Professor Archer's "Report on International Companies 1997'' shows that international companies spent $743.3 million in Bermuda during 1997, an increase in expenditures of $112 million or 17.7 percent over 1996. During 1997, international companies spent $340.5 million on salaries and benefits, $159.4 million in professional and bank fees, $186.7 million to Bermudian firms for goods and services (such as office rentals, communications and utilities) and paid $56.6 million in taxes and fees.

During 1997, the number of international companies with a "physical presence'' increased by 26 to reach a total of 327. These companies account for approximately 80 percent of international company expenditures even though they make up only 3.3 percent of the total number of companies on the international register. International companies employed 2,667 employees, 1,528 (or 57 percent) of whom were Bermudian. International companies provide 7.6 percent of all of the jobs in Bermuda, and 5.6 percent of all jobs held by Bermudians, a graphic demonstration of the real value added to our community by their presence and activity. Mr. Speaker, regrettably the tourism industry continued to struggle in 1998. Visitor arrivals by air were down 2.9 percent in 1998. Of particular concern, air arrivals from the United States, Bermuda's largest tourist market, were more than 3.5 percent below 1997. This is a continuation of the experience in 1997 which recorded a decline of 2.6 percent in air arrivals from all sources for the full year.

Although the number of tourists arriving by air fell compared to 1997, the number of bednights sold fell only marginally because the visitors' average length of stay increased in 1998. Also offsetting the lower tourist arrivals by air were the number of cruise ship arrivals. There were almost 8,500 more cruise visitors in 1998 than in 1997. The higher number of cruise passengers was not enough to offset the decline in tourist air arrivals and the overall number of visitors fell by 0.4 percent. Total expenditures by visitors increased marginally but by less than the rate of inflation.

The construction industry continues to perform at a high rate of output. The Statistics Department estimated that during the first three quarters of 1998 the value of work put in place by the construction industry amounted to $93.5 million. During this period the pace of construction slowed on public projects compared to the previous year once CedarBridge Academy was completed, but intensified in the private sector on several large commercial projects.

Residential construction also regained strength in the first three quarters of 1998 with 157 units completed, which exceeds the 146 units built in all of 1997. The increase in construction of residential units reverses a trend of declining residential construction that has persisted throughout the 1990s.

In summary, Mr. Speaker, the major macroeconomic indicators describe an economy that is performing very well. Inflation is low, consumer demand is strong and the balance of payments current account has a large surplus.

Overall, despite the weakness in tourism, economic growth is surging ahead. It is the stated programme of this Government to maintain policies that promote macroeconomic stability and that provide the economic prosperity enjoyed by many Bermudians. It is our aim to ensure that all Bermudians participate in the success of our Island economy.

Overview of Revenue and Expenditure for Fiscal 1998-99 Revenue Mr. Speaker, I have drawn a picture of a Bermudian economy that in the aggregate is healthy, but is showing structural weakness in tourism.

In the aggregate therefore we see that Government revenues remain strong, and with continued growth, the revised outlook for the 1998-99 fiscal year indicates that the revenue target of $511.4 million will be exceeded by some $19.9 million, allowing the newly elected PLP Government to put in place those programmes promised in our Throne Speech. Major contributors to the increase are expected to be Payroll Tax, currently $9.0 million above budget and Customs Duty which is $6.9 million above budget. Tax Revenues from sales of land to non-Bermudians are some $2.5 million over budget. Hotel Occupancy Tax is however projected to show a small deficit, as are the Ferry Service (offset by an increase in Registration of Shipping fees) and the Post Office. On the basis of these revenue projections the revenue estimate for the current financial year 1998-99 has been increased to $531.3 million.

Expenditure During the past fiscal year there were significant items of unbudgeted expenditure that were incurred by the previous Government, caused in part by the reorganisation of Government Ministries and Departments, requiring a technical reallocation of funding of some $5 million. In addition, new projects instituted by the previous Government caused the need for additional expenditure of $4.9 million. This resulted in the requirement to seek the sanction of the Legislature for several items of supplementary expenditure, in accordance with the advice of the Auditor, which states that authorisation is to be sought from the Legislature for supplementary appropriations prior to the incurring of unbudgeted expenditures.

This is also in accord with this Government's pre-election platform which indicated that public funds will only be disbursed when properly authorised and accounted for in accordance with the appropriate Parliamentary processes.

