In other words, the foundations of Bermuda's economy-the twin pillars-are shaky, and the PLP Government is indulging in a false sense of security.

Mr. Speaker, Given these circumstances, the lack of restraint we see in the PLP Government's budgetary and economic approach is careless. The Government should not be increasing government expenditure by three to four times the rate of inflation and GDP growth. A 50 percent jump in capital spending is irresponsible and should be phased in to reflect Bermuda's means and our economic circumstances. It is neither wise nor acceptable for Government to fund this increase through borrowing in a time of rapidly increasing interest rates.

Government Debt Mr. Speaker, In the run-up to the 1998 Election and shortly thereafter, the community heard many false claims from the PLP that the United Bermuda Party had created a government debt problem.

Yet the policy of borrowing only for capital expenditure, the creation of a sinking fund to retire the debt and the self-imposed ceiling on borrowing of ten percent of GDP are all UBP Government policies. All speak to the careful and conservative manner in which UBP Governments have managed Bermuda's finances. Indeed, the AA1 ratings on our sovereign debt by Moody's and Standard and Poor's relate directly to Bermuda's significantly lower debt ratios compared to most other industrialized countries with ratios ten times higher.

We note, however, that in spite of the PLP's earlier protestations, the Minister of Finance is planning to add $28 million to the Government debt in this Budget. We also note that interest payments on this debt are now estimated to cost the taxpayer some $11 million per year, roughly equivalent to the expenditure of the entire Ministry of Youth, Sport, Parks and Recreation.

In last year's Reply to the Budget, we recommended that the existing debt be refinanced to take advantage of the lower interest rates available in the fixed income markets at that time. Sadly, it appears that the Minister of Finance did not take our advice, and by our calculations, his inaction may have cost the taxpayer as much as $3 million a year.

In the intervening 12 months, we have seen interest rates on the benchmark 10-year U.S. treasury note jump almost 1.5 percent to a little over 6.5 percent, and the credit spread for private-placement financing has increased from 1.2 percent to about 1.4 percent. This effectively means that the interest on $150 million of government debt that could have been financed at a fixed rate in February 1999 for approximately six percent has now jumped to about eight percent. This increase in interest represents an additional $3 million a year in interest payments that the taxpayer may be forced to shoulder due to the failure of the PLP Government to refinance at a favourable time.

Mr. Speaker, Honourable Members will be aware that both borrowed funds and guarantees by Government are included in Bermuda's total debt liability. We have heard in recent weeks that Government intends to pledge tax revenue to assist Bermuda Properties in obtaining financing for the Castle Harbour resort redevelopment.

While we don't object to the principle of tax incremental financing, we expect guarantees of this sort to be fully disclosed in the Budget Statement.

We also ask whether there are other programmes that have been approved or guaranteed by Government that have not been adequately disclosed in the Budget Statement. Without proper disclosure of Government guarantees, the Budget figures on total debt liability may be grossly understated. We call upon the Minister of Finance to disclose all of Government's liabilities so that the people of Bermuda fully understand what they and their children will be responsible for.

International Business In any discussion of international business, Honourable Members need to remind themselves of the critical importance of this sector to our current high standard of living and our economic future. Dr. Archer's annual report for the year 1998 demonstrates, yet again, that it is the roughly 350 companies that have a physical presence in Bermuda that contribute approximately 80 percent of the $759 million that international business spends directly on the Island in the form of: Wages, salaries and benefits to Bermudian households -- $354.4 million Payments for goods and services provided by Bermudian businesses -- $148.2 million Professional fees to banks, legal, accounting and professional firms -- $193.3 million Taxes, fees, duties and licenses to government -- $63 million It is also worth noting that the sector does not require many employees to produce these impressive results, and of the 2,872 employed by international companies in 1998, some 1,594 were Bermudians. Furthermore, when the direct and indirect effects of these businesses are tallied, the sector contributed $231 million, or almost half, of Government's entire revenue in 1998, which was available for education, healthcare, police, housing and other social services. Dr. Archer also noted that directly and indirectly international business impacts one out of every three jobs on the Island.

