All Ministries are braced for cuts as Premier Paula Cox prepares a Budget many believe is the toughest Bermuda’s ever faced.Economist Craig Simmons warned an aggressive austerity Budget tomorrow severely cutting back on Government or public spending could create the highest risk of social unrest since the General Strike of 1981.Yet an alternative of a stimulus package of tax cuts and capital spending could send debt soaring as high as $3 billion within five years, according to the Bermuda College expert.A number of tax increases were predicted, including possible raises on “sin taxes” and on large vehicles, although Ms Cox was keeping her cards close to her chest yesterday.Sources said the Premier may think complaints over tax increases on alcohol and cigarettes would be relatively short-lived, while some in the Progressive Labour Party oppose the prominence of SUVs on Bermuda’s roads.PLP sources said the Premier is unlikely to target any single area for harsh cuts, to avoid angering groups ahead of a possible General Election later in the year.Small businesses and charities both stressed they can’t afford their funding to be taken away, while Bermuda Public Service Union believes Civil Service jobs are not gravely under threat, following recent discussions with the Premier.All Cabinet Ministers are said to have been preparing themselves for reductions, with Ms Cox keen to share the burden as she seeks to fulfil her promise to make $150 million savings in her first fiscal year. Reacting to reports the police budget will be cut by $16 million, National Security Minister David Burch said in the Senate yesterday: “We have all been asked to reduce spending.”Parks and Works and Engineering staff have already faced overtime cuts, while Tourism’s advertising budget could be chopped and the Music Festival is likely to be scaled down.Ms Cox could also give more details on her plan for prisoners to pay for their own upkeep.There were further calls for Ms Cox to slash Government’s consultants’ bill, but she faces being lumbered with some granted lengthy contracts by her predecessor Ewart Brown.Sources said Ms Cox in her eighth Budget but first as Premier is acutely aware this time the buck stops with her, unlike in 2010 when she infamously likened herself to a cog in the wheel, unable to refuse requests from fellow Ministers.The Premier’s only comment in response to a series of questions yesterday was: “This is one of the most significant Budgets in Bermuda’s history, but I am confident that Budget 2011/12 will solidify confidence in this administration’s ability to lead this Country out of the grip of these present difficulties.”Mr Simmons told The Royal Gazette: “The first thing to recognise is that there is no silver bullet. Policy makers face a trade-off between cutting the debt and creating jobs.”He said the UK government had cut 490,000 public sector jobs to bring down debt, but that would not encourage more consumer or business spending, or create jobs.He said one alternative would be boosting the economy with a $600 million stimulus package over two years, creating private and public sector jobs and leading to more consumer and business spending.However, that would see debt rise to as much as 60 percent of GDP, or $3 billion, by 2016.If growth reached four percent by 2013 as a result of that method, and remained at that level until the end of the decade, he said debt could still only be reduced back to its present level by 2025.Mr Simmons described last year’s payroll tax increase as ill-timed, but said land tax, vehicular licence, immigration and foreign currency purchase fees are all legitimate candidates for increases now.He said research shows cutting spending can help get a country back on track after recession, but warned Government needs to tread a careful path with the unions.“An aggressive austerity Budget would create heightened tension between the Government and the unions,” he said. “In such an environment, the risk of social unrest would be at its highest level since the General Strike of 1981. For an austerity Budget to stand a chance of being successful, union buy-in is necessary.“The private sector has already begun to respond to the downturn by reducing hours and shedding jobs; commercial and residential rents are falling. Working against these downward pressures are rising food and energy prices over which we have little control.”BPSU president Armell Thomas said he felt comfortable following discussions with the Premier, who has said Civil Service jobs will only go through attrition.“I don’t think anyone feels safe. But I think workers should do what they are supposed to. If they do what they are supposed to, they should be fine,” said Mr Thomas.“I hope the Premier makes the right decisions. If it’s going to be cuts, lets make the right cuts. Let’s have a really good look at consultants.”However, he conceded Ms Cox may be able to do nothing about unnecessary consultants who remain under contract from the previous administration.Erica Smith, director of the Economic Empowerment Zone Agency, said many small businesses had coped with last year’s payroll tax by being innovative and clubbing together with locations and advertising to share fixed costs. But she said they still need support from Government, adding: “They are feeling the brunt of these challenging times.”Charities are also concerned about missing out on vital cash, with Salvation Army saying its $875,000 Government funding supports its programmes and Emergency Housing Complex.Divisional commander Shawn Critch said: “Obviously any reduction in Government funding will carry a negative impact. We have already realised that we need to raise $1 million during our 2011/12 fiscal year in order to maintain funding levels to our programmes.”Major Critch said that already represents a 15 percent raise on last year.*Useful websites: www.plp.bm, www.bpsu.bm, www.salvationarmy.ca/bermuda