The Bermuda Government’s move to hike up payroll tax has been branded “baffling” by the Bermuda Public Services Union, as the tax regime is already tilted against lower income workers.

Bob Richards, the Minister of Finance, conceded the imbalance during his Budget statement, noting that the island’s tax arrangements did not vary in accordance with workers’ ability to pay.

Mr Richards said reforms were being considered, with the aim of having a restructured payroll tax system implemented in the 2017-18 fiscal year.

“The current structure takes little or no account of the ability to pay of employers or their employees,” the minister told MPs, saying that the payroll tax system has changed little in 20 years.

“It therefore puts a heavier relative tax burden on lower income employees.” Jason Hayward, the BPSU president and treasurer, said the union welcomed reforms that would render the tax structure more progressive.

“We support the minister’s view that the current structure takes little or no account of an employee’s ability to pay placing a heavier tax burden on lower income employees,” he added.

“As a result, it is baffling how the minister can acknowledge that the current tax structure places a heavier tax burden on lower-income employees and then turn around and increase payroll tax on those very same individuals.

“There’s no doubt that the wages and salaries of workers are continuously eroded by increases in taxes and the prices of goods and services.”

At present, payroll taxes are paid by employers at rates of up to 14.5 per cent of the remuneration paid to staff. Up to 5.5 per cent of that tax can be recovered by the employer from workers.

The rise will mean that the average payroll tax revenue per employed person will be $10,651, up from $10,121 last year.

The corresponding figure for 2005 was $6,350, and it has risen steadily since, except for a brief jump to $11,312 in 2011, reflecting a 2 per cent rise from Paula Cox, then the finance minister, which was reversed after one year.

Yesterday, Mr Richards cited the immediate requirement for the Government to reduce the island’s deficit, telling Parliament that the standard rate would rise by 1 per cent to 15.5 per cent, with a similar 1 per cent increase for “most other tax rate categories”.

The rate of tax recoverable from employees will consequently be set at 6 per cent.

In addition, the Budget came with a continued removal of payroll tax concessions — begun in last year’s Budget, and said by Mr Richards to continue for the next two years.

The news would have been unwelcome to hotels, restaurants and retailers who were bailed out during the tough years of the recession.

However, Mr Hayward said that taking back the payroll tax breaks should target companies according to their ability to pay instead of using “an across the board approach”.

The BPSU, he said, “would have also liked to have seen retailers, hotels and restaurants that have the ability to pay the full payroll tax rates returned to paying the same levels as everyone else”.

The union will “continually” call for a fair tax system, he added.

“It seems like rich Bermudians, who inherit wealth or receive a large amount of the income from investments continually get a pass.

“Generally, the Government’s fiscal position is heading in the right direction. However, the average person may feel it is at their expense.”