Tomorrow will see Finance Minister Eugene Cox unveil his fifth Budget. It may be the most important of his career.

That is because the act of balancing spending and taxes is even more complicated this year than it has been in the past.

Last year, Mr. Cox presented a "sweetheart" budget with few tax increases, heavy capital spending plans and an increase in current account spending.

Overall, the current account surplus was expected to narrow to $23 million, among that the capital spending would have to be funded via $75 million in new borrowing.

Because Government has two major projects - Berkeley and the new Police Station either underway or in the works, any new spending will need to be funded through further borrowing, but Government is already just $15 million shy of the statutory borrowing cap of $250 million.

While some of the capital spending scheduled for this year has not yet been spent and can be carried over, any new capital spending will have to be carefully managed, or Government will have to increase the surplus on current account.

That means that either revenue will have to be increased or spending will have to be tasked.

Both options are challenging.

Although the economy is doing better than anyone had any right to expect after the September 11 terrorist attacks and the subsequent stock market collapse, that does not mean it is strong and much of its resilience has been due to the construction boom which now shows signs of slowing.

To be sure, international business has gone from strength to strength, but other sectors of the economy, especially tourism, are struggling, and with war clouds growing by the day, the prospects for safe travel are uncertain.

For that reason, nothing should be done that will make tourism any less competitive.

Even in international business, Bermuda has to work hard to ensure that it does not price itself out of the market, especially as "onshore" countries continue their anti-tax haven campaigns or reduce the tax burden on companies and investors.

Finally, the Government may be tempted to hold down taxes so as not to alienate potential voters. That may be good politics, but it is bad economics, especially when it means taxpayers will end up paying later on - and they will.

The first answer is to raise the taxes that are overdue for an increase such as sin taxes like alcohol and cigarettes and vehicle licence fees.

Nonetheless, it is likely that this would still leave a shortfall that can only be met by meaningful spending freezes, or better yet, reductions in expenditure.

The Civil Service has grown from 4,652 at the beginning of the Progressive Labour Party's tenure to 4,967 today, an increase of 4.6 percent. At the same time, the annual current account surplus has shrunk from $54 million to $23 million per year in the same period.

Government has stated that it has capped "non-essential spending" since September 11. Now the question is: Will Mr. Cox cut "essential spending" or raise taxes? Or will he pull a rabbit out of his hat tomorrow?