Finance Minister Paula Cox yesterday raised payroll tax to 16 percent — up from 14 percent — as she attempted to get to grips with the economic crisis with a $1.2 billion Budget.

Critics said the working poor are being unfairly punished for Government's failure to prepare for the downturn, but the Deputy Premier argued most people would see the rise as "equitable and fair".

High earners were among those affected by other tax raises, but the struggling taxi industry was given a tax break, and existing concessions were extended for restaurants, hotels and fishermen.

Meanwhile some fear public debt could continue growing beyond its current record-breaking level, as Ms Cox raised the debt ceiling by 25 percent to $1.25 billion. This follows a hike of 82 percent last year.

Debts and guarantees outstanding by the end of 2010/11 are estimated at $1.1 billion, up from $989 million now, including the $200 million Butterfield bank guarantee.

Shadow Finance Minister Bob Richards hit out at the growing debt, saying: "We owe it to ourselves as a matter of self-respect, and we owe it to our children and their children not to leave them with a legacy that hamstrings their ability to meet the challenges in their own times."

Three ministries have seen their budgets increased for the coming year, with three facing cuts and four staying about the same.

Capital spending will go up $3 million to $143 million, with $33 million going on the expansion and maintenance of Tynes Bay waste facility.

For the coming year, Government estimates collecting $1.05 billion, and spending $991 million.

Figures revealed in yesterday's statement show during 2009/10 Government:

• collected $934 million — $35 million less than it thought it would;

• spent $987 million — $21 million more than it thought it would;

• borrowed $193 million — $46 million or 31 percent more than it thought it would.

Ms Cox said the economic outlook was more positive than last year, and predicted a growth of one percent, in contrast to the 2.5 percent decline of 2009/10.

"The economic dislocation and the financial turmoil of the last two years was a one in 100 year event," she said.

"No one could have predicted it. No one could have foreseen the depth of job losses and business failures in almost every sphere of economic activity in countries around the world."

At a press conference yesterday afternoon, Ms Cox conceded the payroll tax increase would be a major talking point, but she said people would see it was fair in the context of Bermuda's financial position.

Progressive Labour Party backbencher Wayne Perinchief and both Opposition parties argued the move was unfair on the working class, who are already struggling in the financial climate.

The rate of payroll tax recoverable from employees will go up one percentage point to 5.75 percent, and high earners will be taxed on much more of what they earn, after the payroll tax salary cap was raised from $350,000 to $750,000.

The Minister expects the changes to reap an extra $72 million payroll tax receipts.

Foreign currency purchase tax, stamp duty on estates and vehicle licences will also go up, while the biennial review of Government fees will be implemented.

However, Government plans payroll tax relief for the taxi sector during the tax period starting January 2010, in the form of rebates.

Existing payroll tax measures for the restaurant and hotel sectors will continue, while fuel concessions for fishermen will be extended through March 2012.

The rate of land tax will also increase for top-tier properties by almost one percentage point, to 19.2 percent.

Fees for many Government services will rise by three percent, and motor vehicles licences will cost five percent more.

Three ministries see their budgets increase for the coming year:

• Tourism and Transport from $110 million to $121 million;

• Labour, Homes Affairs and Housing from $137 million to $143 million;

• Finance from $126 million to $196 million, largely as a result of interest on debt and sinking fund contribution.

Four ministries stay at about the same level as last year:

• Justice $19 million;

• Works and Engineering $71 million;

• Culture and Social Rehabilitation $72 million;

• Energy, Telecommunications and E-Commerce $32 million.

Three ministries undergo cuts:

• Education from $149 million to $143 million;

• Health from $194 million to $181 million;

• Environment and Sports from $40 million to $39 million.

n Budget Special – Pages 35 - 44