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 2002/2003 Budget Statement.

Bermuda's people and Bermuda's businesses have real and understandable concerns about their economic security and financial viability. The United States has not yet recovered from a serious recession that has negatively impacted the rest of the world, and highly respected economists and forecasters differ markedly in their predictions for recovery. We all search for answers in the midst of this uncertainty and contradiction. But if Bermuda's people and Bermuda's businesses look to the PLP budget for reassurance and guidance, there is little comfort to be found beyond temporary relief from the hefty tax increases the PLP government imposed in previous years.

Mr. Speaker,

Who wouldn't welcome a break from tax increases? Certainly the individuals and businesses negatively affected by Bermuda's recession will be pleased, and the United Bermuda Party believes that such a break is warranted.

For tax relief to be meaningful, however, it should be offset by meaningful cuts in government spending. But for the PLP government, spending is a habit that's hard to kick. In fact, undisciplined government spending has been the most notable and consistent feature in their three previous budgets. They have spent over $1.5 billion in three years, and a $15 million budget surplus left them by the UBP in 1998 has turned into an $85 million projected deficit in 2002.

In previous budgets, we've seen that attempts at budget cutting are quickly followed by a flurry of supplementary estimates when the Minister of Finance can't make the cuts stick. In 1999/2000, we saw five additional supplementary requests for more than $26 million. In 2000/2001, we are now up to four and still counting.

Total spending in this recession-year budget has not been reduced. It has not even been held at 2001 levels. The PLP government has unwisely chosen to increase total spending in the midst of a recession at the rate of 8 percent-once again, considerably higher than the rate of inflation.

Mr. Speaker,

How does the PLP government propose to pay for the coming spending spree? After three years of relentless increases in land taxes, payroll taxes and fees, the Finance Minister says, "No new taxes." But before we shout, "Hallelujah, it's about time," let's remember that this is the same Finance Minister who said, "This is the real world and someone has to pay." And pay we will.

This year, the PLP government will borrow the money it needs to cover its spending. It intends to borrow $75 million, and the interest and sinking fund payments on the total debt are larger than the budgets of some ministries. So make no mistake: the break from taxes is temporary, and one way or another, sooner or later, the bill will come due.

Mr. Speaker,

Some say this budget has "politics" written all over it. It is designed to please some, offend none and accomplish very little. The promise to provide unemployment insurance is bound to make certain voters happy, but the promise has come before the particulars. It's a pattern we have come to expect from the PLP government: They make the commitment before proper study and consultation. The PLP government has provided a political answer to a social and economic problem.

Unfortunately, a politically inspired budget doesn't move Bermuda's economy forward, nor does it address the fundamental imbalances in our economy that become more obvious with each passing day.

By the Ministry of Finance's own estimates, Bermuda's economy officially entered recession in 2001, and it will deepen in 2002, with negative growth for the coming year projected at 1.5 percent. The unhealthy gap between the contribution of tourism and international business to Bermuda's economy creates a society of haves and have-nots and undermines our long-term economic stability. It must be addressed. A careful and independent look at whether Bermuda's tax structure is fair and appropriate to today's economic conditions is long overdue. A study to assess the impact of international business on Bermuda's infrastructure and the sustainability of growth-begun in 1998 and dropped by the PLP government-should be placed back on the front burner.

The PLP government chooses to dodge these important issues. Perhaps it simplistically believes that the only variables in managing our economy are how much to spend and how much to tax or borrow. In doing so, it not only postpones the pain but also could leave our economy with a substantially weaker foundation when Bermuda finally emerges from recession.

Mr. Speaker,

It is important for the people of Bermuda to know that the PLP government is withholding or delaying the release of economic information that rightfully belongs in the public domain. This information is not confidential, nor does it speak to any vital security concerns. This information addresses issues of legitimate concern to the public and was paid for with tax dollars.

Tourism statistics had been withheld for seven months-since June 2001-until the Minister of Tourism finally updated the public on February 13, 2002; even then, the numbers were incorrect. The Archer report on international companies in Bermuda, normally released every fall, was not released until February 14, 2002, yet it is dated September, 2001. The Minister of Finance has never released the annex to his commitment letter to the OECD, setting out the details of Bermuda's obligations. Nor has the Minister of Finance ever released the independent tax review, thereby breaking a promise he made to the people of Bermuda in the 1999/00 budget statement. Selected portions of the annual Employment Survey are included in the budget's Economic Review, but the full report is no longer made available to the public.

