure, labour market, housing, education system, environment and culture.

Government Failure in Tourism Increases the Tax Burden

Mr. Speaker,

The Finance Minister is mistaken if she truly believes that Bermuda?s economy is still supported by twin pillars. As we pointed out in last year?s budget reply, the contribution to our economy from tourism and international business was roughly equal in 1995. By 1999, the contribution from international business was a little over one and one-half times that from tourism, and by mid-2003, it was over three times that from tourism.

Since 1998, over $400 million in visitor expenditure have been lost to our economy by the rapid decline in tourism. This has cost the country jobs, economic stability, businesses and millions of dollars in government revenue. It is this lost revenue that the PLP government now finds itself having to make up through higher taxes. Putting aside the extravagant parties, useless trips to Argentina and frivolous marketing programs, the PLP government should be answerable to every single average Bermudian who has felt that loss of tourism revenue in higher taxes and fees and less discretionary income.

And last year was the same old same old. Yet again, total tourism spending for the first three-quarters of 2003 dropped by 7 percent from 2002. Yet again, jobs in the hotel industry fell. In fact, from July 1998 to July 2003, jobs in the hotel industry were cut almost in half, falling from 4,028 to 2,266. Yet again, bed nights and total visitor arrivals were down. Good news was hard to find.

While weekly flights from Chicago and Orlando and slightly increased service from Ft. Lauderdale are welcome opportunities to increase visitor numbers, the United Bermuda Party believes that this does not solve the larger problem of high airfares from cities that service us daily. That?s where the focus and deal making should take place.

There are real opportunities in 2004 to improve the position of tourism. Due to the depreciation of the dollar against European currencies over the last year, Bermuda is now 20 percent cheaper for visitors from Europe. And perhaps more importantly, Europe is 20 percent more expensive for American tourists, which should encourage them to consider Bermuda again. Americans will also be more inclined to travel as the U.S. economy strengthens. Canadian dollars are also at a 10-year high against the U.S. dollar, making Bermuda more attractive to Canadians than it has been for some time.

With proper management, the PLP government should capitalise on these advantages. There should be no more excuses. It also means that those aspects of our tourism product for which government has responsibility - our beaches, parks, roads, airport, public transportation and the Railway Trail - must be in pristine condition to give our visitors an unforgettable experience and a reason to return.

We are concerned, however, about the working environment within the Department of Tourism and how it could affect staff productivity in this critical season. Over 30 allegations of misconduct, disrespect, unprofessional behaviour and financial irregularities have been lodged against the Minister of Tourism by the Bermuda Public Services Union. This situation should be resolved quickly so the Ministry is not hopelessly distracted from carrying out its mission.

The United Bermuda Party is as clear about its position on tourism as it is on international business. We believe that it is possible to recreate tourism in Bermuda by giving it the energy and emphasis it deserves. We believe that the politics must be taken out of tourism and day-to-day management handed to a Tourism Authority. We believe that economic development can and should take place with our tourism industry.

Public Safety: A Single Initiative Is Not Enough

Mr. Speaker,

If the PLP government were really tough on crime, it wouldn?t have to constantly claim that it is.

Nevertheless, we were pleased to see that government has followed the United Bermuda Party?s recommendations to increase police manpower. However, as we have noted repeatedly, one or two well-intentioned initiatives are insufficient to tackle system-wide weaknesses in our approach to criminal justice.

There is a lack of confidence in the overall criminal-justice system. People do not feel safer in their homes; even the U.S. State Department feels compelled to issue a warning to travellers about Bermuda?s crime.

A United Bermuda Party government would prepare a White Paper on the criminal justice system, covering crime prevention and detection, prosecution, incarceration and rehabilitation. Our position was set out in detail in our election platform last summer.

The PLP government could take steps now to restore its badly damaged credibility by levelling with the community on a number of issues. These steps don?t even cost additional money.

Now that the DPP has decided he will not pursue prosecution in the Dill case, at the very least government needs to tell the people of Bermuda what steps it has put in place to avoid a similar tragedy in the future.

Westgate is filled to capacity, and in this volatile environment relations between the commissioner and his staff have not been satisfactorily resolved. Morale is low, and minimal progress has been made in implementing recommendations from the 2001 Board of Inquiry. Government?s inability to tackle this problem is contributing to inefficiency in the entire correctional system.

Mr. Speaker,

On behalf of the people of St. George?s, the United Bermuda Party must ask why there isn?t any budget money specified for refurbishing the St. George?s police station. Is this an oversight? Or is it yet another broken promise?

Healthcare in Bermuda: Suffering from Neglect

The goal of medicine is to treat disease early, before it gets out of control. Like a cancer left untreated, the problems in our healthcare system have been neglected by the PLP government. There have been studies and reports. In fact, the United Bermuda Party government submitted the last healthcare report to be debated in this House. More recent efforts have never seen the light of day. Nothing significant has occurred in the healthcare system other than changes in hospital management since 1998.