Honourable Members will, therefore, be particularly concerned to learn from the 1999 Economic Review that while expenditure by international business achieved annual growth rates averaging 16 percent from 1993 to 1998, it grew by less than one percent in 1998/99.

Mr. Speaker, While the Economic Review can only speculate as to the cause of this retrenchment, it points to the impact of the Asian financial crisis on equity markets and to the uncertainty arising from Bermuda's general election in 1998. Whatever the causes, this slowdown already has had a negative impact on GDP growth and probably balance of payments and Government revenue. It would also appear that the reduction is coming primarily from those companies that have a physical presence in Bermuda, those that are responsible for 80 percent of the expenditure.

Mr. Speaker, For Bermuda's sake, the PLP Government must not just pay lip service to the needs of international business. Like our North American neighbors, Bermuda experienced a recession in the early 1990s. It suffered an additional economic blow when the UK, United States and Canada announced the closure of their military bases in Bermuda. Only the strength and stability of the international business community during that period allowed us to weather those economic storms, manage the bases transition and successfully take over airport operations. It is the international business sector that has driven Bermuda's GDP and provided new jobs for Bermudians over the last ten years.

Today we express grave concern about the signals the PLP Government is sending to the private sector and international business in particular. The direct or implicit messages contained in policy speeches, press conferences, interviews and intemperate remarks in this Honourable House have not gone unnoticed. They are as closely analyzed by the international business community-both here and abroad-as are the signals sent by central banks, financial markets and regulatory bodies. Collectively, these signals influence the level of confidence that international business has in Bermuda, and we have seen erosion in business confidence over the past year.

These signals include, but are not limited to, the following: Work permit delays, Tighter restrictions on work permits, Term limits on work permits, Increasing bureaucratic interference in business, De facto affirmative action programmes in hiring and promotion, Higher costs of doing business, Efforts to get international business to finance housing projects, Undisciplined and extravagant Government spending, and Lack of adequate consultation with international business before Government policy is announced.

These signals are sending a distinctly chilly message to the international business community.

Mr. Speaker, The PLP's first Budget acknowledged the importance of attracting financial capital to Bermuda. However, an increasingly restrictive immigration policy is a sure signal that the PLP Government fails to recognise the importance of human capital to the continued success and presence of international business in Bermuda.

Over the past decade, growth in Bermuda's insurance sector has been fuelled by demand for capacity combined with a business-friendly regulatory and economic environment. More recently, innovation has allowed businesses to compete effectively, the kind innovation that is dependent on a critical mass of intellectual capital and a true partnership between the public and private sectors.

Standard and Poor's Rating Service made this point in their October 1997 analysis of Bermuda's insurance sector: "Bermuda has become integral to both the world's insurance markets and its reinsurance markets. It certainly is the home of some of the more creative minds in the insurance and reinsurance industry. And as it continues to innovate, Bermuda is likely to retain its competitive advantage.'' A panel at the recent World Economic Forum in Davos remarked on the intensifying shortage of executive talent worldwide. Predicting that it would get worse during the next decade, the CEO of one of the world's leading recruiting firms warned that demand for executives from the technology sector, combined with demographic factors, was creating an unprecedented shortage. He stated, "There's no question that human capital is going to be more important to companies than financial capital in the future.'' The United Bermuda Party suggests that Government look very carefully at these global trends before closing Bermuda's doors in response to politically inspired xenophobia. The PLP Government must not forget that the continued success of international business will be dependent on the ability to recruit and attract world-class employees. As one international business executive recently stated, "International business did not come to Bermuda so that Bermudians could have jobs with our companies, but Bermudians have jobs with our companies because international business came to Bermuda.'' Tourism The Budget Statement claims that the PLP Government "has been working hard during the past year to turn tourism around'' and has "spent additional sums in the marketplace to create a `buzz' that Bermuda is back in the tourism business.'' In spite of these good intentions, last year's "buzz'' was effectively a fizzle. The PLP Government's first advertising campaign was terminated early due to poor results and backlash from tourist destinations on the receiving end of Bermuda's ill-conceived experiment in competitor bashing. Air arrivals experienced their worst drop in five years. There was a 7.7 percent decline in bed nights, a two percent decline in length of stay and overall lower hotel occupancies. This is a reversal of the two prior years when bednights, occupancies and length of stay were all higher, year over year. The bottom line in 1999 was that $5.7 million more dollars were spent to attract some 10,000 fewer visitors.

