The new Government inherited a situation with regard to our 1986 Tax Convention with the United States that had to be addressed immediately.

Extensive discussions, two visits to Washington with a team from the Finance Ministry and a return visit to Bermuda by Treasury officials have demonstrated to our treaty partners that we are a responsible jurisdiction to do business with and have enabled us to convince members of the OECD that we are a financial centre that is prepared to live up to its international obligations and maintain high international regulatory standards.

Britain's White Paper on its relationships with its Overseas Territories promised a financial regulatory review of those territories in order to ensure that they implement and adhere to world standards of financial regulation.

Bermuda's Finance Ministry is a member of a Steering Committee that has worked to determine the international standards by which the financial sectors of the economies of the Territories will be judged. That Committee has selected the consulting firm of KPMG to conduct the regulatory review that is to be completed by June of this year. The Committee will continue to manage the process to conclusion.

Britain has confirmed its support for the G7 initiative to pursue tax evaders and money launderers through co-ordinated international efforts. The United Nations is pursuing similar objectives. The disclosure of information related to the affairs of individuals for anti-money laundering and tax purposes has become the focus of international discussion and enquiry. Bermuda is discussing this matter with the United Kingdom since on the one hand while we do not support the presence in Bermuda of criminal proceeds, or any facility to launder money here, we do respect the privacy of an individual who wishes to conduct legitimate business in our jurisdiction.

Counsel was engaged during the year to advise the Ministry on aspects of these initiatives and a public relations firm assisted the Ministry to make representations at the appropriate levels in the UK and Europe. The future for the Ministry will clearly be continued focused involvement in the various international initiatives that have begun during the past two years, in order to support our international business partners and to preserve jobs for Bermudians and earnings for the country. Additional resources will be required as we go forward into 2000/01 to support these initiatives.

One such initiative has already begun. The Ministry is already in discussions with the United States on the subject of a possible Mutual Legal Assistance Treaty. The United Kingdom has authorised Government to negotiate the Treaty to conclusion.

Mr. Speaker, I have described some of the international initiatives that could have a negative impact on Bermuda's economy and have demonstrated that we need to respond to them in order not to lose our competitive advantage. I have shown that we have been proactive in addressing these issues in order to properly articulate and protect Bermuda's position. However it is this Government's view that we cannot encourage the development of international business exclusively, and therefore we emphasise Government's commitment to tourism as an important element of the economy and the public's welfare.

Economic Performance in 1999 Mr. Speaker, Bermuda's economic growth in 1999, as measured by Gross Domestic Product (GDP), has moderated from that achieved in recent years. In fiscal year 1998/99 the economy grew at a rate of 3.7 percent (1.5 percent after removing the effects of inflation). The rate of economic expansion is expected to increase next year with real GDP growing at an annual rate of 4.5 percent (2 percent in constant dollars). Since the 1992/93 recession, Bermuda has grown on average 6.15 percent per year (3.9 percent in constant dollars).

The current account of the balance of payments showed a surplus of $242 million in 1998 and a further substantial surplus is expected for 1999.

Government borrowing remained very modest and is anticipated to be at 7.0 percent of GDP at March 31, 2000. On the strength of this performance Moody's confirmed Bermuda's credit rating at Aa1 in 1999.

Bermuda continues to have a low rate of inflation, but there was a slight increase during 1999. In 1998, inflation, as measured by the Consumer Price Index, was 1.98 percent. The rate increased during 1999, rising from an annual rate of 1.9 percent in January to 2.7 percent in November. The inflation rate began its climb in April when increases in the global cost of petroleum products affected prices in the transport sector. Prices continued to rise in the following months with inflation becoming significant in the health, personal care, education and transport sectors that broadened the trend towards higher prices.

Preliminary results from the 1999 Employment Survey show the number of filled jobs in August 1999 reached 37,044. This is an increase of 1,721 filled jobs, or 4.9 percent, over the same month in 1998. This is a much larger increase than experienced during any other year in the 1990s. The Statistics Department reports that there were more respondents to the Employment Survey in 1999 and part of the increase in filled jobs is attributable to better coverage. The increase in filled jobs is even more dramatic when compared to the increase in only 27 filled positions recorded between the 1997 and 1998 Employment Surveys.