This pattern of withholding public information extends beyond economic data. In our November Reply to the Throne Speech, the United Bermuda Party noted other significant reports that have been withheld from public scrutiny. These include the 1999 Civil Service Review, which recommended major changes in the structure and operation of Bermuda's government; the Review of the Bermuda Regiment 2000; and the report on the potentially dangerous mishandling of asbestos by a PLP MP at Southside.

This insidious obsession with secrecy, lack of consultation and desire to concentrate information and power in the hands of a few confirm the PLP government's disdain for the openness it put at the heart of its election platform in 1998. The PLP government has chosen to push democratic scrutiny aside in favor of aggressively fulfilling their agenda, whatever that may be. However, the United Bermuda Party believes this is an unfortunate and ultimately flawed decision, for it leads to faulty policy-making and a lack of public faith in the operations of government.

Mr. Speaker,

Trust and mutual respect are fundamental to healthy democracies, including Bermuda. They form the glue that binds Bermudians together. In a discussion on leadership and governance at the recent World Economic Forum, USC professor Jim O'Toole said, "Trust is created by the behaviour of leaders toward followers: when leaders treat followers with respect, followers respond with trust. Leaders show their respect by always treating followers as ends in themselves-and never as means to achieve their own ego or power needs.... Leaders demonstrate their respect by telling followers the truth, by never using or manipulating them, and by including them in the making of decisions that affect them.... The fact is that trust must be earned. And it is hard to earn, easy to lose and, once lost, nearly impossible to regain."

Mr. Speaker,

Our world has changed dramatically from a year ago, yet one thing remains virtually the same: there are still more questions than answers regarding the direction of the U.S. economy. Twelve months ago, the U.S. economy was headed downward, but observers couldn't predict how severe the fall would be. After ten years of unprecedented growth and prosperity, would the U.S. experience a full-blown recession or a temporary dip?

We now know that the U.S. experienced a hard landing, and the downturn was more pronounced than many expected. Most observers agree that the U.S. economy went into recession in March 2001. During 2001, the job layoffs that had begun in the second half of 2000 continued along with a steep fall in business investment, which was seen as one of the major factors driving the recession. By the end of September 2001, U.S. industrial output, a measure of total production from U.S. factories and utilities, had declined by some 6 percent over twelve consecutive months, the longest such uninterrupted decline since the Second World War.

To offset these negative economic forces, the U.S. Federal Reserve Bank moved aggressively to cut short-term interest rates to 1.75 percent by the end of 2001, the lowest level since 1961.

Today's questions focus on when a U.S. recovery will occur and if it will be sufficient to pull the global economy back up with it. Certain indicators in the last two months give rise to cautious optimism that the recovery may be underway. According to initial estimates by the U.S. Commerce Department, industrial output grew by 0.2 percent in the last three months of 2001, fuelled by stronger than expected consumer and government spending. According to the Conference Board, there was a sharp rebound in consumer confidence in December after falling for the previous five months. While U.S. job layoffs continued into January 2002, the pace of layoffs declined, and the rate of unemployment fell from 5.8 percent in December to 5.6 percent in January. Recent data also suggest that productivity levels-an important element in a sustained recovery-have not been seriously impacted by either the events of September 11 or the technology sector bust.

Still, the outlook for the U.S. recovery remains cloudy, and there is no consensus among respected forecasters regarding the near-term future. The fact remains that millions of people are out of work, and companies continue to lay off employees. Business spending has not returned to pre-recession levels. The timing and strength of the U.S. recovery will depend once again on U.S. consumer spending and a resumption of investment by U.S. business.

Mr. Speaker,

Closer to home, the overall economic picture is overcast and uncertain.

? According to the Ministry of Finance, Bermuda's economy officially entered recession in 2001, and it will deepen in 2002, with negative growth for the year projected at 1.5 percent.

? The value of new construction projects started in the second and third quarters of 2001 dropped to $11.5 million from $45.6 million in 2000.

? The balance of payments surplus on current account plunged by $58 million, or roughly 32 percent, over the first three quarters of 2001 compared with the same period in 2000.

? Total spending by visitors dropped by $57.4 million in the first three quarters of 2001 compared to the same period in 2000.

? Following a profitable year in 2000, Bermuda Hotel Association members showed financial performance figures that declined by more than $25 million in 2001.

? There has been a net decline of 429 filled jobs in 2001 from 2000, according to preliminary results from the Employment Survey. The results also showed a reduction in positions held by Bermudians and spouses of Bermudians by 877 positions while the positions held by other non-Bermudians increased by 458. Interestingly, since the PLP formed the government in 1998, statistics show that the percentage of jobs in the workforce held by non-Bermudians has risen from 19.1 percent to 25.7 percent.