According to the Finance Minister, the ?lion?s share,? some $4.1 million, of the increased funds given to the Ministry of Health and Family Services is ?directed toward the hospitals for subsidized care of the elderly, youth and persons without the means to pay for services rendered.? That?s not a new social program. The hospital subsidy has always gone toward youth, the elderly and the indigent. The money in this budget represents nothing more than doing business as usual and reflects the ever-increasing costs and utilization of healthcare.

Without a clear plan and consequent action, the quality, affordability and accessibility of healthcare in Bermuda will continue to deteriorate under the PLP government.

Public Education: Rising Costs, Fewer Students

Mr. Speaker,

During successive budgets of the PLP government, over $450 million has been spent on our public-education system. The cost of public education continues to rise, while students continue to exit the system to attend private and alternative schools.

The Finance Minister mentions a number of new and ongoing initiatives that have been allocated funding in this budget. Unfortunately, there appears to be no real sense of urgency driving the government to deliver significant performance improvements at all our public schools.

The notion of a Performing Arts School may have merit, and we will reserve judgement until more details become available. However, at this point the United Bermuda Party would prefer to see a more fundamental and system-wide approach to the arts so that every child can benefit from exposure. In our election platform, we proposed that music, art, drama and sports be more fully integrated into the curriculum and that the school day be extended if necessary to better accommodate these programs.

The concept of a Financial Services Academy for senior-school students needs more explanation. Exposing students to potential careers in financial services is only part of the solution. The United Bermuda Party believes in fundamentals. Every Bermudian senior school student should receive a thorough grounding in basic subjects, such as math, English and science. It is this kind of training that will prepare our talented students for entry to the best colleges, where real preparation for careers in the financial services industry or other professions takes place.

PLP Government: Unprepared for the Future

Mr. Speaker,

Planning for the future is part of sound economic management. Teenagers plan for their first bike. Young couples develop a plan for home ownership. Parents plan for their children?s college education. And public officials should plan ahead to meet the long-term needs of their country and properly manage problems that can be anticipated.

There are three capital projects that must be addressed in the near future to protect the health and well being of our people. But this budget gives no indication that the PLP government is planning for any of them.

First, we must replace the causeway and make it strong enough to withstand the worst hurricane. We cannot allow further loss of life, we cannot allow the people of St. George?s and St. David?s to be stranded and we cannot allow the airport, our commercial lifeline, to be isolated. No one knows what the cost of such a replacement would be, but it will certainly be in the tens of millions of dollars.

Second, we must eliminate the toxic waste left behind by the U.S. military when it departed Bermuda. Left unattended, this waste could affect public health and will reduce our ability to develop the baselands properties. Cleaning up this dangerous combination of asbestos, petroleum and toxic metals will not be cheap or easy; it could cost more than $60 million, and we cannot look to Britain for financial assistance.

Third, at some point - perhaps not tomorrow but surely in the near term - we may conclude that, given its ageing physical structure, it will cost less to rebuild than to renovate King Edward Memorial Hospital. The Canadian Council that accredits KEMH has expressed concerns about the condition of the physical plant for some time. We are not in danger of losing our accreditation, and the Hospitals Board has apparently answered the council?s most recent questions. Nevertheless, their concerns are serious and suggest that we should be considering the realistic lifespan of this building. How much will a new hospital cost? We don?t know for sure, but if a school costs over $100 million, you know we won?t get off easy.

These three expensive projects are hanging over Bermuda like a collective sword of Damocles. With the number of large capital projects already allocated in this budget, the United Bermuda Party believes we must plan now to prevent massive future debt and serious economic hardship down the line.

Mr. Speaker,

Some Bermudians have responded to this budget with a shrug, saying they feel lucky it wasn?t worse. The United Bermuda Party believes it could have been and should have been so much better!

Mismanagement of the Berkeley project didn?t have to happen. The scandal at the Bermuda Housing Corporation didn?t have to happen. The huge losses in tourism revenue didn?t have to occur. But it did all happen, on the PLP government watch.

With proper oversight and planning, progress could have been made in solving the housing crisis, in helping our seniors, in tackling healthcare reform and in reducing violent crime. But the PLP government didn?t provide proper oversight and planning, and now average Bermudians are paying a high price for PLP government failure.

How sad that people?s expectations of the PLP government are now so low that some feel fortunate not to have been hit harder.

Mr. Speaker,

A budget allocates dollars; it is no guarantee that those dollars will be put to good use. Unless something is actually accomplished, unless ideas are turned to action, a budget is meaningless. This fifth PLP budget is only as good as the government behind it. Talking about sound fiscal policy and a social conscience will not move Bermuda forward economically or socially. Only a government capable of getting results can do that.

The United Bermuda Party believes that the PLP government has learned how to get results for a select few. But they haven?t learned how to make government work for all the people they were elected to serve.

Building a stable, prosperous future for Bermuda demands vision and economic resources, but it?s good government that moves us ahead. The United Bermuda Party stands firm in its belief that we can only achieve real social and economic progress for all when we have good government: a government that acts in the best interests of all; a government that is honest and open; a government that delivers innovative solutions; a government that demonstrates integrity and moral leadership; and a government that actively works to bring Bermudians together to build a brighter future for all.