A U-turn on an exemption for MPs and Senators from payroll tax was yesterday announced by Premier Jennifer Smith.

Ms Smith acted after Speaker Stanley Lowe ruled that an Opposition bill to amend the current law to include Parliamentarians was ruled out of order.

But the Premier told MPs: "Government intends, with the assistance of the Attorney General, to bring a bill to do exactly what the Opposition bill suggests.'' Opposition went on the offensive after it was announced in October that a loophole in the original 1995 payroll tax law meant MPs and Senators were not Government employees -- so had been charged the tax illegally for years.

But Shadow Finance Minister Grant Gibbons -- who tabled the United Bermuda Party bill -- accused Government of hypocrisy in tabling another bill to treat Parliamentarians as Government employees so they could be covered by Government health insurance.

Last night, however, Dr. Gibbons welcomed the move by Government to deal with the problem.

He said: "My principal reaction is mission accomplished -- we will be bound by the Speaker's ruling, but the more important issue here is the principle of the thing.

"We feel MPs and Senators should continue to pay payroll tax like everybody else does.'' Ms Smith added that Government's hands had been tied after the UBP bill had been tabled and became the subject of scrutiny by the Speaker.

She said: "We could not do it before -- we therefore from that moment on could not speak.'' But she added: "The intention is one with which we agree and we will certainly, at the earliest possible moment, bring forward this bill.'' Mr. Lowe struck down the Opposition bill because of strict rules in the Constitution and the rules of the House governing non-Government bills dealing with finance matters -- which are generally forbidden.

Dr. Gibbons said, however, that he felt the Government's reason for the delay did not hold water -- pointing out the loophole was discovered in September.

He added: "They clearly had time to put forward a piece of legislation to have legislators regarded as Government employees to participate in health insurance benefits -- they also should have had time to amend the payroll tax legislation.

"I simply don't buy it -- had they announced in the original press release from the Finance Minister Eugene Cox that once they had discovered it they would move ahead with dispatch to fix it, we would not have had to bring our piece of legislation forward.

"It would have required no time at all to do it. They have had plenty of time -- we drew up our amendment in very little time.

"It was only after they were embarrassed by the Opposition and caught with another piece of legislation to include MPs and Senators as Government employees -- they were caught between a rock and a hard place.'' But Dr. Gibbons added: "This is the right thing to do and we're glad that -- even belatedly -- they come to the same conclusion as we did.'' In the House, Dr. Gibbons told Mr. Lowe after he announced his ruling that -- while honouring the Speaker's decision -- that he was still convinced it was a valid bill.

He said: "The Payroll Tax Amendment Act 1999 neither alters nor imposes taxation...For the avoidance of doubt, the bill merely amends the definition of employee to confirm what was Parliament's intention, to include legislators, when it originally passed the Payroll Tax Act 1995.

"The fact that, up until September 1999, all legislators had payroll tax deducted from their salaries indicates that this amendment bill simply clarifies the intent of the original legislation.'' TAXES TAX