Mr. Speaker,

Just in case anyone missed that last point, let me repeat it another way. Since the PLP came to power in 1998, the proportion of jobs held by non-Bermudians has gone up, to more than one-quarter from less than one fifth of the workforce.

Mr. Speaker,

We are all aware of the popular adage, When the U.S. economy sneezes, Bermuda catches a cold. We cannot assume, however, that if the U.S. economy begins to recover in 2002, Bermuda's economy will follow. The Minister of Finance, however, has bet his budget, the people's money and our future on this strategy, which requires that the U.S. economy recovers strongly by the end of the second quarter and that Bermuda recovers at the same time. If this doesn't happen, the Minister will either take us further into debt or make up the deficit in even higher taxes.

Let's look to history to see how risky the Minister's bet might be. The last U.S. recession, which began in 1989, lasted for nine months. Bermuda, however, was in recession for three years.

At that time, Bermuda's economy was considerably more reliant on tourism, and following the Gulf War, visitor numbers were slow to rise. Considerable growth in international business finally pushed Bermuda out of recession in 1993/94 and fueled the boom years of the mid to late 1990s.

Today, the economic contribution of international business to Bermuda's economy is significantly greater than it was in the early 1990s, and the influx of new reinsurers to Bermuda following the tragic events of September 11th may help the island weather the precipitous decline in visitor arrivals.

However, Bermuda's new reinsurance business should not be seen as an economic panacea, as new exempt company formation has declined significantly since 2000 and fallout from the Enron affair could pose additional challenges for what is now the major pillar of Bermuda's economy.

Mr. Speaker,

The PLP government ignored our warning in last year's budget reply that negative U.S. economic indicators could lead to a serious downturn in Bermuda's economy. Then, at the end of September, when the downturn was upon us, the Finance Minister urged the community not to panic. He said, "Government's financial position is strong." Just one month later, the Finance Minister announced a revenue shortfall of $25 million and no growth for six to nine months. At the same time, the Financial Secretary said, "There is no risk of increased borrowing." Now the Finance Minister indicates that government will borrow $75 million after all and predicts a continuing recession with negative growth of 1.5 percent in 2002.

Mr. Speaker,

Do the PLP government and the Finance Minister have any credibility left in economic forecasting? More to the point, what plans have they put in place-beyond politically motivated tax relief and unemployment insurance and massive government spending in

the construction sector-to encourage recovery, create jobs, encourage retraining, address imbalances between sectors and diversify the economy?

Here's how the Finance Minister answers that question: "Government has a clear vision of Bermuda's potential for further development. Our task is to mobilise all of our country's human and natural resources in strategic programmes to move Bermuda forward and to put our economy on a sustainable upward curve."

Mr. Speaker,

Do you, does anyone, have any idea what that means? Were you told you were going to be mobilised in a strategic programme? The only strategy the United Bermuda Party sees in this budget is a decision to pacify the electorate, postpone the pain, and pray that the U.S. will go into recovery sooner rather than later and pull Bermuda along with it.

The United Bermuda Party believes that the people of Bermuda deserve a more responsible approach to managing the economy that goes beyond wishing and hoping and waiting to see what happens elsewhere.

? We need tighter control over government spending and a freeze on new hiring. The government is budgeting an increase of 126 new positions for the coming year, which represents a cumulative increase of 340 positions since the 2000/01 budget.

? We need better prioritization and deferral of some of the capital projects budgeted at $109 million.

? We need a back-to-basics strategy in tackling tourism problems, with the private sector and unions playing the major roles.

? We need to work more closely with international business to anticipate and manage threats to the industry.

? We need to get serious about diversifying the economy.

? We need to get better value for our tax dollars spent in social services.

? We need to lower the tax burden on individuals and businesses.

? We need to create a duty free system for tourist-oriented retail operations.

? We need better training and re-training resources for those members of the community most affected by the recession and the decline in the tourism sector.

? We need to address the imbalances in our economy that are creating wider gaps between the haves and have-nots.

? We need the timely release of economic information as well as economic forecasting that businesses and individuals can rely upon.

Mr. Speaker,

Feast-or-famine forecasting has characterized the two previous budgets. Revenue in the 2000/01 financial year exceeded the Minister's original budget forecast by more than $30 million. Why? Because the Minister considerably miscalculated the change in the payroll tax burden on exempted companies, resulting in higher than necessary increases in both land and payroll taxes. The elderly and businesses were hit particularly hard, while government coffers were flush with the unexpected revenue.

Last year, the economic downturn-signs of which were clearly visible during budget preparation-caught the Minister off guard when tax receipts fell off toward the middle of 2001, resulting in a revenue shortfall of $18 million for 2001/02. Not surprisingly, declines in payroll tax, customs duty and tourism-related taxes were responsible.

