Former Premier David Saul yesterday urged Paula Cox to "earn her spurs" as Finance Minister by substantially raising taxes in next month's Budget and insisting on swingeing spending cuts.

Dr. Saul, who was Finance Minister during the last major worldwide recession 20 years ago, said he got Bermuda through tough economic times by taxing locals and foreigners alike and axing public spending.

"Exactly the same thing happened 20 years ago," he said. "The United States went into a horrible recession. It was the worst that Bermuda could ever face. This is exactly the same position as Bermuda was facing in 199½.

"Everyone hated me but we look back now and we all survived like sweetness and light. My current message to the Minister of Finance is: this is where you prove if you are a good Minister of Finance or not. The acid test has come to Paula Cox."

His comments come a day after The Royal Gazette revealed an official memo to civil servants ordering them to implement "austere cost savings" before the end of the fiscal year, including banning first and business class travel and a freeze on new consultants.

Further measures to save money are expected in the 2010/11 Budget, as Government seeks to claw back cash after a $77 million overspend in 2008/9, as well as $32 million less in revenue than expected.

Dr. Saul, who was Government's financial secretary for five years and Finance Minister for five-and-half, said: "As soon as difficulties come, then you test the mettle of both the Minister of Finance and the Government of the country."

He said the Deputy Premier needed to get the Cabinet to back her in taking unpopular decisions such as raising payroll tax and taxes on items such as cigarette, alcohol and petroleum.

"She's got to make up her money; how is she going to close the gap?" he said. "There are two adjuncts to this. One is cut government spending. She's got to control costs and cut costs.

"On the operating side she has got to make some hard decisions with Cabinet behind her and get those operational costs under control. Then she has to raise taxes — there is no other way."

He claimed there was no defence for not raising taxes last year and said Ms Cox had to be prepared to be unpopular.

"It would be fatuous to say you can't raise taxes in a recession," said Dr. Saul, adding that the worldwide economic crisis had so far not led to Bermudians tightening their belts.

He said history showed that exempt companies would continue to come to Bermuda even if payroll tax was increased — and that cruise ships would still come if the head tax on visitors was raised.

Ms Cox said she would not comment in detail on her plans for the 2010/11 Budget. She told this newspaper on Tuesday: "In setting the framework for the 2010/11 National Budget — mindful of the sobering economic reality, as was the case in the 2009/10 Budget — the aim in addressing overall fiscal challenges was to set policy priorities and to be disciplined as to how priorities would be funded.

"The coming year will be fiscally as tough and challenging and if we work together as a team our community will be served well by our collective action."