Premier and Finance Minister Paula Cox released her Pre-Budget Report on Monday, which, unsurprisingly, made for depressing reading.The headline figures were:l That the deficit for the 2010-2011 financial year was wider than estimated when she released the Budget in February; andl That Government is likely to spend more money and take in less revenue than expected in the current financial year, thus further widening the projected deficit and requiring that Government borrow more than expected.This is not a great surprise, not only because of the continued weakness in the economy, but because since the recession began, Government has consistently missed its Budget targets for revenue and spending. To be sure, Ms Cox is faced with an unenviable task. There's a pressing need to reduce Government spending, but doing so risks causing further economic contraction, as does raising taxes, and thus could be self-defeating.So what's Ms Cox to do?Although she continues to insist that the ballooning budget deficit is not a major cause of concern by global standards, it is clearly restricting Government's ability to act, and the consistent budget deficits on current account once upon a time there were articles of faith that Bermuda would not run a current account deficit ever and that debt would not exceed ten percent of gross domestic product cannot continue indefinitely.It is obvious that Government must get back to at least a current account surplus whereby the growth in debt stops, even if the debt is not reduced. Ms Cox has said she intends to use the Sinking Fund to reduce the debt, but that will not help in the long term if the Island cannot balance its budget.There is no magic to this. Budget deficits happen when spending exceeds revenue. So a surplus can only be accomplished if revenue is increased and/or spending is reduced.The Budget Report lays out a few options for raising revenue, mainly by closing loopholes and reversing more of the giveaways handed out before and during the 2007 general election. But even if all are taken up, few of them will increase revenues to the extent needed to balance the budget unless spending is reduced substantially as well. In the meantime, there is a promise to reduce spending over a three-year period, but how successful that will be remains to be seen.The move to “harmonise” Customs duty for personal items, regardless of whether they come into Bermuda by plane, mail or courier, is likely to cause more angst. Rather than raising duties on individuals, an overall reduction in Customs duties would help retailers and reduce prices for all, thus increasing economic activity. Only one measure seems to be aimed at expanding the economy, and that's the proposal to reduce the betting tax from 18 percent. This is politically difficult and it is something of an indictment that Government is considering increasing revenues by encouraging people to gamble more.The real answer to Bermuda's budget problems is to get the economy growing again. In that way, tax revenues rise while demand for social services falls as more people get to work or see their incomes rise. This can be done by making Bermuda more welcoming to international companies, encouraging hedge funds and the like to move to the Island and by enacting targeted tax cuts aimed at making Bermuda more competitive.Ms Cox does deserve credit for opening up the budget debate in this way and letting people know what the options are. There are no easy choices and any sacrifices should be shared. A good place to start would be a reduction in MPs and Cabinet Ministers' salaries.