Mr. Speaker,

Accurate revenue forecasting, coupled with prudent policy responses, can provide reassurance to the community, enable businesses and individuals to plan with confidence and facilitate economic stability. In this regard, we encourage the Minister in future to be neither an optimist nor a pessimist, but a realist.

Mr. Speaker,

Let me turn to capital expenditure in 2001/02. Fortunately for the taxpayer, the PLP government was not able to spend all of the massive $112 million originally allocated for capital projects in 2001/02, and the revised capital spending is now projected to be only $76.9. The lower figure primarily reflects money allocated but not spent on the behind-schedule Berkeley Institute project and the proposed Hamilton Police Station and Magistrate's Court. Even if it were prudent to spend such huge sums on capital projects in one year-which it isn't-we question whether it is possible to do so efficiently given Bermuda's overheated construction sector.

Mr. Speaker,

The budgeted figure of $585.5 million for current account expenditure in 2002/03 represents a 3.3 percent increase over the revised figure from last year. While this represents some improvement over the 7.2 percent increase budgeted for the comparable period last year, it still remains higher than the rate of inflation.

We learned from the budget statement that this more moderate increase is due in part to government's "initiative to reduce non-essential spending" in 2001/02. In this regard, we were pleased to see that the $495,000 24-hour guard at the Cabinet Office has been shelved. Government travel has been cut back by a grand total of $322,000, while some $4.1 million is allocated for what is deemed essential travel. We can only hope that the now familiar pattern of spending reductions followed by supplementary requests will not be repeated in the coming year.

Mr. Speaker,

The capital expenditure estimate for 2002/03 of $109.1 million is anything but moderate and represents an increase of 42 percent over the revised capital spending for 2001/02. Taken together, the current account and capital expenditure for the coming budget year represent an increase of $51 million, or 8 percent, over the revised total from last year.

Even if government can spend more than $100 million on capital projects in one year, we still think this is excessive in the current overheated construction climate. Since there is no indication how long the recession will last, or how much further government revenue will fall, we feel it would be sensible to defer some of the capital spending in case it is needed to create jobs in subsequent years. A Minister of Finance has a responsibility to not only consider the short-term interests of his government but also the long-term best interests of the country.

Mr. Speaker,

While some will see signs of moderation in holding the line on taxes, there is a clear imbalance between the continuing rise in government expenditure and falling revenue figures. Two years ago, in the 2000/01 fiscal year, the government's actual revenue was $623 million. For 2002/03, government is projecting revenue of only $609 million.

To put the contrast more starkly, when one considers the 2002/03 budget and the two budgets preceding it, we see on ominous trend. Government revenue has actually declined by $14 million while total government expenditure has risen by more than $110 million. Let me repeat that cold, hard fact: Government revenue has actually declined by $14 million while total government expenditure has risen by more than $110 million over the last three budgets.

Mr. Speaker,

Common sense suggests that this pattern is unsustainable. It only works now because the Minister of Finance has solved his short-term problem by borrowing $75 million in this budget. We hope the voters understand what has to come in the long-term.

Mr. Speaker,

The Minister of Finance tries to reassure our community that a deficit of $85 million is okay. He tells us that borrowing $75 million in one year is no big deal. He takes great pains to say that government debt will remain under the statutory borrowing limit of $250 million (in actual fact, just $15 million under, not counting the sinking fund). He also tells us that Moody's still thinks we deserve a AA1 rating. You can almost hear him say, "Don't panic."

In spite of these assurances, many in the community are concerned. The United Bermuda Party believes that just because you can borrow up to $250 million doesn't mean you should. If your income is lower than it was three years ago, and if you don't know when your income will improve, then we say it's not a good time to keep spending like there's no tomorrow and run to the bank to take out a whopping big loan.

The Minister of Finance is gambling with Bermuda's economy. He's betting that the U.S. economy will turn around by the end of the second quarter and that Bermuda's economy will automatically follow suit.

Mr. Speaker,

Based on the Minister's economic forecasting record in the last two years, would you take the bet?

Mr. Speaker,

For a country such as Bermuda, isolated in the Atlantic with limited natural resources, economic diplomacy is our most important foreign policy consideration. While we are blessedly free of threats to our homeland security, we do face real and immediate challenges to our economic well being and consequent quality of life.