The watchwords of the PLP Government are accountability, transparency and fairness.

Mr. Speaker, as Honorable Members will be aware, the supplementary expenditures incurred on current account and supported by the Legislature in 1998-1999 totalled $10.1 million. The principal items of unbudgeted expenditure included a sum of $1.1 million to fund the cost of additional teachers and assistants at various middle schools as well as at Berkeley and CedarBridge. An additional $300,000 was also added to support increased awards from the Criminal Injuries Compensation Board as well as a further $560,000 grant to the LCCA needed as a result of greater than anticipated demands to assist with overseas medical bills of Bermudians.

Further, as a result of revisions to the Housing Allowance Programme formula, an additional $280,000 was needed. Also, with the unanticipated introduction of the $50 per week Child Day Care Subsidy to assist low income families, an additional provision of $620,000 was estimated at the inception of the scheme to fund this programme. Savings on current account were achieved in some programmes, notably $1.6 million on debt charges as a result of higher than expected revenues as well as somewhat lower than originally estimated capital spending. Also, as a result of an aggressive tendering process as well as a softening of worldwide premium rates, Government's property insurance renewal produced savings of $1.1 million.

While the previous Government's original forecast of current account expenditure for 1998-1999 was $475.1 million, taking into account the supplementary appropriations, actual expenditures are anticipated to be $477.2 million, a net increase of $2.1 million, or 0.4 percent.

There was also unbudgeted capital expenditure which totalled $1 million for the year, principally related to the unanticipated additional cost associated with the renovation of Somerset Bridge.

Capital Borrowing Honourable Members will be aware that it is this Government's objective to achieve a positive revenue balance annually that is to be used to contribute to capital expenditure before any borrowing takes place. For 1998-1999, the revenue balance on current account is estimated to be $67.1 million. When combined with cash in hand at the beginning of the financial year, $75.0 million was available to support capital expenditures. Despite this, only $62.0 million was actually available for spending on capital projects as some $12.9 million was required to be paid to finance previous government borrowings, in the form of interest and the contribution to the Sinking Fund.

However, both capital and current account budgets are expected to be in balance for 1998-1999. This will be the first occasion where this has happened since the 1987-1988 financial year, a span of eleven years.

However, the Government debt outstanding (including $30 million for the Bermuda Housing Corporation) is expected to be $160 million, excluding Sinking Fund balances of approximately $17.0 million. Applying these balances, the effective, net amount of Government debt outstanding according to the Government Loans Act 1978 will be $143 million.

Mr. Speaker, this Government has taken due note of the significant increases in the Government's debt position under the former UBP administration -- notwithstanding the success of this year, and has determined that it will not exceed the legislated debt ceiling of $185 million during the coming year. The Government further intends to adhere to the prudent policy of not exceeding ten percent of GDP with any necessary future borrowing.

These decisions will benefit the country in that any new capital projects will be properly reviewed, estimated and costed, rather than pushed ahead to meet politically expedient targets at a possibly higher cost to the community. They will also result in less pressure on an already heated construction industry and ease inflationary concerns. The overall result will be to allow this Government to set its own priorities in the capital expenditure programme that it believes to be more akin to the needs of the people, and better position itself to face any uncertainties in the world economy in the coming months.

Estimates of Revenue and Expenditure for 1999-2000 Mr. Speaker, the Government's priorities for sound economic management of this country were set out in its pre-election platform. The process of the compilation of the 1999-2000 Budget had begun under the previous Government and some major commitments in support of programmes had been made. Following this Government's electoral success on 9th November, 1998, the Throne Speech on 20th November, 1998 set out its aims and objectives for the current Parliamentary year. The Budget process has of course been amended as much as possible by a review of items in the former Government's plans, resulting in some expenditure items being deleted and some items being deferred pending further consideration and study. It is nevertheless important for the country to understand that the short time available to Government following the election and prior to the introduction of this Budget has not permitted a full study of existing programmes simultaneously with a complete estimate of the manner in which this Government's plans will impact on Budgetary requirements.

By the year 2000 this will have been done. Nevertheless, this first Budget by the new Government will reflect elements of our platform set out in the Throne Speech, in the time we have had available to introduce them.

HOUSE OF ASSEMBLY HOA