Finance Minister Paula Cox's announcement last week that she is considering allowing restaurants to defer paying payroll tax was not a great surprise – the surprise was that more business groupings aren't screaming for relief.

Restaurants are having difficulty in the current economic climate as casual diners tighten their belts, tourism remains weak and businesses cut back on expense accounts.

According to Chamber of Commerce restaurant division chairman Phil Barnett, three out of every four members of the division lost money last year, and it is unlikely that the picture is going to improve soon.

Minister Cox may have been tempted to let some of the weaker restaurants go to the wall. That is the natural consequence of the industry and of the economic cycle. But it is also painful as it would result in further job reductions and, thus, a further weakening of the overall economy.

So she has instead offered the possibility of a deferral on payroll tax.

It is important to note that this is a deferral and not a cancellation; the tax will still have to be paid at some point. For some restaurants that will be of scant help. But for others, it will ease their cashflow problems in slow periods and that may help them survive until the economy begins to recover.

That's all well and good, assuming the economy does start to recover at some point.

However, the announcement again demonstrates why Ms Cox was wrong to raise the payroll tax in the Budget. It is interesting to note that many restaurants did not think they would be affected by the increase, but have now found that they are.

Raising the payroll tax, which is directly connected to employment, always ran the risk of causing further unemployment, and the problems facing the restaurants, which are labour intensive, proves that.

This newspaper warned at the time that the payroll tax increase could end up being revenue neutral, because employers would cut jobs in order to reduce the tax increase.

What is also happening now is that Bermuda is slowly developing a two tier tax system in which weak or failing sectors – the hotels, retailers, taxi drivers, fishermen and now restaurateurs – get tax breaks or tax deferrals, while the remaining profitable sectors of the economy end up shouldering more and more of the tax burden; in effect, the payroll tax becomes a tax on profits, or, to put it another way, success.

Over the long term this is self-defeating. Sectors of the economy that are in trouble already could well remain weak, while the successful sectors will be weighed down by more and more taxes.

The end result? Struggling businesses may well close anyway, while the successful sectors will soon come looking for the same relief as their profit margins shrink, not least because their tax bills keep rising.

Better, surely, to look at an overall reduction in payroll tax, which could well lead to increased employment and will help the weaker sectors of the economy grow their way out of their problems. Or, if that is too much, at least take up Progressive Labour Party leadership candidate Terry Lister's idea of commissioning a taxation review to see if there is a better way of raising taxes than the current system.