No payroll tax increase would be necessary if the Finance Ministry had stuck to its budget over the past three years, Chamber of Commerce Economics chairman Peter Everson said yesterday. Mr. Everson said Cabinet Ministers should set an example by taking a pay cut themselves, like their counterparts in the Cayman Islands announced this week.

From 2007 to 2010, Government spent about $80 million more than Finance Minister Paula Cox announced it would in her Budget statements, according to Mr. Everson's calculations — although the Deputy Premier argues there were unexpected increases in Police salaries among other factors.

Last Friday, Ms Cox announced a payroll tax rise from 14 to 16 percent, provoking criticism from the public, businesses and union officials. Mr. Everson said the payroll tax increase this year amounts to $77 million, just short of the amount overspent in the past three years. He said Budget statements show:

*in 2007/08, Government spent nearly $24 million more than it budgeted for;

* in 2008/09, it overspent by more than $35 million;

* in 2009/10, it overspent by more than $21 million.

During the same period, Government collected $56 million less than it thought it would:

* in 2007/08, it collected $11 million more than it expected;

* in 2008/09, it collected $32 million less than it expected;

* in 2009/10, it collected $35 million less than it expected.

Mr. Everson acknowledged Government's estimations could have been missed due to extenuating circumstances, such as the recession pushing up claims for financial assistance.

But he added: "The job of the Ministry of Finance does not stop at just producing the annual Budget, but it must also proactively manage the public finances throughout the year and enforce spending changes in response to the changing circumstances. This used to be the case during the 1980s and early 1990s but has been sadly lacking these last 15 years.

"To the extent that the expenditure increases were necessary and the Budget still showed a shortfall on Current Account then that would have been the time for the Cabinet to step up to the wicket and accept a pay reduction.

"This could have been temporary but at least it would have set the right tone and convinced people that the leaders of the Country appreciated the situation — whereas right now they seem aloof and detached from the real difficulties facing businesses and the people."

Responding yesterday, Ms Cox said: "In Bermuda's case there was a need to develop much needed capital infrastructure during the period of strong economic growth. If one looks at the Budget from 2000 to 2007 in each year we borrowed less than projected in the original budget; this was because the excess revenue collected was used to fund capital and offset supplementary current account expenses. "Also you will recall that Government made special contributions to the Public Service Superannuation Fund of $88 million to address the problems with the Fund. So basically one has to consider the circumstances of the country. The majority of overspends on current account are usually related to items that arise from circumstances outside the Ministry of Finance control."

She said that, for example, in 2008/09 the overspends primarily related to:

*unanticipated increases in police salaries from arbitrated awards;

* increased expenditure on Government's health subsidy programme for the youth, aged and indigent;

* increased employee overhead relating to legislated contributions to the PSSF.

She added: "The reality is that Budgets are dynamic funding plans that are subject to change and variation. The Ministry of Finance does not just produce the Budget but we monitor public finances throughout the year. "While hindsight seems to give the appearance of 20-20 vision it is illusory because the particular dynamics surrounding the past decisions cannot be ignored."

Before Ms Cox announced the Budget, Mr. Everson had told this newspaper how other countries had saved cash; with the Prime Minister of Ireland taking a 20 percent pay cut and Ireland's Ministers a 15 percent cut to set an example.

Cayman Premier McKeeva Bush Monday announced he would be taking a 25 percent salary cut, while Cayman Islands legislators would take a 20 percent cut, effective this month. Ms Cox pointed to Parliamentarians' recent decision to defer salary increases for the second successive year.

* See the Business section for a warning that the payroll tax increase could drive businesses to the wall.