The only seemingly good news was the 2.3 percent rise in cruise arrivals.

However, the United Bermuda Party is concerned about the increasing imbalance between regular air arrivals and cruise visitors. Honourable Members will be aware that visitors arriving by air spend some six times more than their cruise counterparts and make a substantial contribution to job security. In other words, economically, it takes six cruise passengers to replace one lost air arrival. In 1998, visitors spent over $486 million in Bermuda, of which less than 10 percent came from cruise passengers.

Caribbean destinations have learned the hard way about the importance of getting this balance right. In fact for many years Bermuda was seen as the model in this regard, because UBP Government policy had the practical effect of restricting cruise visitors to 25 percent of total arrivals. This year we anticipate that cruise passengers will make up nearly 40 percent of our visitors. Given these trends, it is regrettable that we are now 15 months into the PLP's watch and we have not yet seen a cruise ship strategy from the Minister responsible.

Mr. Speaker, The dismal tourism performance in 1999 must be enormously disappointing to the thousands of Bermudians who work in the industry. The United Bermuda Party has always considered tourism to be the key pillar of Bermuda's economy. It provides more than 6,000 hospitality-related jobs. It also supports international business, which depends on tourism for a multitude of services ranging from airlift to accommodation. Government also benefits, as the latest Archer Report makes clear; the tourism sector directly and indirectly contributed some $120 million toward the public purse.

It is critically important to get our tourism approach right. While we have witnessed frenetic travel activity by the Tourism Minister, we are astounded that after 15 months we have yet to see an overall strategic tourism plan from the PLP Government. Simply put, if there is no roadmap how can we agree on a shared direction? Fortunately, in this vacuum, the hospitality sector "conduit group'' has initiated its own tourism business plan.

Mr. Speaker, Considering the minimal mention that tourism is given in the Budget Statement, we are concerned about the lack of a clear vision for this industry. The much-vaunted "100-day rescue mission'' has apparently come and gone with nothing to show. Of the $22 million spent on marketing this year, too much emphasis has been placed on promotion. Too much taxpayer money has been wasted on extravagant road shows.

We recommend an immediate return to the shared vision encompassing all industry participants developed by the Monitor Group. We recommend that more emphasis be placed on developing our Bermuda product before we pour more money into promotion. We need to address the fact that in recent exit studies only 66 percent of visitors feel that they have received value for money. We need to understand the fundamental changes taking place in the industry-from diversified resort development to the changing role of travel agents-and create opportunities for Bermuda. We need to recognize and capitalize on the important role the Internet plays in tourism today. We must take advantage of this unique opportunity to communicate directly with our customers in a responsive and personalized manner. Most of all, Government must not waste any more time.

Mr. Speaker, The development of existing hotels and new resorts is central to the strengthening of Bermuda's overall product. Yet important opportunities at Morgan's Point, Club Med, Belmont and Par-la-Ville appear to have been squandered through inexperience, poor handling and loss of investor confidence. Meaningful economic support for hotels, restaurants and retailers is not to be found in this Budget. Small changes in Customs tariffs and taxes reflect tinkering rather than significant relief. Hospitality and retail businesses need carefully crafted plans developed through real public-private cooperation rather than window dressing.

Specifically, we recommend the following steps: Development of a five-year strategic plan in conjunction with the private sector, which should include development of an air-service strategy structured with existing airlines and including an aggressive policy for new airlines and services such as regional jets. It should also address the high cost of air travel to Bermuda and the increasing impact of rising fuel prices, which constitute roughly one quarter of the operational costs of airlines.

Development of a cruise strategy that balances air and cruise arrivals and recognizes the changes occurring within the cruise industry.

Reallocation of up to $10 million of promotional spending into on-Island activities and product development, including support of initiatives such as the Bermuda Explorers Network and significant support for training and development initiatives as set out in the Monitor recommendations.