Over the last five years, the OECD, G7 countries and other supranational bodies have demanded broad changes in the tax structure and transparency of offshore financial centers. After years of hard work, Bermuda purposefully and successfully differentiated itself from other offshore jurisdictions. Specifically, we demonstrated that Bermuda, unlike some offshore tax havens in the Caribbean, is a responsible member of the global financial community. We can maintain Bermuda's hard-won favorable position only through constant vigilance and active targeted economic diplomacy.

Given the importance of international business to our immediate and longer-term economic success, we cannot afford to delegate our responsibility for economic diplomacy to anyone else. We cannot afford to send ambiguous messages to our primary trading partners in the U.S. and Europe about where our interests and associations lie. Nor can we afford to subordinate our economic interests to those of others. We cannot afford to be seen as part of a group whose standards for financial supervision are perceived to be less rigorous than ours. Yet this is precisely the risk the PLP government is taking by their application to join Caricom as an associate member.

Mr. Speaker,

The key elements of the Treaty of Chaguaramas, which defines the structure of Caricom, speak to economic, political and cultural union. The three major Caricom objectives are:

1. Economic cooperation through the Caribbean single market and economy;

2. Coordination of foreign policy among the independent member states; and 3. Common services and cooperation in functional matters, such as health, education, culture, communications and industrial relations.

Clearly, two out of three of these objectives do not benefit Bermuda. Why should we subordinate our country's interests to Caricom's stated interests, which include free movement of people, free movement of capital, a common customs tariff, trade concessions on bananas, monetary union, a Caribbean court of justice, the coordination of tourism policies and the coordination of lobbying on trade and economic interests?

The United Bermuda Party understands where Bermuda's financial services and tourism business comes from. It comes from North America, the U.K. and Europe, not Jamaica and Barbados. Those who can help us and harm us the most are not in Kingston or Georgetown. They are in Washington, London and Brussels, and that's where the PLP government should be focused.

Mr. Speaker,

The PLP government will protest that Bermuda won't have to do anything that Bermuda doesn't want to do. But who will make that decision? Surely not the people of Bermuda. The PLP government is notorious for its lack of consultation, and the people of this country haven't yet been consulted on Caricom.

The PLP government will say we are ignoring our cultural, social and family ties with the Caribbean region. The United Bermuda Party says that we can easily acknowledge and strengthen these ties, which represent the real value in this proposed relationship, without joining an economic association that works against our economic interests and could cost us dearly in contributions.

The PLP government's Caricom initiative is ill conceived. It fails to recognize that diplomacy for Bermuda, now and in the future, is fundamentally economic, and that affiliation with Caricom works against Bermuda's economic interest and future prosperity.

Mr. Speaker,

Can tourism get any worse? For the sake of people without jobs, for the sake of families struggling to make ends meet, for the sake of business owners struggling to stay afloat, we hope not. But the record of the PLP government and the Minister of Tourism gives no cause for optimism. In fact, high expectations have turned into despair. Tourism results for 2001-including air arrivals, hotel occupancy, bed nights, length of stay, total visitor spending and even cruise arrivals-have reached a shockingly new low in Bermuda's modern tourism history.

This is the record of the PLP government and Minister Allen in 2001:

? Total air arrivals through December 2001 plummeted 16 percent to their lowest level in 30 years. This represents the third straight year of decline under the PLP government.

? Air arrivals from the United States, where the bulk of our marketing dollars are spent, are down 17 percent.

? Bed nights in BHA hotels are down 23 percent through December 2001.

? Total visitor expenditure for just the first three quarters of 2001 dropped $57.4 million.

? The Employment Survey recorded a drop of 170 filled jobs in the hotel sector from the previous year.

? Hotel occupancy figures are down significantly, from 61.6 percent in 2000 to 51.9 percent in 2001. And last year, there were some 82,000 fewer hotel room nights to fill.

? Cruise arrivals declined over 14 percent in 2001 to a 6-year low, but this still represents about 40 percent of overall visitor arrivals.

Long before September 11th, the weakness in Bermuda's hospitality sector and the dismal performance of the PLP government in managing tourism was obvious to all, it seems, but the Minister. It was clear to taxi drivers, hotel workers and other hospitality service providers that their industry went into recession in the year 2000, when total visitor expenditure declined by $48 million from 1999. This was a precipitous drop after four years of slow growth.

The 2001 tourism results make it apparent that the PLP government's failure in tourism is one of the principal drivers behind Bermuda's current recession. Not only has the Tourism Minister's failure lowered the take-home pay of thousands of hospitality sector workers, but it has also reduced government's revenue and pushed the Minister of Finance to his risky borrowing strategy.

At current levels, hotel occupancies are not capable of producing a return on investment, and to make matters worse, the hotel rooms available have been contracting steadily over the past few years. The Minister is incapable of filling even the lower numbers of rooms that we do have.

