Shadow Finance Minister Mr. Eugene Cox said the rise would hit those who could least afford to pay it.

And he warned of possible labour problems.

Government, however, overcame opposition to pass The Miscellaneous Taxes (Rates) Amendment Act 1994.

Under it, hospital levy would go up from five to six percent on April 1, Finance Minister the Hon. David Saul said.

Employers in local and international business would be allowed to pass on the one percent increase to employees.

Dr. Saul said the new legislation also meant local and international companies would be treated equally over payroll taxes.

Over the last five years Government had phased in a levy on international businesses.

The new Act marked the final "one percentage point'' of this process.

The levy now was the equivalent of employment tax paid by local bosses.

Mr. Cox told MPs the Progressive Labour Party did not object to the additional levy -- despite protests when it was first introduced.

But the hospital levy increase was a different matter.

"It is grossly unfair to be passing this one percent to the employee. It is going to cause considerable problems on the labour front,'' he said.

Mr. Tim Smith (UBP) said it was "entirely discretionary'' whether the increase would be borne by employees or not. He "implored'' employers to either split the increase or pass it all on "to the higher-paid employees''.

Referring to Mr. Smith, Opposition Leader Mr. Frederick Wade said he was glad to hear a UBP member talk about "a progressive approach to taxation.'' More Government revenues were needed, and "like it or not, whatever the Government says, there now will be a six percent tax on the income of some people,'' Mr.

Wade said.

The hospital levy was a direct tax on income, he said. What was "reprehensible'' was that it did not apply to everyone. Those who earned dividend and interest income, for example, "avoid those taxes altogether''.

"If you're going to tax people's earnings, then you should be straightforward and tax everybody's earnings,'' he said. "The people who seem to be exempt from these taxes are the ones who can better afford to pay.'' The PLP wanted a system that "was more equitable and fair''. Why should a chambermaid and someone who earned $8,000 a month both pay six percent? Dr.

Saul said: "What we are very gun-shy of in the Government side is, we don't want to get into a situation where we start to tax rents.'' Mr. Wade protested that he never proposed taxing rents.

A review of Bermuda's tax system by a Canadian consultant was underway, Dr.

Saul said. A combined payroll tax was planned for next year.

Coming out of a recession, Dr. Saul said Government had mainly small companies in mind when it decided to allow the option of collecting the entire one percent increase from employees. Government did not want to put small companies out of business or force them to lay off employees, he said.

"We were trying to be fair and be creative at the same time.'' The Act passed on a voice vote, with the Opposition members opposed. Also on Friday, Government passed the Miscellaneous Taxes Amendment Act 1994.

Dr. Saul explained that the Act was intended to put international companies on the same footing with local companies, if they wished.

Because Government did not look at the books of international companies, they were taxed based on "notional remuneration,'' or what Government thought their employees were paid.

The amount was already $50,000 and would go up next year to $51,000, he said.

But there were employees of small international firms who did not earn that much.

"This will allow a small company to elect to be treated for the purposes of their payroll as a local company,'' and be taxed on actual payroll, he said.

It would also allow international companies to deduct for tax purposes salaries paid to Bermudian trainees, just as local companies could. "We hope as a residual benefit, that they'll take on more Bermudian trainees,'' Dr.

Saul said.

Mr. Cox said that move "made good economic sense,'' and said the PLP would only oppose the Act because, like the previous one, it allowed international companies to collect the entire one percent increase in the hospital levy from their employees.

Deputy Opposition Leader Mr. Walter Roberts questioned whether companies would really lay off employees over a one percent increase. If they would, "they are really suffering'', he said.

Mr. Roberts asked why Government would not forgive the amounts owed by companies that fell behind on their payroll taxes during the recession.

Dr. Saul said the Tax Commissioner met with small companies who were having problems. Those who had good reasons for falling behind could work out long-term payment schedules or have payments deferred, he said.

The Act passed on a voice vote, with the Opposition opposed.

Mr. Frederick Wade The Hon. David Saul.