When Finance Minister Paula Cox delivers the Budget this Friday, the public will know how she has resolved the pleasant dilemma she found herself in this year. With the economy in buoyant shape and tax revenues again exceeding estimates, Ms Cox had a few choices as she prepared the Budget.

One choice would be to reduce taxes, with payroll tax or Customs duty being the most likely. Some time ago, this newspaper floated the idea of reducing Customs duty in order to give the struggling retail sector a chance to offer competitive pricing and to reduce the amount of cash they have tied up for duties.

An equally strong case can be made for reducing payroll tax, which is a growing burden for employees and employers alike and is the sector where the worst underestimation of tax revenues has occurred.

While Bermuda likes to style itself as a low tax domicile, the overall cost of doing business in Bermuda has been growing fast, and cutting payroll tax is one of the few places where there is some flexibility for reducing costs.

Ms Cox’s other broad option is to continue the same patterns of taxation as Government has since 1998, which will see index-linked fee increases going up, as they do every two years, and little other real change in the tax structure. Assuming that Government revenues will then balloon, she could then pour money into social issues, most notably housing but also health, education, a boost in seniors’ pensions and so on.

Clearly the public mood demands some action on housing, and this is one area where Ms Cox could rightly devote some real resources, although it is debatable whether these should be funded entirely out of current revenues or through some increase in debt.

Money could also be committed to the Contributory Pension Fund and the Public Service Superannuation Fund, both of which need further buttressing to meet future obligations beyond what contributors should be putting in. And money needs to be set aside for the building of the hospital as well.

As ever, Ms Cox will have no shortage of suggestions for how money should be spent, ranging from our $11 million cricketers to new ferries to everyone’s pet project.

Bermuda College economics lecturer Craig Simmons rightly says on this page that in an economy with full employment, as Bermuda’s is, the greatest risk to the economy is inflation, not least because it hurts those at the bottom of the economic ladder most.

In this scenario, either cutting taxes or increasing Government spending will put more money into the economy, thus raising inflationary pressure. Better, he says, to hold taxes and spending to current limits, thus dampening inflation without risking job losses.

Mr. Simmons has a point, and it will be interesting to see if Ms Cox has considered his point of view. Certainly, capping or slightly reducing the size of Government now would be welcome, since its growth has exceeded both economic growth and inflation since 1998.

But it would also be worth reducing the cost of living and doing business in Bermuda, because there is evidence that the Island is close to reaching its tipping point where international businesses — the main driver of the economy — are beginning to look elsewhere.

If that tipping point is reached, the falloff could be very rapid, and we will soon be wishing we had today’s problems.