the House of Assembly by Finance Minister Grant Gibbons yesterday.

To His Honour the Speaker and Members of the Honourable House of Assembly.

Mr. Speaker, Thirty years ago, in the Spring of 1968, the first United Bermuda Party Government assumed responsibility for the economy on behalf of the Bermudian people. This unprecedented stewardship, lasting now for three decades through successive Governments, created a sound economic environment in which Bermudians could work hard and prosper, in which Bermudians could seize opportunities and follow their dreams. These UBP Governments have brought fresh ideas and creativity to Bermuda's finances without losing sight of their fundamental economic principles: living within Bermuda's means, balanced budgets, borrowing only for capital account, a low, predictable tax system and no income tax.

Through a variety of economic cycles, the Government has exercised the right combination of good judgment and common sense. Opportunities for economic diversification were identified and encouraged to ensure growth and create jobs. The Government's regulatory hand has been light but effective. I believe the results are evident by a look at any number of indicators.

According to census and statistical data, Bermuda has experienced a remarkably low unemployment rate through three decades and a declining rate of inflation that reached a record low of 1.8 percent in November, 1997. Significant increases were achieved in the number of Bermudians employed in professional and managerial positions as well as those earning college degrees. When compared to our closest economic partner, Bermuda's median annual household income increased by almost ten percent between 1982 and 1991, while the United States figure declined by 13 percent in constant dollar terms.

Examples of this outstanding record can be seen in our daily lives. Positive economic indicators, successful businesses and healthy economic growth mean that Government has been able to direct substantial public funds toward educating our young people and jobs training. Government has been able to allocate revenue to support a quality health-care system. The safety and security we count on, the roads we travel on, the airport we fly in and out of, the parks we enjoy -- all are made possible by a solidly performing economy. Bermuda's enviable life style is not an accident; the fact that our Gross Domestic Product per capita continues to be one of the highest in the world is not attributable to good luck. It is a result of consistently sound economic stewardship and the vision and determination of Bermudians to succeed.

Despite our enviable economic success, there is no room for complacency as we face the 21st Century. We are witnessing and participating in profound and rapid change as the process of globalisation and the further integration of the world's financial markets create great opportunities and risks for this Island.

In the 1997-98 Budget, I described the impact of the digital revolution, where advances in computing, information technology and telecommunications converge, compressing time and distance, accelerating the pace of change and permitting the free flow of information and capital around the world. This digital revolution has laid the foundation for a new global economy, characterised by the increasingly free movement across national borders of goods, services, ideas and capital. The global economy has created new interlinkages and interdependencies among the economies of nations. On this new economic world stage, Bermuda is already a player, but in the months and years ahead, it will be critical to our continued prosperity to shape and manage our role with great care.

The urgent task ahead is to position Bermuda to take advantage of rapidly expanding opportunities for economic diversification and growth, while minimising our vulnerability. There is no precise road map for achieving maximum benefits from globalisation. Negotiating its complexities will require vision, knowledge, experience, judgment and the ability to set clear priorities -- in short, continued sound economic stewardship. The 1998-99 Budget follows this tradition while embracing the challenges and opportunities of globalisation.

Mr. Speaker, the preparation of this Budget was guided by this Government's statement of principles, as set out in the 1997 Speech from the Throne: opportunity for all, fairness, security, stability and prosperity.

This Budget is also set against a background of robust economic growth. Our continued prosperity, however, is not a license for indiscriminate spending.

On the contrary, this Government understands that priority-setting is more important than ever. In the new global economy, governments will have increasing difficulty in raising revenue because of capital's mobility, flowing across borders to avoid taxation, risk and instability. The recognition of limits to both revenue generation and spending is countered by the need to ensure the development and welfare of Bermudians as they enter the 21st Century.

This Government understands that our people are the key asset for economic prosperity in the modern global economy. Accordingly, most of the expenditure in this Budget is focused on people, by providing all Bermudians with the opportunity to participate and succeed in the economy of the 21st Century through education and training; by ensuring access to a health-care system that provides quality with efficiency; by providing for security and personal safety through a better-equipped and better-staffed Police service; by providing senior citizens with an improved quality of life through increases in pension benefits from the contributory pension fund and the development of long-term benefits from the new national pension system; by preserving open space and developing park land for future generations; and by supporting sports and other developmental activities for youth through completion of the next phase of the National Sports Centre.

Mr. Speaker, this Budget gives considerable attention and support to those areas of our economy that generate revenue and jobs, in particular tourism and international business. Globalisation has had a particular impact on Bermuda due to our dependence on these industries. Both provide services to customers outside of Bermuda who can take their business to any corner of the globe.

Competition has been increased by the fact that many countries, large and small, have targeted these industries as clean, high-value sectors that provide strong foreign currency earnings, good jobs and a high standard of living. In essence, they provide strong revenue for investment in education, social services and infrastructure.

