Craig Simmons is calling for the payroll tax cap to be gradually doubled to a “reasonable” $1.5 million.

Speaking ahead of tomorrow’s Budget, the Bermuda College economist said the slow rather than sudden increasing of the ceiling should be done over the course of the next three years.

“Communicating the planned increases now could go a long way to reducing anxiety,” he said.

“Raising the ceiling to $1.5 million, from its present level of $750,000, seems reasonable.”

Payroll tax reform, according to Mr Simmons, is a necessary part of an overall strategy to lighten the tax burden on the bottom 50 per cent of Bermudians while simultaneously increasing the burden on the top half — and especially the top-tier 10 per cent.

The One Bermuda Alliance pointed to progressive payroll tax reform in the pipeline in its Throne Speech last November, as it pledged to “ease pressures on lower income earners”.

However, in December, the Fiscal Responsibility Panel warned that while progress on payroll tax reform was welcome, “there are clearly limits to how much additional revenue can be raised from this source without doing damage to Bermuda’s businesses and employment”.

Mr Simmons said that for the bottom half — and especially the bottom 20 per cent — a negative payroll tax could significantly reduce the tax burden of employees.

The tax, he said, had two parts: a guaranteed income provided a minimum number of months are worked, and a flat tax for the employee.

“If restricted to Bermudians, a negative payroll tax could also act as a tariff on unskilled foreign labour,” Mr Simmons said.

“To some extent, these reforms make the need for payroll tax exemptions obsolete and go some way towards addressing the problem of rising inequality and declining social mobility.

“Unfortunately, progress on widening the tax base is behind schedule.”

Mr Simmons explained that a service tax mentioned in last year’s Budget, to generate roughly $50 million a year, remains “years away”, putting additional stress on existing sources of tax revenue.

The FRP said of progress last December: “The delay in developing proposals for the new GST is disappointing. Determined action is needed if a shortfall in revenue is to be avoided in 2018-19 and possibly in 2017-18 as well.”

Looking ahead to the Budget for 2017-18, Mr Simmons said land tax at the upper end of the annual rental value schedule and stamp duties were the most likely areas to see increases.

“I would also expect increases in all excise taxes,” he said.

Customs duties on vehicles, along with licensing fees, were also likely to go up, he said, in light of strong demand for cars and motorbikes.