In addition, he has been incapable of closing hotel deals that could bring new excitement and new jobs to this beleaguered industry. What happened to the plans for Morgan's Point? What happened to Club Med? What happened to the Par-la-Ville Hotel?

In what must be seen as an admission of total failure of the Minister's marketing approach, the budget statement cited recent marketing data "which indicate that Bermuda is not included in the decision when a selection of destination is made by households with the financial capacity to enjoy a Bermuda vacation." We are further told that on the basis of this survey the Bermuda Alliance for Tourism recommends increasing Bermuda's profile as a vacation destination in our top five markets of New York, Boston, Washington, Philadelphia and Atlanta.

Mr. Speaker,

What exactly did the Minister of Tourism do with the $110 million-or almost $100,000 a day-that he spent over the last three budgets? The public was told that he was putting Bermuda back on the radar screen and creating a buzz. He must have been creating that buzz in Argentina and South Africa, because the eastern seaboard of the United States has apparently forgotten us.

Clearly the money spent on marketing schemes has been wasted, and we believe the people of Bermuda deserve an explanation. The 5.3 percent reduction in the tourism budget misses the point. If this is the best the PLP government can do spending $100,000 a day, they should admit defeat. The bulk of the tourism budget should be redirected entirely to an independent tourism authority that can get back to basics and start the important process of reinventing and rebuilding tourism right now.

The United Bermuda Party proposes that a tourism authority be set up in legislation as a public/private sector partnership accountable to Parliament through the Minister of Tourism. The authority would be responsible for the marketing, development and management of Bermuda's tourism product. In order to take the politics and bureaucracy out of tourism, the authority would be directed by a board composed of experienced individuals from the private sector, including hoteliers, retailers, service providers and unions.

Funding would come from a reallocation of the tourism department's current budget together with contributions from the private sector. The authority would be responsible for making its own hiring and staffing decisions. It would be responsible and held accountable for developing overseas marketing strategies as well as product development on the island.

We believe the authority should be charged immediately with a number of initiatives that we see as a critical part of any tourism recovery plan. It should:

? Develop a 5-year strategic recovery plan.

? Produce and finance with the private sector a proactive air-service strategy that aggressively goes after airlines to encourage long-term alliances, secure new routes and lower air fares.

? Fund on-island product enhancements or initiatives that facilitate change and competitiveness. Champion retailers, activity-providers and those providing innovative products for our "new" customers.

? Develop comprehensive short- and long-term marketing plans that address Bermuda's tourism communications activities and include extensive use of Internet technology to develop and maintain customer relationships.

? Implement a hotel-development policy with an investor document as a marketing tool.

? Implement a tourism attitude-development plan in conjunction with the Visitor Industry Partnership with enough funding and expertise to ensure success.

? Produce a cruise policy. Limit ships to five, abandon the failed cruise/fly/stay program and redress the imbalance between cruise and air arrivals.

Mr. Speaker,

There is no doubt that international business has been the golden goose for Bermuda's economy, particularly over the last ten years. From 1990 to 2000, total spending by international business in the community on salaries, rents, tax, goods, transport, services and charitable contributions more than tripled, from $318 million to $967 million.

The strong and consistent growth of international business in the 1990s allowed Bermuda under a United Bermuda Party government to weather recession, cover the costs associated with base closures and spend significant amounts on social services.

Dr. Archer's most recent study indicates that in 2000 international business directly and indirectly contributed more than $320 million to government revenues, more than half of all revenue raised and spent by the PLP government in that year.

Spending by international business and the boost from new reinsurance companies formed in the wake of September 11th will again help the community weather the current recession.

Mr. Speaker,

All this points to a vibrant international business sector. But can we continue to count on consistent growth in international business? More specifically, should the PLP government assume that international business will continue to generate over half of government's revenue and contribute to more than 14,000 jobs in Bermuda?

To answer these questions, it is important to remember that the capital behind international business is mobile. International business has come to Bermuda in the first place to take advantage of the favorable balance of low tax, sensible regulation, intellectual capital, quality infrastructure and a reasonable cost of doing business. If the balance shifts unfavorably, then the capital, the business and the jobs locate to a more favorable jurisdiction or simply stay onshore.

Although Bermuda has recently experienced an influx of reinsurance capital, the overall trend for new exempt company formation is not altogether encouraging. Growth in formation peaked in 2000. Since then, when one compares new exempt company formation in the first nine months of 2000 versus the same period in 2001, the rate of formation is down by some 27 percent, or 354 companies.

