increases in yesterday's budget battle in Washington.

The Senate Finance Committee, after a mighty tug-of-war over tax increases and tax cuts, approved a plan that would cut the US federal deficit by more than $500 billion over the next five years.

Offshore companies -- a huge number of which are based in Bermuda -- faced the possibility that a Federal Excise Tax increase could have been included in the new tax bill during yesterday's haggling.

A perennial proposal to raise the tax to four percent from one percent did not factor into the committee's efforts to reduce the deficit through a combination of tax hikes and budget cuts.

Premier the Hon. Sir John Swan welcomed the news but cautioned Bermuda was not yet out of the woods.

"We've crossed this hurdle, but it doesn't end there,'' he said. "It's a process that will continue.'' Although the full Senate is expected to pass the new bill next week, it will then be put before a Congressional conference -- a forum that could again see the excise tax option raised.

Premier Swan said such an increase would severely damage any potential for growth in Bermuda's offshore community -- particularly at a time when it seems poised for significant growth.

The proposal to raise the tax has been brought forward seven times in the last seven years. It has been voted down or withdrawn each time but remains a valid revenue-raising option for the US Government.

Bermuda's offshore insurance sector has more than 1,300 registered companies which account for most of the $450 million of foreign currency earned annually by the Island's international businesses.

Yesterday's Senate vote followed party lines with the committee's 11 Democrats outpolling its nine Republicans.

The new measure would raise taxes on motor fuels, retirees, the rich and big corporations.

Republicans assailed the bill as a new round of job-destroying anti-business tax increases designed to fuel more Democratic spending programmes and deliver little real deficit reduction.

"No doubt about it; this is an anti-business administration,'' Republican leader Bob Dole of Kansas told a news conference.

Although most of the bill is devoted to raising taxes and cutting spending, the Senate measure includes some targeted tax incentives for business and investors.