An Opposition plan to cut payroll tax for Bermuda's lowest earners has been branded as an income tax by the backdoor by Government.

But United Bermuda Party Finance spokeswoman Patricia Gordon-Pamplin said her party wanted to let employees spend their own money rather than have a Government that squandered it for them.

The plan will see those earning below $42,000 pay no payroll tax while those earning above that level will have payroll tax introduced gradually.

However those earning above $42,000 will not get exemption on the first $42,000 of their earnings.

Currently employers pay Government payroll tax of up to 13.5 percent of an employee's earnings and can deduct up to 4.75 percent of this sum from their employee to put towards that bill.

However under the UBP plan, an employer would not be able to recover the 4.75 percent from any employee earning less than $42,000, thus the low-paid employee would have up to $1,995 extra in their pocket annually.

Mrs Gordon-Pamplin said employers would not be expected to increase their contributions but Government would pick up the $29 million tab, paid for out of $40 million of identified savings.

She said: "This is the first step in helping people in need."

Bermuda College economic lecturer Craig Simmons said the plan to eliminate payroll tax for any person earning $42,000 or less was "bold and unprecedented".

He added: "This tax cut will benefit just under half of all black Bermudians and women in the work force and the wide majority of young people according to the June 2007 Employment Brief."

However he said payroll tax cuts to low income persons would likely stimulate consumer spending.

"In light of our overheated economy and that inflation is running 60 basis points above the 2006 rate, one has to wonder about the short-term effect on price stability and medium-term effect on wage expectations."

Deputy Premier Paula Cox also worried the plan would fuel inflation and denounced it as an election stunt.

She said: "Is the Opposition seeking to provide a benefit to non-Bermudians?

"I ask as we know from labour force statistics that many of the persons in the lower income jobs, such as kitchen helpers and cleaners are non-Bermudians, so a significant portion of the benefit would not seem geared to helping the Bermudian worker who is having difficulty making ends meet but on assisting the non-voting non-Bermudian."

Ms Cox said it would be better to target tax breaks at low income Bermudians.

"It is the expenditure for housing costs, healthcare costs and childcare costs that low income earners and our seniors as retirees require assistance on."

The Finance Minister said that was why Government had pledged to reduce the costs to those in Government housing with the geared-to-income rental programme.

"Also, we have provided the prescription drug financing and we have enhanced the benefits under HIP."

She said of the UBP's tax plan: "Is the intent to promote a welfare state? The proposal seems to have more holes than Swiss cheese and to smack of income tax without calling it that."

Hitting back Mrs. Gordon-Pamplin said the UBP had first broached the plan ten months before Government called the election so it was not a stunt to boost votes.

She added: "Over the past nine years, the modus operandi of the PLP government has been to overtax our citizens, stockpile their money and then decide how the excess will be spent. That is a classic example of a welfare state.

"The United Bermuda Party approach is to leave more money in the hands of the wage-earner so that he, and he alone, can determine how his money is to be spent.

"We trust him to know what to do with his money. That is the fundamental difference between the PLP and the UBP."

On whether non-Bermudians would benefit by the UBP initiative Mrs. Gordon-Pamplin said: "We do not apologise for refusing to create a two-tier citizenry at the lower end of the earnings scale.

"Life is difficult enough without having to deal with more Government-imposed discrimination which is the hallmark of PLP governance.

"If the number of non-Bermudians in the below $42K category is significant, then the PLP government must surely be embarrassed by its immigration policies.

"It seems to escape the Minister that there are many Bermudians in the lower tier of the earning cycle, and that extracting from that sector more money than is needed is reprehensible."

And on the question of whether it was income tax by the backdoor, Mrs. Gordon-Pamplin said: "Payroll tax is not an income tax. It is a tax on labour. It does not include rents, dividends or any other income in its calculation."