It is unclear whether this is due to general global business conditions or factors associated with Bermuda's competitiveness. However, in the last year there have been a number of events that have put pressure on the international business community. Although insurance rates have hardened, many of the larger reinsurers have reported significant losses from claims arising from September 11th, Enron and other disasters. In addition, the generally depressed state of worldwide financial markets has negatively impacted investment income and portfolio valuations.

It is the Enron collapse, however, and the ensuing accounting fallout that may yet have the broadest impact on Bermuda and other offshore jurisdictions. Regulators and financial markets have already begun to target companies in which there are potential accounting questions. The immediate effect has been a significant decline in the share price of companies, such as Tyco, Elan and even General Electric and IBM, who are perceived to use aggressive accounting procedures.

All of these companies are publicly listed and regulated by onshore exchanges, so the fact that some of them have Bermuda connections should not be an issue in its own right. But a high-intensity spotlight is now shining directly on the offshore special purpose vehicles used by these companies to structure off-balance-sheet debt.

A New York Times business story, which carried the headline "U.S. Companies File in Bermuda to Slash Tax Bills," appeared on February 18th and provides ample evidence of the negative attention Bermuda and multinationals can expect in the future.

This intense scrutiny will be followed by demands by onshore regulators and legislative bodies for accounting changes. If the special purpose vehicle rules change appreciably, and if the markets take a generally nervous view of those who use them, some of our potential and existing clients, their investors and advisors will think twice about the creation and use of offshore companies. Bermuda will surely be impacted by these decisions.

Mr. Speaker,

To answer our own question, there is no guarantee that our international business will continue to grow at past rates. So what can be done to better support this critical sector of our economy? Here's the UBP plan:

First of all, we must recognize that international business is not all the same. Exempt companies on our register differ significantly by type and their requirements for continued operation. They vary widely in their sensitivity to such issues as the cost of doing business, the difficulty of recruiting staff and their susceptibility to political and regulatory change elsewhere. The recent demise of foreign sales corporations due to a World Trade Organization ruling is a good example of sensitivity to regulatory change and the speed with which an entire class of business can be lost. The extensive negative impact this had on the economy of the U.S. Virgin Islands in particular should serve as a caution to Bermuda. Bermuda's continued attractiveness as an offshore jurisdiction depends on our ability to segment this sector and develop policies that meet differing needs.

Next, we must never lose sight of our competition. Other offshore jurisdictions are being forced to raise their standards and improve their regulatory infrastructure. They will challenge Bermuda directly on the basis of high standards and lower costs.

Finally, the PLP government should stop playing politics with international business. The government is quick to trumpet its successful partnership with international business, yet, in this budget, international business barely rates a mention. Government support for this sector must be consistent, unequivocal and visible.

In 1998, the UBP government initiated a study to assess the impact of international business on Bermuda's infrastructure and the sustainability of growth. In this time of uncertainty, we call again for government to commission-and release-a similar report that would also consider steps to strengthen and diversify this important sector of our economy.

Mr. Speaker,

In spite of a 14 percent increase originally allocated in last year's budget and an additional $5.7 million allocated in this year's budget, we have been waiting three years for a national e-commerce plan. Bermuda has fallen far behind other jurisdictions, such as the Isle of Man, in developing the opportunities provided through information technology. It is obvious that Bermuda's economy must be further diversified, and e-commerce remains one avenue to achieving that goal. Without a plan, it is hard to understand how government and the private sector can work together to develop a vibrant and competitive e-commerce industry in Bermuda.

Even though the percentage of Bermuda households and businesses connected to the Internet is high, the United Bermuda Party hopes an e-commerce plan will also address the "digital divide" between those in our community who are able to take advantage of technology and those who are left behind.

In general terms, the United Bermuda Party supports the e-government initiatives, as they should improve the public's access to information and services. We would simply like them to get on with it.

Mr. Speaker,

We note the PLP government's proposal for unemployment insurance. In what has now become a typical pattern, the government first commits to a program, then proceeds with a cursory consultation and finally does the important research to see whether it will all work.

Obviously, the United Bermuda Party and others in the community have many legitimate questions about the proposal. What is the actual size of the unemployment problem? Will both employers and employees pay for the program? What are the requirements for eligibility? What additional impact will it have on businesses in the hospitality sector that are already under pressure? Will it motivate international companies to move jobs out of Bermuda? Will non-Bermudians be excluded from the scheme as they are currently excluded from the national pension scheme? How big a government department will be required to manage the program? These questions are the tip of the iceberg.

