Wage packets will be hit after an increase in payroll tax and motorists will have to fork out more at the pumps after Bob Richards, the Minister of Finance, unveiled his Budget statement in the House of Assembly yesterday.

Residents will also face a new 5 per cent “general services tax” from April 2017, full details of which have yet to be released.

As expected, the duty on cigarettes and alcohol will continue to rise.

While it was not all doom and gloom for the man in the street, it was a Budget which will force them to dig deeper into their pockets as the Bermuda Government attempts to cut into the country’s $2.2 billion debt. Payroll tax is set to go up 1 per cent to 15.5 per cent, with the employee share up 0.5 per cent to 6 per cent.

The Government also signalled that most other tax-rate categories would also go up by 1 per cent as part of this fiscal year’s financial blueprint for 2016-17. Gas prices will shoot up by eight cents a litre from April, while 5.5 per cent extra tax will be added to fuel oil imported by power firm Belco, moves expected to raise an extra $11.7 million a year.

The limit of taxable wages for the payroll tax will remain at $750,000. Payroll concessions for the hospitality, restaurant and retail sectors will be reduced in 2016-17, with businesses in these sectors paying a rate of 8 per cent.

The yield from payroll tax after the revised rate structure and partial rollback for payroll tax concessions is estimated at $390 million in 2016-17.

Based on 2014 figures from the Bermuda Digest of Statistics, the payroll tax increase equates to an extra $218 per year for a supermarket janitor, $258 for a road sweeper and $230 for a truck driver.

Mr Richards said that the entire payroll tax system would be overhauled for the next financial year and structured in a more progressive way to benefit lower income earners.

The sin taxes — applied to tobacco and alcohol — will generate an extra $4 million a year.

As for the introduction of a general services tax, Mr Richards said: “In order to broaden the tax base, the GST will be levied on turnover from the provision of most services by service providers to the public.”

The new tax is expected to raise $50 million a year.

In addition, a sell-off of surplus government property is expected to raise about $3 million.

“Government fees for an array of services provided to the public will be increased by about 4 per cent for most fees and the anticipated increased yield should be $1 million to $2 million,” Mr Richards said.

“Nobody likes tax increases: not the Ministry of Finance, not the rest of the Government, not the business community, not the man in the street.

“Some of the measures outlined in this Budget statement will not be popular. But debt service has become the second-largest ‘ministry’ in Government. It is stealing from the future of our children and their children.

“It is constricting our ability to respond to people’s needs. It is weakening our ability to maintain the infrastructure that supports everyday life.

“It is threatening our solvency and, with that, our financial independence. So we must get to grips with the deficit and debt problem because they stand between us and a secure future.”

However, David Burt, the Shadow Minister of Finance, warned that local businesses will end up closing as a result of the tax increases. Mr Burt said Government’s repeated failure to diversify the Bermuda economy would cost the public.

“We are going to see some businesses that will go out of business because they cannot afford the tax burden,” he said. “We are going to see increased strain on families as all families will now be taking home less money.

“In an environment where the cost of living is increasing, we have also seen the minister increase the price of gasoline in the country. These are things that are adversely affecting the people of this country.”

The finance minister signalled a “restructuring and broadening” of the tax base alongside “modest increases” over the next three years.

“Government is considering reforms to the payroll tax structure to make it more progressive and to yield additional revenue. The current structure takes little or no account of the ability to pay of employers or their employees. It therefore places a heavier, relative tax burden on lower-income employees.”

Mr Richards added that the goods-based tax system was also due an overhaul, with changes to customs duties structures and the inclusion of a services sales tax, which could be implemented as early as the start of the 2017-18 tax year and raise $50 million a year.

He explained: “In order to broaden the tax base, a new services sales tax, the General Services Tax, will be levied on turnover from the provision of most services by service to the public.

“It is proposed that this GST will be levied at a rate of 5 per cent.”

Mr Richards said that the new tax would exclude banking, insurance and healthcare, as well as small service providers.

The Government said it will spend a total of $1.196 billion in the 2016-17 financial year, an $8.9 million or 1 per cent increase on the previous year when debt service is excluded

“This increase includes additional financial assistance and other grants, increased government overheads due primarily to health insurance premiums and the expiry of the partial suspension of Government’s matching contribution to the public service superannuation fund,” Mr Richards said.

“These increases and others were partially offset by reductions in other areas such as professional services.”

Total government revenues for the coming financial year are expected to be $996.9 million, $65.6 million up on the previous year or 7 per cent.

Mr Richards told MPs that the country’s current account balance, after debt service is included, shows a deficit of $112.1 million, a decrease of $39.1 million or 25.9 per cent.

He added that current account spending levels had been reduced by $74 million, or 7.4 per cent, since March 2013.

“This is good news,” Mr Richards said, “but the Ministry of Finance’s medium-term expenditure framework called for a 15 per cent spending reduction over a three-year period.

“While we have had some success in cutting cost, it has become increasingly difficult to implement further reductions under the current government structure and the formulaic approach to expenditure cuts in previous budgets. The ministry remains committed to the MTEF, but moving forward it is clear that the Government must revise its approach to implement further savings, either by way of increased efficiencies or through reforms in the way services are delivered and departments are structured.

“The Government is confident that the short-term sacrifices being made by way of increased expenditures will realise long-term benefits to the country.”

The cost of servicing Bermuda’s gross public debt, which is set to hit more than $2.33 billion by the end of this financial year, is projected to be $187.4 million this year, 10.3 per cent higher than the $169.9 million for 2015-16. That represents $129 million in interest payments and a $58.4 million contribution to the sinking fund.

Mr Richards added that capital expenditure, bricks-and-mortar spending, had been set at $87.3 million for the year “to meet the Government’s infrastructure needs and to support the key pillars of our economy”.

He added: “The three-year plan that we are putting in place shows light at the end of the tunnel in the form of a deficit that will no longer exist.

“Eliminating the deficit will free us to begin paying down public debt that narrows our options and bleeds our resources.”