Tax increases in announced in last week's Budget statement will add to the expense of employing people and will affect local companies' hiring decisions.

That was the consensus among three leading business people who gave their reactions to the Finance Minister Pala Cox's plans to raise more money for Government from employers.

Some Bermuda jobs may even be shed as outsourcing becomes more attractive.

Minister Cox announced last Friday that the rate of payroll tax, for companies with payrolls over $1 million, would rise by 0.5 percent to 14 percent, while social insurance contributions will rise by 6.75 percent from August. Company fees will also rise by 6.5 percent from April 1.

Aaron Smith, president of the Igility Group, said the increases alone would cost his companies around $40,000, all other things remaining equal.

"That added cost burden basically represents an additional 'head count' and that's something that we might have to consider shedding, or moving to a more tax-friendly jurisdiction, in order to balance our own budgets if we'd like to maintain the level of net income that we had before the increases," Mr. Smith said.

"Needless to say, the increased payroll tax and pension contributions go right to the bottom line and will have impact on our business.

"The challenge with these type of taxes is that we owe them whether we are profitable or not." Mr. Smith added that the impact of the tax hikes would be far greater on local companies than the Island's international companies, which generally generate large revenues with relatively small staffs.

"There is not enough granularity in the present system which basically taxes companies with payrolls over $1 million, basically 15 people at Bermuda's average wage, all the same, whether they are local companies providing labour-intensive services for marginal profits, or large international businesses recording quarterly profits in the hundreds of millions of dollars.

"The impact is obviously greatest on local business and it's hard to imagine what the thinking is as to how much further the current system can last."

Robin Hamill, chief executive officer of the Igility group, which comprises Transact, e-Moo, System Business Integration, FNC, TBS and BCS Agencies, expressed similar sentiments to his colleague.

"Taxes on payroll/headcount serve as disincentives to hiring people," he said. "Unfortunately it hurts job prospects for the less skilled workers among us more immediately."

Graham Redford, president of the Bermuda Employers Council (BEC), believes any increase in taxes and fees from the Budget equals a rise in the cost of doing business in Bermuda, in turn having a negative impact on all of the BEC's members, including both local and international companies.

"We are concerned that the 0.5 percent increase in payroll tax may have a negative effect on the cost of goods in specific and the cost of living in general," Mr. Redford said.

"Local service companies already find it difficult to compete on the global stage, local retail companies struggle to be price competitive and any increase such as this makes it even harder."

Mr. Redford was also worried that these increases may have a negative effect on employees' salaries in particular.

"As employers typically do not carry slack in their operating budgets that will allow for increases such as these to be absorbed, it is possible that these increases or a portion of them may be passed onto employees in the form of lower than expected pay increases," he said.

And he called for Government to show it is offering good value for money through the new measures it has implemented.

"Employers are less aggrieved about budget increases when it can be demonstrated that the tax dollars raised are being well spent," he said.

"To this end it would be helpful for Government to demonstrate how improved accountability and transparency in handling the public purse is being, and will be, improved."

Sheila Lines, chief executive officer of KeyTech Ltd., the owners of the Bermuda Telephone Company, Logic Communications and M3 Wireless, felt the Budget's tax hikes would impact on employment decisions.

"We appreciate the government has social and infrastructure policies to fund," Ms Lines said, adding that she echoed the comments of Peter Everson, past president of the Chamber of Commerce, who warned at the Chamber's breakfast meeting with Minister Cox yesterday that the tax rises would impact disproportionately on labour-intensive businesses.

"KeyTech is a local telecommunications group and our business is labour-intensive," Ms Lines added. "Salaries and employee benefit expenses run at approximately 35 percent of total operating revenue.

"We employ approximately 390 people in Bermuda and the significant majority of our workforce is Bermudian.

"Any increase in the payroll tax therefore has a significant impact for a group such as KeyTech and will inevitably affect our hiring decisions.

"The payroll tax burden falls purely on the basis of a company's labour costs, rather than on revenue or profits. It tends to place the tax burden more heavily on those companies who are significant employers without being necessarily correlated to the ability of those companies to absorb the payroll tax increases.

"The impact to each business in Bermuda will be different based on whether their business is labour-intensive."