In support of the Estimates of Revenue and Expenditure 1999/2000 Presented by The Hon. C. Eugene Cox, J.P., M.P., Minister of Finance To His Honour the Speaker and Members of the Honourable House of Assembly Mr. Speaker, It is with great humility that I stand before you and this Honourable House today to present the Statement in support of the Estimates of Revenue and Expenditure for 1999/2000. As the first Minister of Finance of the newly-elected Progressive Labour Party Government I am very conscious of the responsibilities vested both in the new Government by the people of these Islands on 9th November, 1998, and in me by the Honourable Premier.

The people of Bermuda elected a new Government because they were offered a new future with fresh ideas and vigorous thoughts. They wanted a new Government of principle, which is people based and people focused, and which in the pursuit of economic success does not create wealth only for a relatively small group of individuals but embraces all Bermudians in the advance to the New Millennium.

Mr. Speaker, it is expected that in this Statement I should quote averages and aggregates, means and medians, populations and percentages, and in due course I shall do that. But while delivering broad-brush statements it is too easy to paint over life's cracks and crevices through which the individual falls. In extolling the above average achievements it is too easy to ignore those who exist below the average, who do not reach the above-average household incomes, who do not have enough to pay the average rent and who cannot afford the above-average increases in health care costs. It is the job of this Government to implement economic policies that will present opportunities for all to advance and to benefit from the economic success of Bermuda.

While recognising the value of outside skills, knowledge and capital, we will ensure that Bermudian talent is developed and supported through investment in education and training in order that Bermudian skills and resources are utilised to the maximum. That we are open to work with others to achieve these goals is self-evident.

Mr. Speaker, the Progressive Labour Party knows that while our focus is Bermudians and their welfare, the country cannot be inward looking, we understand the need to maintain an investor-friendly policy environment.

In recent years we have seen the removal of many barriers to international trade, to the movement of people and to international investment.

Globalisation has brought a substantial increase in the value of world business activity, with the output of the world at large growing at an average of 3 percent per annum since 1990, generating additional wealth for already wealthy nations. But the impact of globalisation on the individual has also been negative in those situations where Governments have presided over structural changes in primary industries. Often the results have left those with traditional skills without jobs, or forced to accept other employment for which they were inadequately prepared.

Clearly income growth and equity have not always gone hand in hand.

Bermuda cannot isolate itself from world-wide economic trends and indeed one sector of our economy has shown substantial growth as a result of these trends. Our international business sector has continued to grow in an environment that saw international companies spend $743 million in Bermuda in 1997. The number of companies on the register in that year continued to grow to over 10,440, and employ 2,840 persons directly. Good news that was not enjoyed by Bermuda's traditional industry, tourism, which at a time of worldwide growth has continued to show signs of decline. It is no longer the largest single component of our foreign exchange earnings and has not been for some five years. This has impacted on the jobs of Bermudians who have seen establishments close and employment that they counted on throughout their lives simply fade away. Young people, encouraged to obtain academic qualifications and training have often seen their investment in education wasted through lack of opportunities to gain the necessary experience and climb the ladder of success in their own country.

Bermuda has a valuable part to play in the world economy principally through our international business sector, but we must ensure that when our young people are adequately prepared they have opportunities available to them when they are ready to take their places in that sector. In addition, workers in our traditional industry must be encouraged to feel that their jobs are valued so that they in turn encourage young people to enter tourism and the hospitality industry.

Mr. Speaker, this Budget will address the needs and concerns of those people who expect the Government of their country to put their interests first.

Bermudians are already coming together to address the future, working for the common good, and functioning in a way that enables us all to benefit from their talent and enterprise. This Government, by directing its economic affairs in a positive and prudent manner, will provide the environment to foster such activities which afford the people of Bermuda an opportunity to participate in the decisions that affect their future.

Mr. Speaker, I alluded early in this Statement to the effects of globalisation which have given a significant stimulus to world trade and the creation of wealth, but also significantly increased the divide between the "haves'' and the "have-nots''. Economic development has led to the position where economic growth and equity do not go hand in hand. Government policy must have inclusive outcomes, ensuring that the results of economic growth fit neither extreme. All groups need to be able to benefit from employment and wealth opportunities. This Government will not be complacent when we see willing workers unable to find employment in jobs that match their skills when such jobs are plentiful. Those who are disadvantaged through age, infirmity or lack of job skills need to know that this Government wants to act on their behalf to ensure that they receive society's help. This Government will not only invest in buildings but also in practical education and training to ensure individuals learn new skills and thus equip themselves for new jobs when existing job opportunities change. This Government will also ensure that access to education and training is made available to all Bermudians.

Empowerment is our key development strategy for the future of Bermuda.

Government expenditures will be focused on improving the quality of life for all Bermudians. To ensure a healthy population we will determine adequate standards that are applied to housing structures and to housing availability.