Bermudians captured 1,033 or 60 percent of the increase in filled jobs. This is an excellent accomplishment for Bermudian workers and a turn-around from the 1998 Employment Survey that showed a decrease in the filled positions held by Bermudians but an increase in those held by non-Bermudians.

Analysis of the Employment Survey results reveals large increases in employment in business services and international companies, while hotels and retail stores registered a further reduction in the number of filled jobs reflecting the challenges currently being experienced by those sectors.

While Bermuda's GDP is expanding at a slower rate than that experienced in recent years, the ability of the economy to create new jobs demonstrates an underlying strength.

Dr. Archer's Report on International Business 1998 that was released last fall provides evidence of the significance of international business to Bermuda. It is important to note that our economic growth has relied upon a strong expansion in the international business sector.

The preliminary numbers from the 1999 Employment Survey show that international companies directly employed 3,191 people in the Island, 8.6 percent of all jobs available. The number of jobs in this sector continues to increase and was up by 11 percent or 317 positions over 1998. This is a continuation of the yearly trend started in 1991.

The number of firms on the company register has also continued to grow to 11,149 at the end of September 1999, a gain of 5.6 percent year-over-year. Of the total number of exempted companies on the register at the end of 1998, 355 (3.2 percent) had a physical presence and these accounted for 79 percent of the $759 million in foreign currency earnings from international business in 1998. Of that figure, $354.4 million or 46.7 percent was spent on salaries, $193.3 million in fees to Bermudian firms, and $63 million was paid in taxes.

It should be noted that foreign currency earnings from this sector showed a moderate increase of 2.2 percent in 1998 and that there was a decline in reported capital expenditures by the sector from $55.5 million in 1997 to $36.9 million in 1998. The effect on Bermuda's GDP of this capital spending retrenchment adds further urgency to the need to reinvigorate the tourism industry and reduce the Island's growing reliance on the success of international business.

While it is abundantly clear that the economic wellbeing of Bermudians is linked to the economic health of the international business sector, we must keep in mind that this is an incredibly competitive global industry and we must be constantly vigilant to ensure that we remain a leading competitor.

Mr. Speaker, while it is encouraging to hear the positive news from the international companies we must be fully cognisant of the challenges facing the tourism industry. Despite positive developments and initiatives pioneered by the industry and the Ministry of Tourism, the number of tourist arrivals fell last year. At the end of November, arrivals by air were down by nearly 4.0 percent and this resulted in a decline in bednights of an even greater percentage of 5.7 percent. The reduction in bednights was not experienced equally by all accommodations. Hotels, both large and small, cottage colonies and private clubs all experienced declines greater than the average while guest houses experienced year-over-year gains of 30.6 percent.

Cruise passenger arrivals increased this year reaching a total of 192,685, surpassing the previous record set in 1998. The higher number of cruise passengers was not enough to offset the decline in air passengers and overall visitor arrivals fell by 1.5 percent. At the end of September 1999 expenditures by visitors had increased by 0.6 percent reflecting to some degree the continuing inflation in the cost of a vacation in Bermuda.

Bermuda's construction industry turned in an excellent performance in 1999.

The industry's measure of activity (the "value of work put in place'') surged to $106.4 million in the first 3 quarters of 1999, an increase of $12.9 million over the same period in 1998. The Employment Survey reports that there was an increase of 242 jobs in the construction sector in 1999. This has resulted in steady increases in the amount of employment income generated by the industry, and forecasts for the future remain buoyant.

Demand in the Bermudian economy, as reflected in retail sales, was somewhat volatile in 1999. After starting the year on a weak note in January, retail sales performed well in February and March compared to the same months in 1998. However from April to July sales volume was stagnant over last year.

Results differed according to store type with pharmacies and hardware stores recording healthy increases in sales while clothing stores and stores catering to tourists experienced flat or falling sales volume. By September sales were robust once again with motor vehicle dealers and service stations leading the way.

