Bermuda’s economy will be strong enough to withstand new tax increases, Finance Minister Bob Richards claimed as he read his Budget Statement to the House of Assembly yesterday.

Mr Richards announced a host of hikes, including the scaling back of concessions for the struggling retail, restaurant and hospitality trades, in a move that prompted talk of potential layoffs and closures from the Chamber of Commerce.

Businesses in those three sectors, which had enjoyed relief from payroll tax since 2011 because of the economic crisis, would now be subjected to a payroll tax rate of 5.5 per cent, Mr Richards said.

This move, combined with a standard payroll tax increase of 0.5 per cent, to 14.5 per cent, is intended to contribute towards an extra payroll yield of $353 million in 2015-16.

However, the Finance Minister, who emphasised that extra revenue is essential to break Bermuda’s crippling deficit, said proposed stimulus such as construction developments and the America’s Cup would put the economy in a better position to cope with potential negatives of tax increases. “The strategy is based on the expected state of the economy, as opposed to the past or even the current economic situation,” Mr Richards said.

“With the major stimulus measures already outlined, about 20 per cent of GDP in one to three years, we are confident the economy will be able to withstand the attenuating effects of tax increases on growth.”

Reacting yesterday, Chris Furbert, president of Bermuda Industrial Union, raised concern about the standard 0.5 per cent payroll tax increase as well as a decision not to change the limit on taxable wages for purposes of payroll taxes from $750,000.

“I know that in previous years when the PLP Government tried to address an increase in payroll tax the outcry from the private sector was pretty loud,” Mr Furbert said.

“I wonder whether there will be a similar outcry since he decided this. I know the PLP increased it by 2 per cent so maybe they will accept that it is a soft impact but the mere fact that it is an increase in taxes from their point of view, I’m not sure how well that is going to be received.”

Regarding the limit on taxable wages, Mr Furbert said: “I am very concerned about that because that appears to be where the government can get some additional revenue. I am baffled as to why he left the cap alone.

“I don’t know why that should continue to happen in this economic climate where everybody else seems to be asked to do so much and these individuals are not paying anything at all on their additional income.”

As well as payroll tax increases, the Finance Minister announced fuel duty will increase by five cents per litre, to achieve additional customs revenue of about $9.6 million, while the land tax rates on ARVs for commercial properties will go up from 4.4 per cent to 5.5 per cent, bringing in an extra $4.1 million.

The Corporate Service Tax Rate will be raised from 6 per cent to 7 per cent, to raise an additional $1 million, with the airport departure tax going up from $35 to $50 per passenger, to yield a further $280,000.

Fee increases for services provided by Marines and Ports will net another $280,000.

Mr Richards said some of the added revenue would go towards the costs of hosting the America’s Cup.

“They have to be financed from tax revenue as much as possible instead of being financed by addition to long-term debt,” he said.

When setting its tax rates, Mr Richards said, the Island must strike a balance between ensuring that people have enough cash in their pockets and collecting enough money to meet its responsibilities.

Mr Richards said the Government is also exploring the possibility of broadening Bermuda’s tax base, and has requested technical assistance from the Caribbean Regional Technical Assistance Centre to help with a feasibility study.

One study has shown the Bermuda Government’s revenue is 19 per cent of its GDP, he said, compared with 20 per cent for the Bahamas, 22 per cent for Cayman Islands, 25 per cent for Barbados and 26 per cent for Jersey.

“One could say kudos to Bermuda for keeping its taxes low,” he said.

“But that would only be appropriate if we were balancing the budget; something that is clearly not the case.

“In view of the inherent and serious risks of running large deficits, this study implies that Bermuda’s taxes are not high enough to achieve or maintain long-term fiscal stability.

“The bottom line is customs duties are no longer producing the portion of revenue that they once did, thus exacerbating the annual deficit.”