Expenditures on public safety will ensure that neither the elderly, nor our visitors, are afraid to walk our streets because of fear of confrontation.

Investment in health care will support the transfer of some of the benefits of economic growth to the sick. There will also be adequate safety nets in the form of improved social assurance programmes to support cases of genuine need and to provide help to the vulnerable.

To begin to work towards achieving these goals, this Government has committed over $17 million of new expenditures in this Budget.

Mr. Speaker, this Government will ensure that macroeconomic policies are in place to provide a growth environment so that a fair tax policy applied to the population of this country will generate adequate revenues to support its proposals. This will enable the new investment goals in education, housing, health and public safety to be achieved without significant increases in taxation. For over a year this country has enjoyed a rate of inflation hovering around the 2 percent mark. This Government will support policies leading to continued low inflation so that neither wages paid, nor the value of revenues collected, are eroded or contract prices unreasonably inflated.

The country's balance of payments continues to show a healthy surplus and this will be maintained. While expanded Bermudian employment will be the objective in a revitalised tourism industry, outside investment in the industry will also be encouraged. We recognise that globalisation exposes our tourist industry to world economic pressures and that value for money and a co-ordinated approach are essential elements of a successful future.

Without significant increases in taxation there is a need to ensure clearly established priorities in the advancement of Government programmes.

Unproductive programmes will be identified and eliminated where appropriate.

Prudent borrowing will be maintained and Government will ensure that increasing debt does not become a substitute for appropriate revenue raising.

While globalisation provides opportunities for the international business sector, it also requires Government to ensure that the cost of doing business in Bermuda is not unnecessarily increased and in some cases is actually reduced. Business opportunities will be improved as the Government works in partnership with the Bermuda International Business Association and members of the International Companies Division of the Chamber of Commerce. We will create the appropriate legislative environment to promote Bermuda's business services through the continued development of telecommunications and electronic commerce. Government will embark on a comprehensive up-date of existing intellectual property legislation, and prepare new legislation to provide an appropriate framework for the creation of an innovative electronic commerce environment.

The fact that a first-time change in Government was effected smoothly and successfully should come as no surprise to anyone, but it does demonstrate to our international business clients that political stability is a fact of life in Bermuda. Stability does not mean the absence of change, rather that change takes place in a mature way. We look forward to continuing the development of Bermuda's business infrastructure, with much needed support for the Judiciary by ensuring the appointment of adequate law officers and the much-needed improvement of facilities.

Economic initiatives will take various forms as we enter the twenty-first century; a changing dynamic that will put Bermuda's regulatory framework under critical review. Bermuda will have to ensure that domestically it has taken appropriate steps to establish the necessary regulatory environment, while defending its economic position with vigour and diplomacy. The Government will consider entering further international agreements to prove its willingness to be a full participant on the world scene.

Economic Performance in 1998 Mr. Speaker, Bermuda continues to have a low and stable rate of inflation.

Inflation, as measured by the Consumer Price Index (CPI) fell to 2.0 percent over the first three quarters of 1998. During the year lower world oil prices translated into lower fuel prices for transportation and for the generation of electrical power. The health and personal care sector recorded the largest increases in prices. Most other products and services in Bermuda experienced moderate price increases.

The Retail Sales Index, which measures the change in the total value of retail sales to consumers, increased by a monthly average of 7.4 percent during the January to August 1998 period, but this rate of increase slowed in the autumn.

Figures from the 1998 Employment Survey indicate that the rate of job creation in Bermuda is slowing down. The 1998 Employment Survey results show a net increase of 108 jobs, whereas the 1997 Survey reported an increase of 663.

International companies registered the largest increase in employment with a net gain of 209 positions, followed by business services with 103, and the construction industry creating a further 90 jobs. Regrettably, hotel employment fell by 251 jobs and there were 181 jobs lost in restaurants, cafes and bars. Highlighting the need for further efforts to ensure that Bermudians benefit from the growth in the economy is the net decrease of 149 jobs held by Bermudians (while non-Bermudians registered a net increase of 257 positions).

The current account of the balance of payments registered a record surplus of $174 million in 1997 and another current account surplus is expected for 1998.

At the end of the second quarter in 1998, the current account had already recorded a $91 million surplus. This is $14 million higher than the surplus recorded over the first half of 1997. In addition to the rapid growth in foreign exchange earnings of international business, investment income is becoming a significant contributor to the current account surplus.

Mr. Speaker, tourism and international business are Bermuda's primary sources of foreign exchange earnings yet there was a significant difference in the performance of these two sectors. International business experienced rapid growth, while foreign exchange earnings from tourism fell below expectations.

The most recent data available shows that international business continued to expand rapidly in 1997 and despite volatile financial markets, growth is expected to have continued in 1998. New registrations brought the total number of companies on the international register to 10,556 by the end of the third quarter in 1998.