There is no question that global competition has had a negative impact on Bermuda's tourism industry. Our customers have more choices in travel, and the choices they make are increasingly influenced by value for money.

Hospitality-industry investors, too, have more choice in where to deploy their capital, and they expect a faster and more competitive return on investment.

With declining visitor numbers and narrower margins, reinvestment has not occurred sufficiently to keep our product fresh and competitive.

Against this background, the Monitor Company, whose assistance in rebuilding Bermuda tourism was first supported in last year's Budget, has worked to create a shared vision of a better product and customer experience. Monitor has recommended specific projects to create the kinds of sophisticated visitor experiences Bermuda must deliver if it is to regain its leadership position in tourism. Monitor's assistance in implementing these exciting plans will continue to be supported through this Budget.

It is important to note that the complex process of rebuilding Bermuda tourism has been and must continue to be a joint effort, a partnership of Government, business, labour and the broader community. The Government, whose own role in tourism has been reassessed, will act to facilitate change and to create an environment for success. To that end, the 1998-99 Budget provides support for a new Bermuda Tourist Authority. It is anticipated that the Bermuda Tourist Authority will evolve from the Department of Tourism, whose primary concerns have been marketing and advertising, into a more collaborative body with broad representation from the private sector and the community. Its mandate will be to develop a new paradigm for Bermuda's tourism industry in the 21st Century.

Included in that paradigm must be a greater appreciation of the level of risk the new global investor is prepared to take and the financial return he requires. While there are many factors that affect risk and return, the efficient use of human resources is a significant component of financial viability and directly impacts return on investment. An inadequate return, resulting from a poor ratio of labour costs to sales, increases overall financial risk. This discourages reinvestment in existing properties as well as investment in new hotel ventures. Recent comparisons indicate that large-hotel labour costs as a percentage of sales are 38.6 percent in Bermuda versus 28.8 percent in the Caribbean and Latin America and 32.7 percent in the United States. Unless increases in productivity and flexibility can offset this significant differential, capital and investment may shift away from Bermuda and lead to the eventual demise of our hotel industry.

At the same time, human resources remain our most valuable asset. To protect and develop that asset, opportunities for the training, advancement and empowerment of hospitality workers must be pursued vigorously, and concerns for job security must be addressed with sensitivity. Future success in tourism depends on developing a new model of mutual respect and co-operation among unions and workers, management and Government.

Mr. Speaker, focusing on fundamentals is essential to revitalising Bermuda's tourism industry in the global economy. Delivering a product that attracts the new global customer must proceed without delay. Creating a more promising financial environment for the new global investor must be given the highest priority. Strengthening these fundamentals, however, takes time, and the next two to three years will be critical to revitalising tourism. Experience in other jurisdictions has shown that government concessions can never be a substitute for getting the fundamentals right. However, in order to jump-start the building process, the 1998-99 Budget will provide short-term incentives to hotels to improve the physical product so important to our visitor.

Mr. Speaker, globalisation has played an important role in the development of Bermuda's international business sector, since geographical proximity to customers is less critical in an age of rapid telecommunications and electronic commerce. Bermuda has come of age as an offshore centre because we have been able to provide what international business seeks in a global economy: predictability, political stability and an attractive legislative and fiscal environment. It has become headquarters to a number of globally recognised insurers. The Bermuda insurance market now supplies almost 25 percent of the capacity of Lloyds, as much as 30 percent of the world's property catastrophe coverage and has total assets exceeding $100 billion.

Bermuda is also becoming increasingly visible as an international financial jurisdiction. The Bermuda Stock Exchange is already a growing success story.

The Bermuda Commodities Exchange has just been established. Mutual funds, investment services and asset management have grown substantially in the past few years and show great potential for further development.

What is even more remarkable is the relatively small size of this sector compared to its financial impact. Although we have over 10,000 international entities on our register, only 300 maintain a physical presence in Bermuda, and they provide approximately 80 percent of the foreign currency earnings attributable to this sector. International companies positively affect one out of every three jobs in Bermuda and directly and indirectly account for approximately 50 percent of Government revenues. The positive economic effect of international business on areas as diverse as transportation, hospitality and retail is less recognized by the community than is the contribution of tourism.

International business does make significant demands on our infrastructure -- our roads, our education system, our housing. It is clear that the total impact of international business on our community should be assessed in order to identify the limits to sustainable growth.

Mr. Speaker, while globalisation has contributed to the growth in international business, it presents Bermuda with inherent risks. The crises in Mexico and more recently in Southeast Asia have demonstrated the volatility of capital flows as well as the tough discipline of financial markets. We have learned that there is little tolerance for poor fiscal management characterized by significant government deficits, irresponsible borrowing, inadequate supervision of financial institutions and corruption. Indeed, we have seen a clear consensus develop calling for stricter financial oversight.