Mr. Speaker, the record shows that Bermuda's economy performed well in 1999 but with growth moderating from the rapid pace of recent years. This Government is sympathetic to the challenges currently facing several sectors of the economy including the essential retail sector and is also pursuing policies that will support the continued expansion of the international business sector to provide jobs for Bermudians. The revitalisation of tourism remains a priority of this Government requiring the investment of time, effort and money, and we expect a turnaround that will provide long-term benefits to the people of Bermuda.

Overview of Revenue and Expenditure for Fiscal 1999-2000 Revenue Mr. Speaker, Bermuda's continued economic growth during the past financial year has resulted in strong support for Government revenues. The revised outlook for the 1999/2000 financial year points towards a total revenue figure of $569.9 million, some $18.3 million in excess of the original estimate for the year.

The additional revenues are expected to come principally from Payroll Tax, currently $4.0 million above estimate, Stamp Duties currently $4.0 million above estimate, company fees up by $1.5 million, and Customs Duties which are some $3.2 million above target. Land tax revenues, despite a reduction in tax rates, have been strengthened by the revision of the annual rental values and are expected to generate $4.0 million in additional revenue for the year, while Passenger Tax is currently showing a $3.0 million increase. However forecast totals from the Post Office, the sale of land to non-Bermudians, bus and ferry fares and Hotel Occupancy Tax are not being achieved, and have contributed offsetting losses.

Expenditure Mr. Speaker there were necessary items of supplementary expenditure incurred during the year that were supported by the Legislature.

Items on current account totaled $6.39 million. To permit the continued administration of justice while two extended commercial cases were being heard, two Assistant Justices were required to be appointed. With support staff, this required an expenditure of $280,000. The appointment of a political Attorney General along with the requirement for the creation of the post of Director of Public Prosecutions and additional support staff, led to total additional expenditure of $258,000. The strengthening of the Accountant General's internal audit section in line with Government's position to improve financial controls incurred a cost of $260,000. A substantial item was the implementation of the Mowbray Report on Police Service pay, which cost $650,000. Fourteen temporary posts at the Prisons, agreed under the previous administration, together with four other posts added to address night patrol needs, required a total funding of $550,000. The growth of intellectual property business and other registration work at the Registry General, together with growth in the number of shipping registrations at the Registry of Shipping, required additional staff in both offices for a total of $225,000.

Other significant unbudgeted items were $262,000 to support the transfer of the Orange Valley Child Care Centre and the Opportunity Workshop from the Ministry of Education to the Ministry of Health and Family Services, and $300,000 to fund part of the costs of the "advertorial'' promoting Bermuda in Time magazine.

It was necessary to engage a range of additional professional services during the year. A total of $350,000 was needed to pay for representation both in the United Kingdom and the United States to support Bermuda in its efforts to address the major international financial and regulatory initiatives that are on-going and that I discussed earlier in this statement.

The Overseas Territories are sharing in the management of the financial review promised in the UK White Paper. They are also sharing in the cost of the review and Bermuda's portion is approximately $133,000 in total, over two years.

Government engaged consultants at a cost of $235,000 to review the Y2K preparedness of both Government and non-Government systems. A further $1,162,600 was needed to staff a Programme Management Office to oversee the Y2K initiative and manage the process through to the year 2000.

Government's platform promised to provide attendance officers in the Ministry of Education ($30,000), an education officer for the Human Rights Commission ($56,000), extended working hours at the Bermuda Library ($87,000) and additional support for the arts. A $50,000 grant to the National Gallery was provided.

Government was elected with a mandate to revitalise tourism, and a number of new but unbudgeted opportunities to market the Bermuda tourism product required the expenditure of $1 million.

Accordingly while original estimates of total current account expenditure for the year were $511 million, actual expenditures are anticipated to reach some $515.2 million when departmental savings are taken into account.

On the capital account, $5 million was provided as the first of three equal grants to the National Sports Centre Trustees, and $2.5 million was added to budget to acquire two Reverse Osmosis plants, as bids came in significantly in excess of the total authorised funding (TAF) for that project. $308,000 was spent on improving facilities in primary schools in order to accommodate Government's public commitment to the reduction in class sizes.

CHART GOVERNMENT REVENUE GOVERNMENT SPENDING Both 1901 -- 2001