It was generally accepted that Friday's Budget Statement would be the most difficult of Finance Minister Paul Cox's tenure. A weak or shrinking economy means that tax revenues will fall while the need for spending in certain areas will rise.

And as noted last week, any Budget has two functions: First, to set a direction for the economy as a whole and, second, to manage the Government's own finances prudently and effectively. Friday's Budget failed to achieve either goal.

But first, it has to be stated that many of the problems – outside of the problems of the global economy – are of the Government's own making.

The recent Auditor's report starkly demonstrated the sometimes astonishing levels of waste and negligence that have characterised Government's approach to financial controls in recent years. But such a report should not and did not deal with the policy failures of the same period.

The time to pay down debt, to control Government spending, to be prudent about hiring, not to make costly and un-thought out election promises was when the economy was growing strongly. But that did not happen. Instead, boosted by rising payroll tax revenues and a booming construction sector, Government spending soared.

It is also important that just as Government woefully underestimated the depth of the recession in the current financial year, so it underestimated the strength of economic growth previously. Thus tax revenues rose more than expected. But instead of paying down debt, that money was spent.

Still, it is worse to fail to see a recession coming than it is a boom. And the Government first denied the likelihood of a recession, then denied its likely severity and now tries to blame it all on external factors. Nothing was done to prepare for it, and now we are all paying the consequences. Or almost all, because the one part of the economy that has experienced almost no pain is the public sector, from the politicians on down.

Now, when the economy is experiencing its worst recession in half a century or more, Friday's Budget shows that Premier Dr. Ewart Brown and his likely successor in November, Ms Cox, have learned nothing.

That is demonstrated by the Government projection that the economy will grow by one percent in 2010, after shrinking by 2.5 percent in 2009. This estimate is made in spite of the fact that construction is now falling off dramatically, that growth in international business is unlikely, that most local businesses have had to freeze pay and/or lay off staff and that tourism, despite the Finance Ministry's belief that it will improve in the second half of 2010, is likely to be flat for the year. On the latter point, it should be noted that average occupancies of 51 percent for hotels in 2009 is a recipe for disaster, and that the Island should be girding itself for more hotel closures.

What the Ministry's economic projections don't seem to take account of is the effect of the Budget itself on economic growth. Far from stimulating the economy, the overall effect of the Budget will be to lower already low business confidence, discourage jobs growth and to further unnerve the one sector of the economy – international business – that is reasonably stable.

Why? Because Government's failure to reduce spending – which will rise by nine percent, in part to make up for last year's sleight of hand when the Sinking Fund was raided and in part to meet the Island's debt burden, with interest payments now at $38 million a year – and the need to raise new revenues, means that individuals and businesses will face an increased tax burden.

In fact this is not quite true; hotels, restaurants, fishermen, taxi drivers and, to a very limited extent, retailers, will receive tax relief, while those businesses judged to be less unsuccessful will take up the slack.

No one would pretend that there is no need to raise additional revenue and this newspaper supports some of the tax increases, notably on the top tier of land tax, on sin taxes and on vehicle licences. An increase in the current $350,000 cap on payroll tax liability would also have been reasonable, but the more than doubling of the cap to $750,000 a year is too much soon and will be self-defeating.

Tax increases that are simply unwise include the two percentage point (but seven percent overall) increase in payroll tax, the 20 percent increase in fees levied on international companies and the increase in foreign currency purchase tax. In the latter case, the rise is not enough to discourage Bermudians travelling or shopping abroad, but will add to the cost of goods being imported to the Island.

While all tax increases hurt, it makes no sense at this time for Bermuda to bite the hand – international business – that feeds us. This Budget is wrongheaded and bad for Bermuda.