What we do know is that the answers hardly matter, because unemployment insurance appears to be a fait accompli. The United Bermuda Party suggests that the best way to address unemployment is through continuing job creation and retraining. We also know that an ounce of prevention is worth a pound of cure; if government had delivered on its tourism promises, they wouldn't be under such pressure to address the symptoms.

Mr. Speaker,

The PLP government's promise to provide affordable and adequate housing remains unfulfilled. Even the annual report of the Bermuda Housing Corporation, which by law should have been presented to Parliament last September, has not yet been tabled. Meanwhile, the BHC-controlled units being built at Southside continue to be plagued by delays, controversy and reported cost overruns. In addition, the Minister for housing has failed to release the report on the mishandling of asbestos by a PLP MP building those units at Southside.

Mr. Speaker,

We continue to hear allegations of mismanagement, low morale and waste within the Bermuda Housing Corporation, and we strongly urge the government to rectify these apparent problems.

We note the proposal by the Bermuda Housing Corporation to build two multi-story boarding houses for single men in Hamilton. The problem this proposal addresses was obvious long ago, and the Minister was late in dealing with it. The boarding houses will provide a solution sometime in the future, but they do not provide housing to those who need accommodation today.

Mr. Speaker,

The United Bermuda Party believes that Bermuda's educational system should be of a quality sufficient to produce young men and women capable of leading productive and successful lives. This level of quality requires a decentralized education system where the Ministry acts as the guarantor of standards and day-to-day decision making rests in the hands of principals, teachers, parents and local school boards.

For the benefit of Bermuda's students, all groups must work together in an atmosphere of mutual respect and trust. However, in recent months we have seen little evidence of harmony. We have seen teachers strike and march on the House of Assembly and walk out at CedarBridge Academy. They say they are overburdened, and teacher turnover is high. A task force was established to investigate low teacher morale, but, typically, the public has received no information on progress to date.

Few factors affect students' performances more than the quality of their teachers. We believe that more attention and funding should be directed to those on the front-line of education and less on administration and management. Teacher training and development should be a top priority. Out-of-date teacher compensation packages, which remain unrelated to what teachers really do in the classroom, need to be rewritten. Teachers and schools should be rewarded for exceptional performance.

In return for greater influence and decision-making, teachers and schools must accept greater accountability. To this end, the United Bermuda Party fully supports the concept of teaching and principal licensing; if properly executed, we believe it will lead to higher standards of teaching and greater accountability. We encourage the PLP government to proceed with this initiative quickly.

Teachers themselves must set tough standards for performance, and student achievement in math and reading should be assessed annually at every level from P1 to S4. Performance measures for each school-including exam results, attendance records, matriculation rates, and teacher/principal qualifications-should be disclosed.

Mr. Speaker,

We applaud the apparent efficiencies achieved by the Ministry of Education through zero-based budgeting. However, we note that a significant portion of the increase in allocation is devoted to a $2.2 million bail out to Bermuda College to offset losses incurred at the Stonington Beach Hotel. We look forward to hearing what specific controls government has implemented to prevent this from reoccurring

Mr. Speaker,

The prison population has grown by more than 25 percent since the PLP government came to power in 1998. We are, therefore, hopeful that the alternatives to incarceration program, the drugs court and the transitional living center will together reduce the prison population and recidivism. We also note government's acceptance of an additional 30 prison staff as recommended by the Prison's Board of Enquiry and urge government to fill the vacant prison psychologist position.

Community concerns about security and safety are particularly pronounced during difficult economic times. We hope that the completion of the Southside police station will provide some reassurance to St. David's and St. George's residents who have voiced their concerns about an increasing incidence of criminal activity. Promises by the PLP government to unveil strategies for crime management and community policing that might address these concerns have still not materialized.

Health Care

Mr. Speaker,

While we agree with the Minister's statement that few things are more precious than one's good health, we believe that the PLP government has done precious little to improve the quality of health services and access to care, particularly for our seniors. Health care costs continue to rise faster than the rate of inflation, and we have grave concerns about the value the public is receiving for the $88 million spent last year and the $93 million proposed in this budget.

We learned from the budget statement that an additional $4.2 million will be required in subsidies to the Bermuda hospitals. We are also told that "the Ministry continued to make progress in redesigning the reimbursement system for hospital, physicians and other healthcare providers" and that "potential savings from the options under consideration could range from $8.5 million to $15 million." What this means is if the PLP government had proceeded with the Arthur Andersen redesign of hospital reimbursement three years ago, they would have saved millions in health care costs that the taxpayer has had to bear. Those savings could have been used to extend more comprehensive health coverage to seniors and given better value to the community.

The Minister of Health should be held accountable for this unnecessary waste of money and resources. Simply put,